I have 35 years of experience in the Real Estate Business, so I get a lot of questions about real estate and mortgage lending. In these troubled times I am being asked to help do more problem solving than ever. People are confused when they lose income and their homes are in danger of foreclosure.
I have been seeing that many home owners are being affected by today's very bad economy. I have begun to write articles regarding the answers to the questions I am hearing personally, and that I am seeing plastered all over the news.
Today, I am writing about the viability of using bankruptcy as a solution to the threat of foreclosure and losing your home. First of all, bankruptcy is a very complicated judicial process. You must prove that you have no ability to pay your outstanding debt. You must prove, under oath, that your income is simply never going to allow you to catch up. You will have to give every detail of your finances to a court. The trustee, usually a judge, of your bankruptcy is going to take a long time poring over the details of your life. A lawyer is going to charge a lot of money to help you prove your are broke (This has always sounded kind of insane to me). This probably isn't going to be pleasant. In fact it will be humiliating and is probably totally unnecessary.
To file bankruptcy, you must first be bankrupt. But, if you are still earning income, even if it less than it was, and if your house payment is the only problem that is breaking your back. Then take heart. Your bank doesn't want to take your home. It costs them too much money. Banks are failing because they were forced to take back more homes than they could afford. Each foreclosure costs them lots of money.
What a bank really wants is for you to pay your back payments. Begin making payments on time. Continue that for many years and be a good current customer. That's what they want. But that is not all that they will accept.
The bank knows that you cannot make up 3 or 4 (or more) back payments all at once to get caught up. They are dealing with this problem thousands of times everyday. So, catching up is what they want. But, they will take any deal that they believe will help you stay where you are. Even if it means letting you make one payment to get current and lowering your payment amount, so that you can afford it. They can do this with a Home Loan Modification.
Home Loan Modification. You are hearing about it everywhere. In fact, if your Lender helps you modify your loan and get you current within your ability, the government will reward them with some money. The bank gets paid to help you and they end up with a good customer, instead of a house they don't want.
Your credit score is not considered for you to qualify, because you already have a loan. Your back payments can be put back into the loan. The Lender will probably eliminate your late fees and penalties. You are really getting kind of a "do over".
So, forget bankruptcy until later(much, much later). Most foreclosures can be stopped or postponed in one or two days. The modification process is relatively simple, but it takes a lot of time and effort. It is slow because all Lenders and Banks have too many borrowers in trouble and it is very hard to get them to pay attention to only your deal. But that's ok, as long as you are in the process, nothing bad can happen. Eventually, if you hang in and complete the process, all modifications will be successful. You can do it yourself, but it is a very intimidating and daunting process if you are unfamiliar with Lending and Mortgage Industry. But, there are professional companies that will negotiate your Home Loan Modification for you. Some are good. Some not so good. I recommended one to several friends and clients, which was so successful at getting Foreclosures Stopped and Home Loan Modifications completed successfully that I am now a partner in it. I recommend you look for a good company, ask for references, call the references and then discuss the entire process with that company. Ask for a Money Back Guarantee. They are helping you with your most prized possession, your home. They should be able to back up what they promise.