Bankruptcy: Won't Help Foreclosure

Can filing for bankruptcy help homeowners facing foreclosure? Apparently, not much.

For most people, trying to negotiate changes in their loan with help from a housing counselor or lawyer is a much better option. While bankruptcy judges can reduce or eliminate certain kinds of debt, they aren't allowed to alter the total amount owed or interest rate of primary mortgages. A 1993 Supreme Court decision bars judges from altering first mortgages on primary homes, though such changes are allowed on loans for vacation homes, motorcycles, boats and other kinds of property.

Consumer advocates say this is unfair, while mortgage lenders say it benefits the vast majority of borrowers who don't fall into bankruptcy.

Filing for bankruptcy might help if your financial problems stem from a mix of sources, like overwhelming credit card debt, medical bills and skyrocketing mortgage payments. If reducing or eliminating most of your other debts puts you in a position where you can pay your mortgage, then bankruptcy might be be of help.

However, keep in mind, you could spend years trying to get your credit back in shape because a bankruptcy filing is a serious blemish on your credit record. And that can translate into big problems next time you need to borrow money.

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