Attitude is a little thing that makes a big difference.

Sir Winston Churchill

What are the Alternatives to Bankruptcy?

Sunday late morning , May 17, 2009.

As I’ve mentioned before, there’s no shame in filing for bankruptcy, but, if filing can be avoided, you will be helping yourself for many years to come. It will cost you thousands of additional dollars in higher interest rates for any future loans, mortgage, car loans, or what have you. But, in some cases, it’s the best option you have to get a fresh new start.

OK. But, what are these alternatives?

1) Call your credit card loan servicer, the bank, to negotiate for better terms. Conditions are rapidly changing, some banks are still not willing to make any concessions unless you are late on your payments —which is ridiculous. But most of the major ones have moved to offer improved terms to their clients under hardship, especially if you’re asking for lower rates —a 17% to 7% interest rate reduction will save you $100 per year, for every $1,000 owed. This is my favorite solution because it’s fair. Banks know that if you file for bankruptcy, they could get ‘nada’.

2) If you can afford to live with a lower mortgage, 31% of your monthly income, check you’re eligibility for the government subsidy program Making Home Affordable, either for the loan modification or for the refinance under better terms programs.

3) Check if you have enough equity to refinance your mortgage to pay your credit card debt. I’m sure you realize that solutions 1) and 2) are much better alternatives —you may be jeopardizing your home by inflating your secured with unsecured debt, which is very likely bankruptcy dismissable debt.

4) Sell the house before you fall into arrears in your mortgage payments. I know, this takes a lot of guts, but, if you know you can’t save the house, sell it yourself before the bank gets total saying over it.

5) If you know you will not be able to afford your mortgage payments, or you know you are ‘under water’ or paying a mortgage higher than the market price of your home, you might consider asking your bank to accept a government subsidized (Making Home Affordable) Deed in Lieu (DIL). In this case, the bank accepts to eliminate your debt in exchange for the deed of the property. Review carefully any other attached conditions with your attorney.

6) If you are burdened by the conditions under 5), check with your bank to see if they will accept a government subsidized (Making Home Affordable) short sale. In a short sale, the bank accepts to reduce your debt to the market price of the house, and authorizes you to sell it at this price. In exchange, you accept to sell the property within a given period of time, after which, you waiver any delays to postpone the foreclosure. Review carefully any other attached conditions with your attorney.

7) Every jurisdiction has its own timetable to foreclosure. Discuss these milestones carefully with your attorney, in order to take full advantage of the times alloted, your conditions may change, you may find a job within this extended period.

8) Do nothing, which will lead you into a quick foreclosure.

For an exceptional explanation of the Making Home Affordable Program, I urge to visit their borrower FAQ page.

Finally, I strongly recommend discussing these options with an experienced bankruptcy attorney within your jurisdiction. Usually, this first consultation is free.


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