Divorce, Foreclosure, and Bankruptcy

Making the best of a bad situation.

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Dear Alpha Consumer,

My husband and I were planning on filing for Chapter 13 bankruptcy because our house is going into foreclosure. Now, he has left and says that he is going to file for a divorce. I have custody of two grandchildren and am a full-time student. I have a job interview tomorrow, but I don't know what to do about saving myhome. What are my options since we are now separated? Should I still file the Chapter 13 with him or file something separate? Please help—I am running out of time.

That is definitely a pickle you have found yourself in. And while it's not exactly cheerful Fourth of July holiday fare, I have been receiving an increasing number of E-mails from people hitting rock bottom (financially speaking), so let's talk about your options.

When I ran your situation by Jennifer Matthews, president of Creating Financial Literacy and author of 12 Ways to Put Money in Your Pocket Without A Part-Time Job, her first suggestion was that you should get legal advice from three kinds of attorneys—divorce, estate planning, and real estate—before taking any steps toward bankruptcy. Many lawyers, she says, offer free consultations. Matthews also suggests looking into groups that specialize in helping people save their homes, such as the Hope Now Alliance.

You may also want to consider taking any money or income that you have and putting it in an individual account to make sure you can meet your daily needs during potential divorce proceedings. Matthews adds that you may qualify for public assistance, including tuition for yourself or health insurance for your grandchildren. And of course, don't forget about food stamps and welfare, if you qualify. Meanwhile, Matthews recommends counseling to help you and your grandchildren deal with the stress of this situation.

Chapter 13 bankruptcy could temporarily ruin your credit score, warns Drew Tignanelli, president of Financial Consulate, a Baltimore advisory firm, and Tim Maurer, director of financial planning for the firm. Poor credit can make it more difficult to rent, get auto insurance, obtain new credit for emergencies, and even get a new job, Tignanelli and Maurer wrote in an E-mail response to my questions. On the other hand, they add, the benefit of Chapter 13 is that you can become virtually debt free.

Before filing for bankruptcy, though, Tignanelli and Maurer recommend speaking with your lenders to see if there is anything they can do. Mortgage lenders are currently more flexible dealing with delinquent homeowners, they say, because the lenders don't want to lose money to foreclosures, either.

If any Alpha Consumer readers have recovered from similar situations, please share your advice.