Foreclosure vs. Bankruptcy - Which Is Best For You?
Many individuals still believe that filing for personal bankruptcy protection is like wearing a scarlet letter. However, Jake Miller, principle of Jake Miller Law is determined to clarify the advantages and disadvantages of filing for bankruptcy versus foreclosing on your home.
One of the main advantages in you will stop receiving collections calls. "As soon as a debtor files for bankruptcy, there is an automatic stay and most creditors must stop their collection efforts. Thus, the debtor can begin rebuilding his or her credit. Financially-speaking, the debtor can start over," states Miller.
In addition, certain categories of property, mainly homestead or primary residences, may not be taken by creditors after a debtor files for bankruptcy. "This protection may also include motor vehicles up to a certain value, some clothing and household furnishings, life insurance and portions of earned wages."
Obligations to repay debts are erased through the discharge of the debts during the bankruptcy process. Therefore, the debtor is no longer legally liable for the debts, which will help a debtor’s ability to maintain a reasonable level of credit payment history over the course of the next ten years.
"On the contrary, there are some disadvantages to filing bankruptcy. Most importantly, it will affect your credit for at least 7-10 years," Miller tells us. Other disadvantages include losing credit cards and non-essential possessions, the inability to obtain a mortgage and embarrassment, which Miller explains is always top of mind when people inquire about his services.
As a general rule, Miller advices anyone who has acquired more than $5,000 of credit card debt, and whose home value is upside down to file for bankruptcy instead of foreclosing on their home. The Chapter 7 filing process takes approximately 90 days to complete.
"Individuals with debt under $5,000 are better off directly negotiating with creditors for settlement."
Miller also explains, that bankruptcy doesn’t erase past due child support or alimony payments, and other debts resulting from divorce settlement agreements, student loans, income taxes that are less than three years past due or debts incurred by fraudulent means, such as writing a bad check or providing false information on a credit application. In a foreclosure case in Florida, the bank has up to five years to come after the borrower for the deficient amounts.
"One common problem after emerging from bankruptcy is that credit reports frequently show accounts as open and overdue, when in fact they were closed and the obligations wiped out as part of the bankruptcy," states Miller. They need to contact - themselves or with a credit repair company - the credit bureaus and insist that those accounts be properly reported as "included in bankruptcy."
Miller also recommends obtaining a secured credit card, which generally gives a credit limit that’s equal to an amount they deposit at the issuing bank, typically $200 to $500. "They should not be charging more than 30 percent of the credit limit, and users need to pay the balance off in full each month," he states. "Light, regular use of a credit card is what helps build up credit."
To learn more about the services offered by Jake Miller Law, please visit Jakemillerlaw.com. Jake Miller will be conducting a seminar discussing various foreclosure defense strategies and bankruptcy techniques at the GLCC Pride Center on January 18 and 25.