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Bankruptcy
Millions of Americans needlessly file bankruptcy each year because they are worried that the credit card company will seize their home if they don't pay their bills. The truth is that credit cards are almost always unsecured credit. If your home is not guaranteeing that credit card payment, the credit card issuer can't force you to sell your home to pay the debt.
If you're in financial trouble, the first thing you should do is call your lender and talk to their loss mitigation department about your problems. Your lender wants to keep you in your home and might help you set up a payment plan.
If you owe more than you earn, pay your most important bills first, no matter what a bill collector tells you on the phone. For most people, the most important bill is the mortgage, because that's the payment that keeps a roof over your head. Pay water, gas and electricity bills next and your car payment, if you must have a car to get to work.
Call your credit card companies yourself and work out a repayment plan with each one.
If you have no other options, you can file for bankruptcy. There are two kinds of bankruptcy. In both of them, the bankruptcy court takes your pay and whatever you have that can be sold and decides how to best use those assets to pay your debts. You'll fill out a form listing what you own, what you owe and what you've given away in recent months or years. A bankruptcy will not stop a lender from foreclosing on your home if you don't make your payments.
In a chapter 13 bankruptcy, you ask your creditors to let you repay your debts over three to five years. To file, you have to prove that you have the income to repay your debts and your current bills. You may not be able to file if your mortgage and car loans are more than $750,000 or your credit card debt is higher than $250,000.
In a chapter 7 bankruptcy, your debts are canceled, but the court sells your assets to pay off your debts. State laws will decide whether your house would have to be sold to pay your debts in a bankruptcy.
There are some debts you can't get rid of even if you file bankruptcy, such as taxes owed, child support, credit card fraud and alimony.
A bankruptcy will stay on your credit report for 10 years (although it can appear forever if you're buying a big life or credit insurance policy or applying for a high-paying job).
Two years after you finish making your bankruptcy payments, and three years after a foreclosure or a deed-in-lieu of foreclosure, you may be able to qualify for a home loan guaranteed by the Federal Housing Administration (FHA).
To get your credit going after a bankruptcy, open a secured credit card account at your bank, use no more than one-third of the credit you're given and pay the bill on time every month.
When you file for bankruptcy, try to keep at least one credit card account open. If you can't do that, go to your bank and open a secured credit card account. With a secured account, you put a set amount, say $250, into a bank account and the bank gives you a credit card with a limit equal to your deposit, in this case, $250. If possible, set up a few secured accounts so you start rebuilding your credit even during your bankruptcy. Use the cards to charge only small items and pay the bill on time.
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