A lot of people have recently brought up the mention of dealing with major debt like foreclosure and bankruptcy and how it affects their finances and loan chances. To be honest, I have held back on talking about this because I am not a bankruptcy lawyer and there are so many situations to consider. There are also different types of bankruptcy and they each impact your credit, future, and current debts differently. There are so many scenarios where they’re appropriate and so many life situations that need to be considered with a qualified attorney to go over your options. I can tell you the amount of debt is not indicative of necessity. One thing people need to realize too is the impact of foreclosure vs bankruptcy, and the difference between letting your credit take a hit instead of the next several years’ impact of bankruptcy; because it can prevent you from having a future for the next decade, including trying to rent and get a job in some cases. Bankruptcy is intense and a major last resort decision only you and a qualified expert team should be making.

Bankruptcy is not to avoid paying debts!!! It’s not to just avoid someone coming after you. It’s a massive deal and it can have drastic consequences that will impact your future financial situation as well. Always consult with a professional beforehand and go over your finances with them as well as your creditors individually before coming to that final call. Bankruptcy doesn’t help you escape debt and it’s not without risks so make sure you find a good one with great reviews and who listens to you. You’re usually going to have to pay out something to those creditors and attorneys too. It’s not an easy thing and scapegoat for debt.

Clients who come to me about bankruptcy are typically asking because they either want to buy a house but are afraid they never will with the mountain of debts and/or the current risk of foreclosure they already have, or are going to be experiencing. Sometimes they’re trying to get out of a house they can no longer afford and are worried they’ll lose it, or will, and don’t know the impacts filing bankruptcy will have in getting out of that house and into a place they can afford. Other times, they’re in the process already, or just finished, and want to buy again. There are massive credit impacts and rules in the following years after a bankruptcy filing. Most people don’t understand the impact, unfortunately.

Before you go that far, work your butt off to get those debts lowered as much as possible. Call your creditor to negotiate down fees, interest rate, balance due, back payment, etc. Whether you need to give them your sob story or literally sob 😭 on the phone, do what you have to do to cut your debts and payments down as far as possible. Next, be honest. Can you afford to keep the cars and house? Whether it’s a need is irrelevant if you can’t afford to keep it. Figure it out. Tens of millions of people move closer to work or find ways to get transportation. Make it happen. Don’t be ashamed or “too proud” to take the bus, get a “lesser” car, etc. Do what you MUST to survive and eliminate payments you can’t make anymore.

If you’re worried your creditors or bankruptcy will make you give up your home, do your best to sell first, especially if you have equity. That equity is CASH that can pay debts and keep creditors away. Maybe it will help you keep a car or two, pay down other things, etc. You should always focus first on paying down, or off, each individual debt on its own. Cars and houses can be sold, refinanced, paid down faster, etc. compared to many debts. Student loans are very hard for most people to pay down much earlier but depending on credit card debts and personal loans, those can sometimes be renegotiated and then paid down or reduced. If you are really strapped, I would focus on paying your essentials first. Can you at least afford your car and house? If not, you need to make a decision. If you own your home, maybe you need to sell, refinance, get a roommate, rent it out and move into a cheaper place, or out of state. If you can have the mortgage assumed then great, etc. but you need to make painful decisions before you lose everything and it affects your future. A home with equity can be sold to eliminate that loan but also pay the car down or off at least; and that eliminates two debts. It can be used to pay off or pay down credit cards or other loans that are of biggest impact to your debt problems. If you’re renting, you need to choose your most important bills to keep. Is it rent or the car? Can you downsize to save temporarily while paying off some debts? Make difficult decisions and accept the reality before it bites you harder. Too many people struggle with making hard choices so they make none or the wrong ones. You can’t afford to do what you want to do. That ship has sailed so do what you NEED and SHOULD do and get it done. You’ll get back on your feet but right now, eliminate debts one by one, or at least dramatically reduce them any way you can. It’s better to let some things go to collections than lose everything. Bankruptcy is not usually the answer and shouldn’t be your first choice but for some, it is the answer. Again, consult an attorney but a good attorney will usually also recommend you try to avoid bankruptcy proceedings if at all possible. Do your research!!

In regards to applying for a loan or how these debts might affect you, they will almost always limit your loan options and amounts. Get your debts somehow paid off, preferrably, versus just losing everything. If you can’t sell a car for the total loan balance or you can’t sell it all, losing it to repossession is probably better than filing bankruptcy and you usually have months before they actually come and get the car so you can maybe buy some time and come up with the money–especially if you’re selling a home and will earn some money from the sale to pay it. Unless your credit cards are astronomical, same thing applies. If you’re in debt though tens of thousands of dollars on multiple loans with various creditors, then maybe bankruptcy is best. I don’t know how people let the debt creep up like that but they do it constantly and ruin their whole life! If you’re in massive debt beyond words, yeah, you need an attorney. If you’re not there yet, do not use debt to get out of debt!!! So many people do this and it makes no sense. It’s literal insanity. STOP!! You’re going to make everything so much worse. Swallow your pride (you shouldn’t have any at this point, honestly) and do what’s best for your family. There are services to help you when you can’t pay your mortgage, can’t provide for food, etc. Being “prideful” is not something to be proud of and what pride do you have? Not paying the bills? There’s NOTHING wrong with asking for help and keeping food on the table if you need services for a little while. Kids don’t care as long as they’re fed and basic needs met. You should feel the same. Get financial services like WIC or EBT and feed your kids!! You’re paying into it in case you ever hit hard times. It will help you as you salvage your situation and no one goes hungry. There’s no pride in bankruptcy and losing everything. NONE.

This country has a massive problem with understanding simple finances and debts. The government didn’t make your decisions, you did. Hourly jobs aren’t enough and haven’t been really ever. I’ve always had to have two full-time jobs and a side job. ALWAYS. And even during those times, I had roommates in a one-bedroom apartment. I made things work to pay off debts and I have lost things to financial ruin during that time. It’s tough but you get through it and come back better than ever if you’re smart. Don’t be prideful, be strategic and you will WIN in the end.