I don’t have enough money to pay my bills every month. What do I do?
I would recommend you first speak with an attorney knowledgeable in the bankruptcy or financial field to determine your full range of options. If you do consult with non-attorneys, make sure you know what they can do for you before you part with large sums of money or turn your property over to them. Be wary of people who are more interested in selling you something or charging you fees than in giving you advice. If you are sued for past due bills, served with foreclosure papers, sued for eviction, or even when you are just getting behind in your debt, you may receive all sorts of solicitations in the mail. If you decide to hire somebody, you need to make sure they are reputable. If they suggest you do something which just doesn’t sound right to you, talk to a lawyer before you agree. It is unfortunate, but a lot of people have come to me after they have signed away their house to a stranger thinking that this was going to help them save their property.
If you have a house and/or car loan, and don’t have enough income to make the payments, you need to make some tough decisions. If you cannot keep up with your payments, eventually your lenders will look to repossess you car or foreclose on your home. Auto lenders will generally look to repossess your car after you have missed 1 to 3 payments. Home lenders will typically refer your loan to foreclosure attorneys after about 3 missed payments. The foreclosure process for homes usually includes a waiting period or periods which frequently delay the loss of your home in a foreclosure sale by several months. You can also seek to make your mortgage payments more affordable by applying for a mortgage loan modification (more information on mortgage loan modifications below). A bankruptcy attorney can generally stop the progress of a car repossession or a home foreclosure at any time before a sale of the property takes place, generally by filing a Chapter 13. You should consult with an attorney as soon as possible for advice if you are in this situation. Once a Chapter 13 is filed, you must make appropriate payments to retain your house and or your car. Hopefully you have regained sufficient income to make payments by this time.
I see and hear advertisements which say I can settle all my debts for pennies on the dollar, saying they will tell me the secret the credit card companies don’t want me to know. Is this true?
Bankruptcy, including Chapter 7 and Chapter 13, is generally the only way you can resolve your credit card debt without the consent of the people you owe money to (your creditors). If you consult with an attorney, you can be advised as to whether that step is appropriate for you. You can always call your credit card company and ask them to change the terms of your credit agreement, such as reducing your interest rate, but the credit card company will typically only do this if they believe it in their best interest. As they make this assessment, they may also close out your credit card or reduce your credit limit. Much more rarely, if the credit card companies feel your financial situation is especially bad or desperate enough, they may advise you that they will accept a smaller amount to settle your obligation. For most people in this difficult situation, the payment of a lump sum to settle their debt is not possible, and perhaps not in their best interest. For example, if one credit card company agrees to accept $3,000 to settle your balance, that won’t do you much good if you don’t have the $3,000 to pay them. Even if you are able to pay them, that doesn’t really help you if you still owe another $10,000, $20,000 or $30,000, or more to other companies. Keep in mind that other than through the bankruptcy court, no one can guarantee that they will resolve your debt without the consent of the people you owe money to. There are any number of companies that say they will help you take care of your debt under a payment plan or debt consolidation. Most of these are for-profit companies, and they will charge you whether they are successful or not. Even with non-profit companies, there are charges and they may not be the best solution to your problem. If your financial situation is serious, it is best to consult a bankruptcy lawyer before going to a debt counselor/debt consolidator since you will likely wind up paying considerably more money than you might have to otherwise, or worse yet, you may find yourself still in the same or worse financial difficulty after making payments for several months or years.
If I file Chapter 7 or Chapter 13 bankruptcy, what happens to my credit?
If you are in financial difficulty, your credit is already in jeopardy. Instead of worrying about your credit score, you need to focus on keeping your house, keeping your car, and/or getting out of debt, what you need to do to accomplish that. In a lot of cases, easy credit has actually helped cause money troubles to develop. Once a person has completed a Chapter 7 or Chapter 13 bankruptcy, they generally have taken care of all their debt, and, if they have employment or another source of income, are actually a better credit risk after the bankruptcy than before. People need to use credit wisely so they are not taken advantage of. Credit is best used to make major necessary purchases, such as homes and cars. We all need somewhere to live, and typically need a vehicle to get to work and take care of business. We still need to be careful, however, not to agree to pay more for a house or car than we can afford, and be careful also to make sure that the price and loan terms are fair. Using a credit card as if it is money in the bank can create a mountain of debt you won’t be able to escape. If all you can afford to pay is the minimum payments on your credit cards, you will be paying that debt for years even if you never make another charge, as most of the payments you make will go to pay that 10%, 20% , 30% or even more in interest and charges. The surest path to good credit and financial health is to take care of your debt, either through a bankruptcy or some other way, and then after that, to pay your bills on time.
What is a mortgage loan modification and how do I get one?
A Mortgage Loan Modification is simply a change in one or more of the terms of a mortgage loan. If your mortgage lender agrees to do so, they can reduce your interest rate, reduce your monthly payment, change your loan from an adjustable rate loan (where the interest rate changes) to a fixed rate loan, put your default in payment (the amount you are behind) at the end of your loan, extend the time period you have to pay back your loan, and even reduce the balance you owe on your loan. The problem in getting a loan modification is that generally the lenders HAVE TO AGREE TO MAKE THE CHANGES. To put it simply, you can ask, and they may say no. Each lender has its own standards for granting a loan modification, so homeowners may get different answers even though their financial situation is the same. Additionally, there are various government programs but they do not apply to all loans.
Should I try to get a loan modification by myself?
You can always contact your mortgage lender on your own to determine if they will modify your loan. Many of them have “workout packages” (typically forms you fill out to indicate your financial situation) which they will forward to you for completion. However, it is probably advisable to consult with someone knowledgeable for some assistance in the process. There are various government agencies and charitable organizations that will work with you at no charge. One of the HUD Approved Housing Counseling Agencies is NACA (www.NACA.com), (773) 723-6222. There are a lot of companies claiming to be experts in handling loan modifications. You need to be careful and remember that only the lender decides who gets a loan modification, so you should not be paying anyone large fees without understanding beforehand how they can help you. An attorney can give you some guidance through this process and help you evaluate the merits of a proposed modification.
How long will it take to get a loan modification?
There are a few companies who will respond quickly to your request, but typically it can take from one to several months after you fill out and send in the forms to get a response.
Why did my lender say no to my request for a loan modification?
There are a number of possible reasons. In some cases, your mortgage has been sold to investors and the mortgage company you pay does not believe it has the right to change loan terms. A lender also will typically not make a loan modification where he believes you will not be able to make the mortgage payments anyway, even at a reduced amount. Also keep in mind that in loan modification the lender is reducing the profitability of a loan. They will only do so if they feel they have no choice. Consequently, if you have a good income or have substantial equity in your property they may believe there is no reason for them to make a change.
What do I do to keep my property if the lender does not give me a loan modification and I am behind in payments?
You always have the right to file Chapter 13 to save your property. To be successful in a Chapter 13, after the case is filed you must start making your regular mortgage payments again on time, and pay an additional amount monthly to catch up the payments you were behind. To keep these extra payments low, the amount you were behind in the mortgage can typically be spread over up to 5 years.
Can I modify my mortgage loan in a bankruptcy, Chapter 7 or Chapter 13? I don’t think my house is worth as much as my loan, and my interest and payments are too high.
Although there has been talk about giving the bankruptcy judges the right to change the terms of a mortgage loan, that has not yet occurred. In the event legislation is passed, it will likely not apply to all loans nor will it apply to all situations. If you hear in the news that a law has been passed, you need to contact an attorney to find out if the law will help someone in your situation.