Ask the Dollar Diva By Dorothy Rosen • Bankrate.com

Will Chapter 7 put us on the road to ruin?

Dear Dollar Diva,
We recently filed for Chapter 13 bankruptcy, with our monthly payments being $1,400. That was tight but ok. Then the lawyer called and said the payment went up to $1,800. The problem occurred because we had refinanced our mortgage through the same company in a deal called a modification agreement. Supposedly the modification agreement was voided when we went into bankruptcy. Is there anybody out there who knows anything about this? Is there any way to keep my house and lower the payments? At this point our lawyer has recommended that we file Chapter 7, but if we do this we lose the house. Any information would be appreciated.

I live in Florida if that makes a difference.

It looks like the only thing you can do to get your mortgage payments lowered is to work with your current lender. With your present shaky credit, it's unlikely you're going to have much success shopping around for a better deal. Your attorney is recommending Chapter 7, and if you cannot make your monthly payments this may be your only choice. It's too bad no one reviewed the modification document before the payment plan was set up.

A Chapter 7 bankruptcy is often referred to as a liquidation case. You compile a list of your assets and a statement of your financial affairs, and the court determines what can be liquidated to pay off your creditors. There are certain exempt assets that the court cannot touch in the liquidation process. Exempt property differs by state -- some Florida exemptions are:

• Full equity value of homesteaded real property (160 acres rural or 1/2 acre in city or town) or mobile or modular home

• Head of family's earned but unpaid wages to date of filing the bankruptcy papers

• Household furnishings and personal property up to $1,000

• Cash surrender value of insurance policy

• All retirement and pension plans

• One motor vehicle up to $1,000

• Professionally prescribed health aids

You say you will lose your house if you file Chapter 7. I don't have enough facts to know if you will or not, but if your other major debts are unsecured, and the bankruptcy wipes them out, I hope you will have enough cash flow to be able to stay in your home and move forward in your life with a clean slate. Whatever happens, it's important to make lifestyle changes that include saving for emergencies so you are not put through this terrible ordeal ever again.

DOROTHY ROSEN has a master's degree in finance, with a specialization in accounting, from the Kellogg Graduate School at Northwestern University in Evanston, Ill. Rosen has more than 15 years of experience in the financial arena, serving in Illinois and Florida as a certified public accountant, financial consultant, expert witness and educator. She is owner of Dorothy Rosen, CPA, a public accounting firm that serves individuals and small businesses.