When your income isn't keeping up with your debt and expenses, bankruptcy and foreclosure may not be far away. By creating a budget and working with your mortgage lender, you may be able to pay back your debts and stay in your home in a way that you can afford.
Consolidation
If you are a homeowner with unmanageable debt, consolidation may be your greatest tool in avoiding bankruptcy and foreclosure. Home equity loans and home equity lines of credit allow you to use the equity in your home to pay down high-interest debts at low second mortgage interest rates. The savings on interest often provides more breathing room in your monthly budget, permitting you to pay down your debts and stay current on your mortgage. Keep in mind, however, that a default on a second mortgage loan can result in foreclosure, as your home serves as collateral for the second mortgage.
Foreclosure Solutions
If you miss mortgage payments, talk with your lender as soon as possible to avoid foreclosure. Mortgage lenders have many tools at their disposal to help you pay back missed payments, as well as modify your current mortgage terms to make your monthly payments more affordable. The U.S. Department of Housing and Urban Development, or HUD, provides free or low-cost mortgage counseling in every U.S. state. HUD-approved counselors help you explore your options, as well as help you learn to cut back unnecessary expenses so you can afford your mortgage. To find a HUD-approved housing counselor, call 800-569-4287.
Bankruptcy
While bankruptcy should be a last resort to resolving your debt and foreclosure problems, it may provide a viable solution to repaying your debt, while allowing you to remain in your home. According to the U.S. Courts website, Chapter 13 bankruptcy allows you to reorganize your debts to repay them over the course of three to five years. Once you file a petition for Chapter 13 bankruptcy, the bankruptcy court halts foreclosure proceedings, allowing you to begin repaying past-due mortgage payments. However, if you continue to miss mortgage payments, you may lose your home.
Warning
If you seek help from a third party in negotiating your debts or mortgage, beware of shady companies that make false promises. According to the Federal Trade Commission, many companies claim to be nonprofit, yet still charge steep up-front fees, and may even require you to stop making monthly payments on your loans and credit card accounts. Check with the Better Business Bureau, your state's Attorney General and your local consumer protection agency to find out about the reputation and reliability of third-party debt negotiation companies.
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