How Bankruptcy Can Stop Foreclosure, No Lender Approval Needed
Too little, too late might be the best way to sum up the $75 billion government initiative to reduce foreclosures by encouraging lenders to modify loans.
Obama's plan certainly meant well - and to be fair, it did help some folks - just not everyone. The plan recently reached its goal of helping 500,000 troubled homeowners by Nov. 1. Sound like a success? Maybe not when you realize Uncle Sam had set out to help 4 million foreclosure-bound homeowners. That adds up to a success rate of just 12 percent. And there are a couple other things to consider. First, there are millions of other homeowners who face foreclosure, but wouldn't have qualified for the plan. And second, even the lucky 12 percent able to modify their mortgages aren't free and clear yet. About half of them will redefault on their loan - even after it's been modified.
See, loan modifications just address the most obvious part of a homeowner's financial problems. You can't afford to pay your mortgage, so your lender makes it a little lower. But that doesn't address the reasons behind your inability to pay the mortgage.
Most people are swimming in debt, particularly credit card debt. And the thing about debt is that it comes with interest. If you're using a credit card to make your purchases and you're making the minimum payments on that card, you're barely covering interest as you continue to add to your balance. As your debt obligation increases, your ability to make your home payments decreases - no matter what the size of your mortgage. Now combine that with the other financial problems many of us are facing - less hours at work (or no job at all), higher cost-of-living expenses, etc. See where those high default rates come from?
If you want to afford - and continue to afford - your home loan, you need to deal with that debt. And bankruptcy is one of the fastest and most effective ways to reduce your non-mortgage obligations. When you file, you'll receive a repayment plan specifically tailored to your needs - depending on your situation, some debts may even be discharged. When you owe less to creditors each month, you'll have more to allocate towards the mortgage - and elsewhere. Another benefit - filing for bankruptcy legally stops and prevents foreclosure.