Struggling with Mortgage and Escalating Credit Card Debt? New Developments in Bankruptcy Law Can Help You
Question: My husband and I have been struggling to pay our mortgage payment because we have an adjustable rate of mortgage with negative amortization. Our principal loan is now $600,000; however, the market value of the house is only 400,000. Initially, our loan was a 30-year fixed rate mortgage. However, a loan officer approached us asking if we want to decrease our mortgage payments. We never knew that it will involve fluctuating interest rates that proved to be a burden now. After we used up all our saving, we relied on credit to make ends meet. Our accumulated credit card debts amount to $80,000. Frankly, we have accepted tenants to our home in order to augment our income. We are still current on our loan but we don’t know how long we can hold up. Our combined income is about $8,000. We have 2 children who are still studying. Is there anyway we could still save the house?
Answer: You are a perfect candidate to benefit the new Congress Bill, “Helping Families Save Their Homes Act of 2009”, H.R. 1106. This bill empowers the Bankruptcy judge to “write down” the principal of your home mortgage, to reduce interest rates, and to extend the loan terms up to 40 years from the date of the order. The primary aim is to avoid foreclosure and to allow the homeowner to stay at their house. The Senate is currently deliberating its own version of the bill. It will only be a matter of time before President Obama will sign this into law.
If you do not want to go into bankruptcy, then loan modification with your lender is your other option. You can negotiate with your lender to reduce your principal and interest rates in order to make your monthly payments bearable.
Generally, banks are willing to negotiate loan modification with the homeowner. The net proceeds that banks will get from the sale of foreclosed homes are but a fraction of the owed mortgage amounts. Besides, they on average must incur $80,000 in foreclosure related costs.
Moreover, President Obama’s Homeowner Affordability and Stability Plan aims to bring monthly amortization payments to sustainable level, of about 31% to 38% of the homeowner’s income. As incentives to banks/creditors, they will receive an up-front fee of $1,000 for each eligible modification established under the initiative. Also, as an incentive to homeowners to stay current on his or her loan, the initiative will provide a monthly balance reduction payment that will go straight to reducing your principal loan. Therefore by staying current on the loan, the homeowner can get up to $1,000 each year for 5 years.
As to your credit card debts, you can negotiate with the credit card companies so that they will accept much less payments than the balance owed, either with or without filing for bankruptcy.
This article does not constitute any legal guarantee or advice for any individual matter and does not create attorney client relationship with the readership.