You have made the difficult decision to file for bankruptcy, but you may still have some misgivings. If so, you are not alone. Countless people in Mississippi and elsewhere who are going through a personal bankruptcy are dealing with negative feelings about their situation, including embarrassment and shame. You may be reassured to learn you do not have to feel this way.
There was a great deal of negative social and professional stigma surrounding bankruptcy in the past that, for the most part, no longer exists today. However, many people still attach a negative connotation to what they see as a last resort. You might feel a number of unpleasant feelings during your bankruptcy process, including the following:
Fortunately, most lenders are aware that bankruptcy has become a necessity for many, especially in today’s financially uncertain times. Many banks or alternative lending companies are willing to offer loans to people recovering from bankruptcy. You can start rebuilding your credit soon after discharging your debts, and you may have learned valuable skills in budgeting, saving and financial planning that can prevent you from having trouble in the years to come.
It is important when recovering from monetary difficulties to let go of any sense of guilt or shame and realize that you have done the best you could to regain your financial footing. While you are going through the bankruptcy process, your attorney should be able to advise you on effective ways to keep moving in a positive direction.
Sometimes in life, financial hardship comes upon you unexpectedly. Even if you have always been diligent about paying your bills and debts, a sudden change in circumstances, such as a job loss or a major medical expense, can cause your finances to take a sharp downward turn.
The main monthly expense for many families is their home mortgage payment. Predictably, when finances take a turn for the worse, the mortgage payment is often the first bill to suffer the effects of lost wages or diminished income. If you are having trouble meeting your monthly mortgage payment, do not despair. There are options for you to restore your financial stability and remedy the situation. Here are three options to take into consideration as you examine how to proceed.
1. Loan modification
A loan modification can be the first step to try to avoid foreclosure by the bank. It is worth it for you to attempt to speak to your bank about the possibility of a loan modification before you face more drastic measures. A loan modification can make your loan payments more affordable while you make efforts to get your financial situation back on track.
2. Short sale
If the situation has progressed to a more critical stage, you may wish to consider a short sale. In a short sale situation, the mortgage lender agrees to allow you to sell your home for less than what you owe on the mortgage. In this scenario, the lender still gets partial payment on the mortgage rather than having to take the full hit of a foreclosure and sale at auction.
3. Bankruptcy
Bankruptcy is often the homeowner’s last resort if he or she can no longer pay the mortgage. Although there can be a stigma attached to bankruptcy, in certain cases, it can be the best option for you and help you get a fresh financial start. There are two different types of bankruptcy for individuals: Chapter 7 and Chapter 13. If you are in a situation in which you think bankruptcy may be your only option, you should contact a qualified bankruptcy attorney to help you evaluate your case and plan the way forward.
You may think that it is unavoidable to deal with debt collectors after you are deeply in debt. While it may be helpful to speak with collectors to see if you can work out a reasonable payment arrangement, some collection practices are considered abusive and are against the law. You and others might be interested in learning the differences between permissible and unlawful methods to collect a debt.
The U.S. Federal Trade Commission prohibits debt collection practices that are deceptive, unfair or abusive. The Fair Debt Collection Practices Act protects you from such collection methods as the following:
There are less abusive, but no less unlawful, methods a debt collector might use, which often trick unsuspecting debtors. For example, a collection agency might send you documents that intentionally resemble legal or government papers. A collector may ask you to sign paperwork that he or she deceptively assures you is not a legal document, or the other way around. A debt collection agency may contact other members of your family only once to obtain your contact information, but you should know that the law forbids collectors from talking about your debt to anyone else but you or your attorney.
Debt collection practices may be confusing. If you are in doubt as to whether a collector is using unlawful tactics to collect from you, or are wondering what steps can be taken to stop creditor and debt collector harassment, it may be in your best interests to contact an attorney.
If you file for Chapter 13 bankruptcy, you may start receiving unsolicited mortgage modification offers from your lending company, which present you with a potential offer aimed at making your home more affordable. Modifying your mortgage differs from refinancing in that refinancing completely eliminates your original loan, replacing it with a new one, whereas a modification refers to a change in your existing loan.
Just how might the terms of your loan change should you decide to move forward with a mortgage modification?
Potential changes to loan terms
The main point of a mortgage modification is to lower your payments until they become more manageable. This might include lowering your interest rate, switching from an adjustable rate to a fixed rate, or extending the length of the loan to give you more time to pay. It may, too, give you more options in terms of deferring or forgiving some of your principal balance or adding an additional amount on the back end of your loan.
Advantages and disadvantages
When it comes to mortgage loan modifications, there are benefits and drawbacks. In terms of benefits, you may find that you can modify your loan faster than you can refinance it. Furthermore, your interest late on a mortgage modification will typically remain low for about five years, and even after that, it typically will not climb higher than your contract rate, or the standard rate reserved for well-qualified buyers.
In terms of drawbacks, mortgage modifications leave you with a new, 40-year amortization schedule. If you are already in middle age, this could mean taking on a new debt for the remainder of your life.
Ultimately, whether a mortgage modification is a good idea for you depends on the unique circumstances of your situation and finances. If you are experiencing considerable financial stress that stems in large part from your mortgage responsibility, a mortgage modification may help you manage your finances and avoid Chapter 13 bankruptcy.
