How to Survive Bankruptcy and Foreclosure

by Neal Frankle, CFP ®

Is it possible to survive bankruptcy and foreclosure ?

Seems like a tough hill to climb. Here’s how one couple did it and came out on the other side stronger. The following is a guest post by Jessica Bosarii. She writes for, a site devoted to providing helpful money-saving tips beyond the obvious. You can read about home finance and mortgage at the site.

I marvel at how my husband and I have managed to make our marriage work over the past 10 years. Our Pilgrim’s Process has been a journey from the pressures of excess to the pleasures of having less. Our shared pain, brought about from the recession, has turned two people who were constantly at odds into one couple who shared a deeper love and respect for each other.

At the start of our journey, my husband and I bought a house on the water’s edge in Plymouth, MA, overlooking Cape Cod Bay. I reluctantly agreed to the purchase. He presented this move as something he needed to do. Being newly married, I did not have the confidence to hold my ground on our very affordable mortgage. I acquiesced only after much fretting and fighting.

And at first things were fine. I expected to have some difficulty. We had to live in a poorly insulated house for about a year that felt like living in a Maine log cabin. The remodeling process was difficult and frustrating, especially with a toddler to raise. And having to live in three different temporary locations over six months while the work was being done, we fought. Boy did we fight. When the remodel was complete, it seemed that everything might be okay. But I forgot how opposite we are.

My husband likes to always be striving for bigger and better challenges. I like to just chill and try to be as happy and satisfied as I can, regardless of circumstances. I don’t care about how big our house is or how much money we have. I just want to live simply and make enough to get by. He gets excited by challenges that can result in big payoffs. Of course, you need to take big risks to get big rewards, and those risks can also lead to huge debts.

After settling into the house, it became clear that we had bitten off more than we could chew. Rather than making the house just big enough for our son and us, we made it into a four-bedroom. The cost of maintaining such a large home was huge. Year after year I approached my husband about our budget not working…we were getting further behind every year. He believed I was just being anxious and everything was fine. Showing him the numbers was no help. Offering to split our finances was no help. Nothing worked.

So when we found a remodeling project on the same street where we lived, we both agreed to it right away. I thought that the profit would allow us to pay down our mortgage to a more manageable level, letting us have a manageable budget. I thought he wanted it for the same reason too, but it turned out that he just wanted the challenge. He had dollar signs in his eyes. Despite this, things started out well. We agreed to make minimal improvements to the house to make it salable, turn it around quickly and use the profit to pay down our mortgage.

But thinks took longer and cost more than we expected. The builder we brought in put stars in my husband’s eyes and the project costs skyrocketed. We fought and fought over costs until I finally just put my head in the sand, thinking that at least we could still sell for a small profit. Then the market crashed.

Unable to sell the project house, we saw that bankruptcy was becoming inevitable. At the time, I thought bankruptcy would be the end for me. I had perfect credit all my life. I worked hard at it and was proud of my achievements. I saw that staying with him was hurting me. His terrible attitude towards money was bringing us down, and I did not want to go down with the ship.

In a serious conversation, he finally agreed that he would stay within the budget I prepared…that our monthly payments would be no more than our budget allowed. From here on out, he would allow me to dictate our spending budgets. That’s the only thing that made me stay. Because our primary residence was upside down at this point and the project house wasn’t selling, the next step was to file for bankruptcy rather than wait for everything to fall down around us.

The actual bankruptcy process wasn’t all that bad, and when we came out the other side, suddenly we had common goals…rebuild our credit, get a home we can afford, keep our family together. Eventually, he even conceded that we could live in a rental for a while if it became necessary. He finally understood that we would lose our home and that keeping our family together was more important than where we lived. We had to start over, and this time we saw things from a similar perspective.

It took a long time for the foreclosure to take place on the project house and finally in the house where we live. Our mutual hand-wringing and common worries allowed us to lean on each other. When I couldn’t take the stress anymore, he was the strong one. When he started to lose his cool, I made sure I was there for him. We offered reassurances to one another, building a common bond and deeper love for one another.

When the project house finally sold at auction, the buyer had second thoughts. A friend was able to step in and buy the house and now rents it back to us. Our own home, alas, would not be saved, barring a sudden act of common sense by the mortgage holder…and there has been none of that, so none is expected.

So right now, we’re holding our breath, waiting until we have to leave the home we built together. We’ve set up an agreed exit date for our home with the bank and we’re working to get the other house ready. Instead of arguing over getting everything perfect, we are united in the blessing of being able to stay in the same neighborhood and get a brand-new house with a lower mortgage payment out of the deal.

Our new, tempered perspective comes from a trial by fire. We count our blessings instead of our unfulfilled desires. We have our kids and a home to live with them in. We have the same neighbors we love like family. And we have a deeper love and respect for each other.

We hardly fight at all anymore, and I can’t remember the last time I felt the desire to smash him in the head with a frying pan. The trick from now on will be to remember what was, what could be and to keep respecting each other’s wishes, even when they conflict. This tells me that the recession was the best thing that ever happened to our marriage. The worst that could happen has turned out to be the greatest blessing of our lives.

Thanks for the inspiring story, Jessica. Have you faced these kinds of difficulties? How did you and your spouse deal with it?

On to the Pilgrim Parade of Posts for the week:

Carnival of Personal Finance – My Journey to Millions

Festival of Frugality – Funny about Money

The Financial Blogger – How to build a dividend portfolio with only $5,000

0% Credit Cards Carnival

Dating in College When You’re Broke – Green Panda

401k when you change jobs – Joe Taxpayer

Google vs. Facebook – Intelligent Speculator

Consumer Boomer – Why you should buy a short term disability insurance policy

Cash Money Life – Should You Pay Points on a Mortgage?

