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Dear Debt Adviser,
We filed a Chapter 7 bankruptcy in 2006 and discharged. We did not reaffirm the house or the second mortgage. I
really want to keep the house but am falling short and right now owe two months on the second mortgage and one
month on house.
My credit score is 586 and we have a lot of debt. My husband was laid off but is now back at work
for the time being. Is there help for people like us? Or is it better to rent and leave the upkeep to someone else?
I don't want to go into foreclosure but don't think there is equity to sell, either. I don't know
what to do or who to talk to. Please give me some good advice.
-- Joan
Dear Joan,
I'm glad you wrote to me for two reasons. First, I don't want you to become 90 days late on your mortgage if at all
possible. Second, huge numbers of people are in the same situation as you are and they are wondering what to do also.
You are two months late on your mortgage. You no longer have a grace period (usually 15 days), so
your next payment is probably due on the first of the month. Once you are 90 days late, most lenders will not accept
a partial payment. You usually need to pay the entire three months plus any fees, or the lender will start the
foreclosure process.
You have also recently gone through a
Chapter 7
bankruptcy. Under the current bankruptcy law, you can't refile for a Chapter 7 for the next eight years or a
Chapter 13
for four years.
Because of this fact, trying to save your home by using any unsecured or consumer credit lines (such
as a personal line of credit or cash advances from a credit card) is risky if you find yourself unable to keep up
with those payments.
I suggest that you contact Homeownership
Preservation Foundation -- a group partnered with
NeighborWorks America, a national nonprofit created
by Congress -- by calling (888) 995-HOPE (or visiting HPF's
Web
site) at once. For the quickest service, I
suggest you call rather than e-mail or visit an
office.
A counselor will review your financial situation, make recommendations for a course of action that
best fits your needs and help communicate with your mortgage lender to work out a plan.
When you call, ask about a forbearance to temporarily modify or eliminate payments to be made
up at the end of the forbearance period.
Another alternative may be a permanent loan modification of the terms of the original mortgage
in a way that addresses your specific needs. Such changes may include adding delinquent payments and other costs to the
loan balance, changing interest rates or recalculating the loan.
If all else fails, you may have two more options: selling your home in a short sale if you have no equity
left, or a pre-foreclosure sale if the value of the house still exceeds the remainder of the mortgage.
A pre-foreclosure sale arrangement allows you to defer mortgage payments that you can't afford while you
sell your house. This also keeps late payments off your credit report.
These options are generally cheaper for the bank and less stressful for the homeowner than a foreclosure.
Being late on your mortgage or having a loan modification on your credit report may set you up for a hike
in your credit card interest rates under
universal default rules.
Review the default provisions of the credit cards on which you carry a balance and consider closing those
accounts that have universal default provisions before they raise your rates.
Once the accounts are closed, your rates should stay the same during your repayment period.
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