While bankruptcy doesn't carry the same stigma that it used to, the idea of filing for Chapter 7 or 13 protection from creditors fills many with fear and even shame. It needn't. In fact, in may be the best way to keep your home if you own one and inflict the least amount of damage to your credit score. The key is to act quickly when you get that pink slip or those divorce papers. Months of waiting, avoiding the mailbox and screening your calls will only make things far worse -- a clean break may be the best route. For example:
Working as a loan officer, I had a recently-divorced client come in who had always had good credit. When she realized that a creditor of her ex-husband's was coming after her for a six-figure debt, she promptly got a lawyer and filed for bankruptcy relief. She reinstated all of her own debts and continued to pay them as agreed. The bankruptcy discharged the ex-husband's obligation and she was approved for a mortgage within months. What my client did that was so smart was that she didn't wait until she had missed a bunch of payments on this debt -- she halted it right away and her credit score remained in the 700s.
Denial results in all kinds of evils -- foreclosures when you don't want to talk to your loan servicer, late or missing payments, and credit scores that can even make it harder to get a new job after losing the old one. By facing the problem and asking for help -- from your creditors, a credit counseling service, or an attorney -- you can solve the problem quickly and limit the damage.
