For many homeowners attempting to save their properties from foreclosure, bankruptcy ranks as just about the last resort before giving up on the house completely. However, before filing for bankruptcy or abandoning the house, borrowers may wish to consider at least a few other options to deal with a large debt load.



While many homeowners will try to refinance as soon as they fall behind on their mortgage by a couple of months, the current housing market throughout much of the country has decimated home values, making it almost impossible to qualify for a new loan. Unless borrowers have a significant amount of equity, refinancing is usually not a realistic way out of foreclosure.





Selling the home, which is another tactic many homeowners attempt to avoid foreclosure, is also much more difficult now than it was just a few years ago. Again, this is due to the declines in property values, as well as the overall tightening of lending guidelines for residential mortgages. Until this market stabilizes, banks will be wary of lending on properties that may quickly depreciate.



This leaves most borrowers with what they see as few options to escape a financial hardship with much of their credit scores or finances intact. There are a number of lesser known ways to stop a foreclosure, though, without having to rely on filing bankruptcy just to get a second chance or some extra time to move out of the house.



Many times, the mortgage is the largest bill that homeowners have to take care of on a monthly basis. So when a financial hardship comes up, most of the other debts fall behind until the owners can no longer pay to keep their home. But what can borrowers do to address the mortgage if they are able to recover before losing the home completely?



Loan modification is an option to avoid foreclosure and bankruptcy that is growing in popularity, despite several high-profile programs the government have put together that have utterly failed. But a modification, if done correctly, can lower monthly payments, put the arrears on the end of the loan, or completely renegotiate the terms of a mortgage.



For homeowners who have just experienced a temporary financial hardship, mortgage modification can be an excellent solution to keep out of bankruptcy and save the home from foreclosure. The amount of money they save on their monthly loan payment can be applied to paying down other debt and recovering from the financial setback.



However, loan modifications do not address the other debt that homeowners may have racked up during a hardship. Collection calls from credit card companies may increase dramatically, as well as threats of lawsuits, repossessions, or liens being placed on the home. This unsecured debt must also be taken care of somehow.



Instead of filing a Chapter 7 or 13 to eliminate or reorganize these debts, borrowers can often negotiate directly with credit card companies or collection agencies to stop bankruptcy and stay out of court. Debt consolidation and settlement companies offer such services, but there are also online resources available that teach homeowners how to negotiate down their unsecured debts.



Finally, if worse comes to worst, and the homeowners are sued for foreclosure or by an unsecured debt holder, there is always the possibility of defending the suit in court. Most banks are easily able to walk all over borrowers in court because so few foreclosure victims defend their homes against a lawsuit. Just attempting to defend the home will often convince a bank to negotiate instead of pursue legal action.



With credit card companies or collection agencies, it may be even easier to defend a lawsuit. Most collection agencies do not follow all of the lending and debt collection laws, and their attempts to sue borrowers can easily be thrown out. If nothing else, the more it will cost them to pursue such a case due to borrowers defending themselves in court, the more likely it is a settlement can be negotiated.



These three options can stop bankruptcy, help homeowners deal with foreclosure, and assist them in financial recovery after a hardship. While they all require substantially more work than just filing Chapter 7 or 13, they also have more short and long term benefits to borrowers than taking the case into the federal bankruptcy courts.