If you or someone you know is facing overbearing financial obligations and have considered declaring bankruptcy, it is important to understand the processes and consequences of bankruptcy and any feasible alternatives in order to make the most informed decision.

Declaring bankruptcy, or legally stating one’s inability to pay off debt, can provide a homeowner with relief from creditors and—if faced with foreclosure—protection from a lender’s deficiency judgment. However, it can also leave the individual with lasting financial and emotional wounds. While declaring bankruptcy may temporarily halt foreclosure proceedings and allow for the reorganization of debt, in most instances the homeowner will be forced to vacate the property and foreclosure will be imminent.

Bankruptcy can remain on one’s public record for seven to 10 years. This lowers one’s credit score significantly, showing lenders and future employers a history of financial challenges and low creditworthiness. Declaring bankruptcy is ranked among the top life-altering negative events one can endure and it can negatively affect one’s emotional and psychological state, making recovery a challenge.

Perhaps the most damaging misconception about bankruptcy is that it is a “get out of debt free” card. It cannot erase the financial obligations of taxes, student loans, child support or alimony. In addition, bankruptcy is not a solution for everyone. Each situation is unique, laws vary by state.

Filing for bankruptcy is a legal process and you should consult with a specialized bankruptcy attorney. It is important to be aware of any potentially less-damaging alternatives. In many cases, mortgage payments represent the largest portion of an individual’s debt. It’s helpful to consider looking at one’s debt with the mortgage payment eliminated or replaced by a lower rental payment. Homeowners facing financial hardship, showing a monthly shortfall and heading toward insolvency may qualify for a short sale, in which a home is sold for less than the mortgage amount owed. A short sale is a dignified alternative to foreclosure, with less harmful effects on a homeowner’s credit score, future home loan eligibility, employment and security clearance. Short sales have become a strong and beneficial solution for homeowners, and lenders and the government are fully supporting them.

If you are considering bankruptcy because of overwhelming mortgage payments, you may not see any light at the end of the tunnel. Bankruptcy may not be right for you.

There are various “chapters” of bankruptcy and options for which an individual can file (for a greater understanding of these options, contact an attorney specializing in bankruptcy):

• Chapter 7 involves the liquidation of one’s assets.
• Chapter 11 is solely used for business.
• Chapter 13 allows the debtor to pay debt over a time of three to five years. This type can prevent foreclosure if the homeowner can make all mortgage payments during the years of the payment plan.