Black Rock, the world’s leading asset management company, suggests that consumers befallen by falling home values and longstanding unemployment need a new bankruptcy option. Under current U.S. bankruptcy laws, consumers can file Chapter 13, Chapter 7, or in some cases a Chapter 11 bankruptcy. None of these options allow for modifying the terms of a primary mortgage loan. Mortgage lenders can petition the bankruptcy court for permission to foreclose a delinquent mortgage loan; this typically occurs within a few months of filing, so homeowners don’t receive lasting protection under existing bankruptcy laws.
Financial Experts Recommend New Bankruptcy Code: How it Would Help
Although unsecured debt and mortgage loans for certain types of properties can be modified, homeowners struggling with high mortgage rates, falling home values, and long term unemployment cannot receive permanent relief from home mortgage problems by filing bankruptcy.
In response to failed “cram down” legislation that would allow bankruptcy judges to reduce mortgage balances at will, Black Rock asserts that under its “Great Recession” bankruptcy plan, judges would formulate mortgage balance reductions using a formula. This would ensure fairness and predictability in mortgage principal reductions instead of allowing judges to modify mortgage amounts at will.
Reducing Mortgage Amounts Essential to Foreclosure Prevention
Unfortunately for struggling homeowners, amendments to the federal bankruptcy code could take years, but financial analysts are beginning to understand that reducing mortgage balances may be the only way to keep homeowners who owe more on their mortgage loans than their homes are worth from walking away.
The U.S. Treasury reports that only 7% of homeowners have converted temporary mortgage modifications approved through the Home Affordable Modification Program (HAMP) into permanent modifications. Problems with the HAMP program include the practice of adding delinquent interest and fees to mortgage balances, which can increase monthly payments on a go-forward basis. This does not help upside down homeowners or those who remain unemployed or under-employed. A group of state leaders is calling for federal programs designed to assist unemployed homeowners.
Mortgage Loan Refinance and Debt Consolidation
Even if you’re not having financial problems, refinancing to current low mortgage rates can provide protection against future problems. Minimizing your monthly mortgage payment obligation provides extra cash for savings or paying off high cost credit card debt. If you have enough home equity, another option is combining mortgage loan refinance and debt consolidation using a cash out refinance mortgage. Discussing options with a financial advisor can help you find debt consolidation options suited to your situation.
Even if you have thousands of dollars in credit card debt you can’t go to jail for not paying it. But not paying off credit card debt can get you in other kinds of financial hot water.
Harassment from Debt Collectors
It’s best to get help with debt before accounts are turned over to a debt collector. Because once your credit card debt goes into collections, expect to be harassed. Although it’s illegal, debt collectors may use intimidation or even threats to try and get you to pay up. Read the rest of this entry »
Your debts are piling up, and you’re having problems making minimum payments on time. Those banks, those credit card companies…if only they hadn’t raised your rates. If only they hadn’t added a late charge to your balance. If only…
Moneywatch blogger Ray Martin points out that some consumers fail to assume responsibility for overspending on credit cards. Carrying revolving balances incurs interest charges, and once you approach your credit limits, credit card debt can lead to additional fees and/or increases in your interest rates. Although an estimated 60% of personal bankruptcies are allegedly caused by health care expenses, that leaves 40% that may result from overspending. Here are some steps for gaining control of your spending and getting the help you need to return to financial sanity.
- Accept responsibility for your debt and spending: Taking ownership of your debt and resulting problems puts you in the driver’s seat. Set goals for becoming debt free, and make a plan. Tracking progress is a great incentive for sticking with your plan.
- Stop using credit cards: If you’re carrying balances on your credit cards, it’s costing money. In the current economic climate, credit card companies are less willing to accept exposure to risk. Customers who carry high balances or make late payments can find their interest rates climbing. High interest rates and fees increase your debt and make it difficult to reduce your balances.
- Put your cards away: Don’t carry credit cards and keep them away from your computer. Shopping online can be fun, but it can also lead to the same problems as making a date with your friends at the shopping mall. Get a debit card that displays a major credit card logo. These cards are accepted the same way as credit cards, but the funds come out of your bank account. This is typically enough to curtail most if not all impulsive purchases.
- Establish and keep a cash based budget: Whipping out credit cards for weekend pizza, car repairs, and a trip to the veterinarian is OK if you’re paying off your credit card balances in full each month, but most of us don’t do that. Work out a cash based budget and pay cash or use your debit card; you don’t want to slow down paying off your credit card debt by adding more.
- In too deep? Get help: If you can make it through the month without relying on credit cards for essential expenses, or if you’re skipping one payment to make another, it’s time to get debt help. Debt consolidation and credit counseling agencies offer affordable solutions for getting out of debt. If you owe several months’ payments, debt settlement can provide an alternative to filing bankruptcy.
Get started toward debt freedom today. Credit counselors can help evaluate your circumstances and recommend appropriate solutions fitting your situation.