Many people think that their troubles can be solved by getting their loan modified. While loan modifications, short sales and debt consolidation may be possible, they are rarely the complete solution that some would like you to believe. Our experience is that the vast majority of our clients have been disappointed, if not defrauded, by proposed loan modifications and the companies that have taken their money without providing a final solution to their financial difficulties. In most instances, these unscrupulous actors simply make the matter worse. The Attorneys of Law Offices of Christopher Alliotts, Inc. will provide you with straightforward guidance about all of your options, including short sales, loan modifications and credit consolidation, among other possible tools to resolve your financial challenges.
Short Sales
Short Sales Are Typically The Worst Alternative
Often times, a homeowner will simply walk away from their home mortgage obligations with the hope that it will end their problems by surrendering the property. That, however, allows the Creditor to sell the property for less than the full amount of the debt, leaving the residual balance owed as a responsibility of the prior homeowner. As a result, homeowners seek to work with the Lender to find alternative options such as a “short sale”. However, a short sale is more often than not the worst alternative for a distressed homeowner. The reasons for this opinion are many.
First, in a short sale, a homeowner will have to move out of their home sooner than they would have to otherwise. Second, unless you specifically negotiate the cancellation of the balance of the debt, the bank may be able to pursue you for the balance – just as if you walked away from the home in the first place. Third, if there is a second mortgage or line of credit, such debt will not be canceled absent the agreement of the Lender; if the Lender does not agree, they will pursue payment of the balance (often through the Courts seeking a judgment) and the homeowner will have to file Bankruptcy to cancel that debt. Finally, and perhaps most importantly, a short sale could have painful tax consequences, which most banks and brokers do not explain as part of the process. All of the foregoing problems can be avoided in a Bankruptcy case.
Loan Modifications
Modify Your Loan to Keep Your Home
Loan modification is difficult, time-consuming and frustrating. Further, the programs governing them are constantly changing. More than that, there are many unscrupulous individuals posing as professionals that take advantage of distressed homeowners. They typically promise results, but do little more than take your money with little or no results and you never hear from them again. Fraud in the loan modification business has become so rampant that federal and state authorities have had to actively curb such activities. Thus, our advice is caution. Do not pay someone to modify your mortgage unless you speak with a Bankruptcy Attorney first.
Loan Modification is Possible
In light of the financial crisis, our experience is that banks historically do not want to do any meaningful loan modifications. That has recently changed with government intervention, instigating HAMP programs designed to keep homeowners in their homes. The results have been mixed at best. Still, there are instances in which homeowners can obtain enough relief so that they can stay in their homes with affordable payments for a number of years. However, people need to be realistic about what they expect from a loan modification as well as their expectations over the current and future value of their home.
Bankruptcy and Loan Modification
Often, a Lender will proceed with the foreclosure process while, at the same time, promising to modify your loan. It is important for a homeowner to not let the date of a foreclosure sale pass without seeking Bankruptcy advice and engaging counsel to file on their behalf to halt such proceedings. This is a very important consideration in several respects.
In addition to potential tax consequences from a forced foreclosure sale, commencing a Bankruptcy case before the foreclosure sale stops the foreclosure process and provides the Homeowner the means to force constructive dialogue with the Lender. Once such dialogue has commenced, many Lenders give a more meaningful consideration to a loan modification, even if they previously denied the borrower’s request for a modification. If nothing else, filing a Bankruptcy case will extend the time you have to live in your home.
The Pitfalls of Debt Consolidation
Most people try debt consolidation in the hopes of avoiding bankruptcy in order to preserve their credit. The result of debt consolidation are typically much different. Unfortunately, our experience is that debt consolidation only delays the process of rehabilitating one’s credit, often for several years. Monthly payments under debt consolidation programs are much greater than the cost of bankruptcy. A person can re-establish their credit much faster after a Bankruptcy case than with debt consolidation.
More fundamentally, debt consolidation programs are essentially unregulated and do not have the Federal oversight that the bankruptcy process does. As a result, many debt consolidation programs are scams by people seeking to take your money. Further, such programs do not offer any real protection from collection activities. We have found that people make payments for months or year under a debt consolidation program only to be sued by one of their creditors. At that point, the client has to file a bankruptcy case anyway.
Credit After Bankruptcy FAQ’s
People often worry about the possibility of obtaining credit after bankruptcy. We are here to give you honest information about the impact that Bankruptcy will have on future creditworthiness. Contrary to what most people think, a Bankruptcy case will often improve a person’s credit score and provide faster access to credit in the future.
Bankruptcy Does Not Prevent You From Gaining Credit
Many prospective clients who come to the Law Offices of Christopher Alliotts are often hesitant to file Bankruptcy because they think it will ruin their credit for many years to come. This is a myth and is simply untrue. Our Attorneys are happy to dispel that myth and properly inform you with the facts about the reality of Bankruptcy’s effect on your credit. You can repair your credit worthiness much faster than you realize in most all cases.
Your Credit Score is Already Damaged
If you are considering Bankruptcy, you probably have missed a payment or two on some bills. Or your unsecured debt is too much for your income and you are making minimum payments only and never retiring certain debts. If that is the case, then your credit score is already being damaged by a lack of progress in retiring debt. When most of our clients first come to us, their credit score is less than 650 and cannot qualify for a new loan or an extension of credit. After engaging in the Bankruptcy process the path to credit enhancement is clear and certain – without the burden of past obligations.
Bankruptcy is the First Step to Repairing Your Credit
Unlike debt consolidation programs, which typically require that you pay your debts in full, Bankruptcy typically eliminates your debts in months, not years, and for substantially less money. More importantly for your future well-being, once your case is complete your credit score is typically around 650 and it will increase if you pay your obligations on time.
Few of our clients realize that you can qualify for a new car loan as soon as your discharge is entered, which in turn will help you improve your creditworthiness. In addition, you can qualify for a new home loan in two or three years. Without a Bankruptcy case, you will be paying your old debts for years; your credit score will remain static and depressed; and you will not be able to qualify for new low-interest conventional credit for years to come. Our clients often tell us that they are surprised at how easy the Bankruptcy process is and how easy it was for them to get new credit once their case is complete.
