Bankruptcy Will Greatly Increase Your Debt, Not Get Rid of It!

Bankruptcy is a way a person can make legal arrangements with their creditors to pay all of their past due amounts off to make their accounts current. Unfortunately, if you go through all of the math involved, you will be putting yourself in much more debt than you started with and not necessarily fix the problem you started with.

To better understand the process of what goes on and how much more it will cost, here's an example of how it works:

Let's say your mortgage payment is $1,000.00 per month. You have $1,500.00 cash in your pocket.

1. You are three months behind on your mortgage payment (Jan, Feb, and Mar). That is $3,000.00 behind.

2. You hire an attorney to file a Chapter 13 bankruptcy. An average attorney will cost anywhere from $1,500.00 to $5,000.00. You only had to pay $2,500.00 for this attorney to help you. The lawyer says you can pay $500.00 a month for five years to pay off the bankruptcy.

So far this will cost you $5,500.00. Just so you aren't totally out of money, you are able to pay the attorney $1,000.00 up front, rolling the remaining $1,500.00 into your final owed, leaving you at $4,500.00 owed.

3. It takes 30 days for it to make it to court, and another 30 days to process once judgment is passed. Meanwhile, you missed two more payments on your mortgage during this time. That's $2,000.00 more behind.

4. The trustee in charge of the filing charges 10% of what the lawyer says you can pay per month for five years. That's and additional $3,000.00 added onto your debt.

So far you are up to $9,500.00 in debt, just by filing a Chapter 13.

After the dust settles and you are well on your way to paying on the judgment ($500.00 per month for five years), you are still obligated to make full mortgage payments to maintain your mortgage. If you fail to make these payments, a lender can file a Stay of Relief and take your mortgage out from under the umbrella.

Another thing the lender will fail to tell you is that you are still in arrears when you are making payments on your mortgage. That means you are incurring late fees every month. Even if you make all of your judgment payments and regular mortgage payments on time for the entire five years, you will still be severely in debt once the judgment is satisfied. Then the lender has a legal right to foreclose on you.

In a sense, all you have done with the bankruptcy is delay the foreclosure and set yourself further behind.

If you learn the different types of bankruptcy, you will see that a Chapter 7 isn't much better than a Chapter 13 and that neither of them will help you very much toward your financial future - they will just delay the process of foreclosure.