Financial Samurai – Feeling like a burden is a terrible thing

How to Use Fear to Manipulate People – Invest It Wisely

Miss Thrifty – A week in the life of Austerity of Britain

Dr Dean has a unique take on bonds.

Amanda talks about financial limits and how they breed creativity.

Can stress make you successful? Barb thinks so…

Cheap make-up on a zero dollar budget – The Saved Quarter

Charles asks how to budget for his wedding.

Tips for handling a power outage – Everyday Tips

10 things I want (but I want an emergency fund more) – The Saved Quarter

Darwin’s Money – How I Saved 63% on a Stainless Steel Fridge

Credit Card Reduction Handbook – Debt Free Adventure

How is a sole proprietor taxed? – Oblivious Investor

How to get started with savings accounts – Moolanomy

Should you pay points on a mortgage? – Ryan, Cash Money Life

How to create a CD ladder – Frugal Dad

Money Ning – 5 things your kids don’t really need



Subscribe & Get Your Free E-Book and E-Course as My Gift to You!

Investing Your Money Made SimpleOnce a week you'll get unique tips to make smarter money decisions about your investments, retirement, taxes, and career. You'll also get encouragement and ideas to help you get out of debt, earn more money, and generally stop worrying about your money.

Neal Frankle is a Certified Financial Planner™ with over 25 years experience. Subscribe today and tap into this wonderful, free resource!

Become a Fan! Follow @NealFrankle

{ 14 comments… read them below or add one }

Leigh July 17, 2010 at 5:35 AM

I have much compassion for this couple and feel bad that they had to learn so many lessons the hard way.

On a more general note, I find it interesting how one partner in a relationship can, through starry-eyed optimism, end up putting his or her family in such serious jeopardy. And how the other partner can give in to what he or she knows is bad money management for the sake of keeping peace in the house.

All the more I am reminded of how important it is to find a partner with your same financial perspective.


Jessica Bosari July 17, 2010 at 6:38 AM

While I think it is a big help if you both are on the same page financially, if you love each other enough you will get through it…and you learn your lessons about giving in to make peace, I’ll tell you that!

If you don’t start out on the same page, you have to get there and unfortunately this is what it took to get us there. I’m okay with it. Ultimately, my happy marriage is more important than any material concern.


Moneyedup July 16, 2010 at 7:59 PM

It certainly is possible to get through it, but it’s not easy. There are many restrictions placed on you after bankruptcy. You will find it difficult to get credit and find a new job. I have an acquaintance who filed for bankruptcy for his family run small company and had to leave the country to look for work. He ended up finding work in a new country and doesn’t wish to return now.


Julie K. July 12, 2010 at 1:57 AM

Many people are afraid to even talk about the poverty. However bankruptcy becomes more realistic for past two years. To keep the previous living standard could be hard but there are still few possibilities how to save your family life and pay the mortgage.


benjamin bankruptcy July 11, 2010 at 7:52 PM

We process around 1200 bankruptcies a year. We spend 10-13 weeks with all off our clients so we’re pretty close by the end of it. Bankruptcy isn’t the end of the world. It isn’t cancer. What really struck me is how people are fixated on their perfect credit history and note being able to get a credit card (can’t have a debt for 7 years in Australia). They just can’t see how they can live without credit.


Jessica Bosari July 17, 2010 at 6:41 AM

That might be the media’s fault. The way I hear it, as long as you pay your bills on time for 24 months, you can get a loan no matter what happened. You’ll pay higher interest though…


Jessica Bosari July 10, 2010 at 7:25 AM

The state won’t necessary go after you but the lender will. Whatever they cannot recover on the balance owed is recoverable through a law suit, plus arrears and judgement interest. Not a good idea at all.

Your best option in a situation like that would likely be either a short sale, getting the lender to forgive the balance of the debt, or Chapter 13 bankruptcy where the court will decide how much you can afford to pay back before the loan is forgiven. Either way, your credit is shot for about 24 months.

After that, you can get loans again, but the interest won’t be pretty. You might qualify for a HUD loan at that point, making your next purchase a little less painful. The bankruptcy or short sales remains on your credit report for up to ten years.

Good luck. Discuss this with a lawyer before you make a decision!


Financial Samurai July 10, 2010 at 7:28 AM

Hi Jessica – Insightful info! Thanks! IT seems like so many people game the system, so we might as well educate ourselves on how too!


Jessica Bosari July 17, 2010 at 6:39 AM

It’s not gaming when you are following the law. It’s called choosing the best options. I was just reading the other day how wealthy people are more likely to coldly walk away from their homes because they just see it as asserting their rights. It’s working class slobs like us that actually try to pay the bills and make it through!


Financial Samurai July 10, 2010 at 4:54 AM

Neal-san, may I ask a question related to this post?

Say you have $1million cash in various bank accounts. Can you foreclose on a 2nd home that’s got a sub $1million mortgage by stop paying the mortgage since it’s underwater, and be OK except for your credit?

Or will the state of california go after your $1million in cash!


Kevin@InvestItWisely July 9, 2010 at 9:39 AM

Thanks for the mention, Neal!


MoneyGreenLife July 9, 2010 at 6:48 AM

Thanks for the mention!


Financial Samurai July 9, 2010 at 5:17 AM

Nice story, unfortunate timing, and GREAT friend for renting the house back to you guys!

It’s a tough one. Hang in there!




Amanda L Grossman July 9, 2010 at 4:44 AM


Thank you for including my article. I included one of yours in my Tuesday post!


Leave a Comment

Previous post:

Next post: