Spring Cleaning…in January
Despite the fact that it’s cold as heck outside—and winter (depressingly) won’t end for another two months—I’m doing some spring cleaning this weekend. Not traditional housework, mind you, but a sort of purging of my financial files in preparation for tax season.
Normally I’m a major procrastinator, but not when there’s money on the line. And since I’ve got my fingers crossed that I’ll be eligible for a tax refund this year, I want to file as soon as possible. While I’m at it, I’ve been looking over my receipts and credit card statements. It’s a reminder of all the things I’m spending money on—and all the ways I might be able to cut back. Though it’s a bit painful, I’d definitely recommend it. It’s a lot easier to curb your spending weaknesses when you bring them out in the open.
But there’s another reason why now is a good time to get your finances in order: so you can prepare to take advantage of new bankruptcy laws that will make keeping your home a sure thing—even if you’re headed for foreclosure.
If you’re drowning in debt and behind on your mortgage, 2009 is the year you can get back on your feet. Thanks to new Chapter 13 bankruptcy laws that will be passed with President Obama’s economic stimulus package (tentatively on schedule for mid-February), just about anyone with an unaffordable mortgage will be able to avoid foreclosure.
You see, filing for bankruptcy currently means that your non-mortgage debts are lowered—but you still have to make the same high house payment. Once the update is passed, though, a judge will have the authority to change your mortgage terms. So if your loan is deemed unmanageable, it can probably be lowered—maybe by a lot. For instance, if your home has depreciated by $50K, a judge can choose to devalue your mortgage by a similar amount. It’s a small change, but it could stop millions of foreclosures.
And there’s jut one simple requirement—that you show you first made a good faith effort to seek a loan modification from your lender (in other words, you don’t have to secure one—just show you tried). Modifications haven’t been very effective at stopping foreclosure because they don’t address unsecured debts (namely, credit card debt) and only make minor changes to a mortgage. Thankfully, the new Chapter 13 stands to solve that problem because it addresses everything—most of your major debts as well as your house payment.
Before you file, though, consider doing a little spring cleaning. Just like you wouldn’t go to a court appearance wearing your sweatpants, you shouldn’t enter the bankruptcy process without spiffing up your finances a bit. Hence the loan modification requirement.
So how else can you show a good faith effort? Maybe you can’t pay off your debts, but you can stop adding to them. Shelve the credit cards for a while, if possible. Start a budget. You don’t have to totally overhaul your spending habits—I realize we’re all sort of scraping by right now—but if you can find a way to save a few bucks, it will go a long way towards impressing the judge. For more ideas on making saving easy, check out our Financial Toolkit. Or sign up for a free one-on-one debt analysis with one of our debt relief experts. To stop foreclosure, you want to prove to the court and your creditors that you’re committed to making a change. We’re committed to helping you do just that.