Dear Bankruptcy Adviser,
I have a mortgage of close to $25,000. The home is worth about $32,000. I became disabled and receive about $878 and I’m on Medcaid and welfare, with lots of credit card debt. I can’t afford to do bankruptcy. And I have a pending lawsuit on my credit card debt because of not being able to pay or make payments. My bills exceed my income since I became disabled in 2002. What do I do?
— Jay

Dear Jay,
You need to contact your mortgage lender and inform them that you can no longer make your mortgage payments. Every lender is different, but some are working with people who proactively inform them that they will be unable to continue making payments. In some cases, the mortgage lender will give you up to $2,500 for moving expenses. Because the mortgage lender is saving the cost and time associated with foreclosing on your property, you could receive some money to help you move into government-assisted living, i.e., Section 8 housing.

Now, you might be able to afford the mortgage, tax and insurance payments on your house. Maybe you are renting out a room or living with family. In the case you can afford these payments but cannot afford to file bankruptcy, the creditor who is suing you will get a judgment and eventually place a lien on your property. It is hoped your state protects you from a judgment creditor (the creditor suing you) forcing you to sell your home to pay the debt.

However, you should be able to file bankruptcy without paying anything. Look for local nonprofit law centers to assist you with the bankruptcy paperwork. Many bankruptcy judges throughout the country have debtor assistance programs that teach people how to navigate through the process. You can also request a waiver of the bankruptcy court filing fee ($299) and both credit counseling certificate fees (around $50 per certificate) based on financial hardship. It is hoped that you know someone that can help you complete the bankruptcy paperwork.

Even with the equity in your home, you probably qualify for Chapter 7 bankruptcy. All states allow you to protect some of your home’s equity and still qualify for bankruptcy. Put in the necessary legwork, and you can get the fresh start you deserve.

Justin Harelik is a practicing attorney in Los Angeles. To ask a question of the Bankruptcy Adviser go to the “Ask the Experts” page, and select “bankruptcy” as the topic.