debt

Don't fall 90 days late on mortgage

Dear Debt Adviser,
We filed a Chapter 7 bankruptcy in 2006 and discharged. We did not reaffirm the house or the second mortgage. I really want to keep the house but am falling short and right now owe two months on the second mortgage and one month on house.

My credit score is 586 and we have a lot of debt. My husband was laid off but is now back at work for the time being. Is there help for people like us? Or is it better to rent and leave the upkeep to someone else?

I don't want to go into foreclosure but don't think there is equity to sell, either. I don't know what to do or who to talk to. Please give me some good advice.
-- Joan

Dear Joan,
I'm glad you wrote to me for two reasons. First, I don't want you to become 90 days late on your mortgage if at all possible. Second, huge numbers of people are in the same situation as you are and they are wondering what to do also.

You are two months late on your mortgage. You no longer have a grace period (usually 15 days), so your next payment is probably due on the first of the month. Once you are 90 days late, most lenders will not accept a partial payment. You usually need to pay the entire three months plus any fees, or the lender will start the foreclosure process.

You have also recently gone through a Chapter 7 bankruptcy. Under the current bankruptcy law, you can't refile for a Chapter 7 for the next eight years or a Chapter 13 for four years.

Because of this fact, trying to save your home by using any unsecured or consumer credit lines (such as a personal line of credit or cash advances from a credit card) is risky if you find yourself unable to keep up with those payments.

I suggest that you contact NeighborWorks America -- a national nonprofit created by Congress -- by calling (888) 995-HOPE (or visiting their Web site) at once. For the quickest service, I suggest you call rather than e-mail or visit an office.

A counselor will review your financial situation, make recommendations for a course of action that best fits your needs and help communicate with your mortgage lender to work out a plan.

When you call, ask about a forbearance to temporarily modify or eliminate payments to be made up at the end of the forbearance period.

Another alternative may be a permanent loan modification of the terms of the original mortgage in a way that addresses your specific needs. Such changes may include adding delinquent payments and other costs to the loan balance, changing interest rates or recalculating the loan.

If all else fails, you may have two more options: selling your home in a short sale if you have no equity left, or a pre-foreclosure sale if the value of the house still exceeds the remainder of the mortgage.

A pre-foreclosure sale arrangement allows you to defer mortgage payments that you can't afford while you sell your house. This also keeps late payments off your credit report.

These options are generally cheaper for the bank and less stressful for the homeowner than a foreclosure.

Being late on your mortgage or having a loan modification on your credit report may set you up for a hike in your credit card interest rates under universal default rules.

Review the default provisions of the credit cards on which you carry a balance and consider closing those accounts that have universal default provisions before they raise your rates.

Once the accounts are closed, your rates should stay the same during your repayment period.

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