Could handing over the deed and thereby avoiding foreclosure be the answer for homeowners considering walking away from their property? Citigroup seems to think so, as today it announced a pilot program called “Foreclosure Alternatives” that would provide their company with the deed to the house without having to go through the legal process of foreclosure and allow the homeowner to remain in their residence for six months. This program will be launched on a limited scale in Texas, Florida, Illinois, Michigan, New Jersey and Ohio for approximately 1,000 homeowners. Traditionally, homeowners owing significantly more on their house than it is worth and not confident about an increase in home values would consider walking away from their property rather than continuing mortgage payments that seemed fruitless. Mortgage companies like Citigroup seem to have recognized this and in order to save themselves additional work to foreclose on properties, have offered an alternative “deed in lieu of foreclosure” for homeowners not qualifying for mortgage modifications or short sales. By avoiding foreclosure, the homeowner also avoids damaging their credit. However, this relief is only helpful if the homeowner intends to pay off any amounts still owing on the mortgage and mortgage companies can explain the programs they offer to their qualified account holders. If not, bankruptcy may offer the ultimate relief for such situations.
Disclaimer: This does not constitute legal advice. Please contact a Bankruptcy attorney in your jurisdiction to discuss your particular situation.
February 11th, 2010 by Administrator
The new bankruptcy law encourages potential filers to consider alternatives to bankruptcy. Debtors often do try out private credit consolidation before failing and seeking bankruptcy relief. Under the current law, debtors whose income is too high above the median level for their household size to qualify for a discharge of their debts would have to file a Chapter 13 petition for reorganization if they seek bankruptcy relief. A Chapter 13 petition allows the debtor to keep any assets but provides for repayment to creditors through a court-ordered payment plan based on the difference between the debtor’s income and expenses. This is in one sense similar to private credit consolidation, in which a third-party agent negotiates repayment terms with all creditors while accepting a lump sum monthly payment, including their agency fee, from the debtor. Such payments are often automatically deducted from the debtor’s bank account in order to ensure receipt. Debtors need to affirmatively indicate to the credit consolidation company their desire to terminate such payments, as when they are ready to file bankruptcy. Credit consolidation might temporarily halt an increase in interest and penalties, but these would be permanently eliminated by the Chapter 13 plan, which allows the debtor to pay the total balance owed at the time of filing. Definitely consult with an experienced Chapter 13 practitioner in your jurisdiction in order to determine whether your over-median household income might be a reason to consider Chapter 13 bankruptcy rather than credit consolidation.
December 2nd, 2009 by Administrator
These days more people than ever before are considering filing for bankruptcy, but of course consumer bankruptcy is not a one-size-fits-all solution. Many individuals may not be able to do a personal bankruptcy filing because of a high level of income relative to their household size, nonexempt assets or their legal immigration status or future financial considerations. Since credit counseling offered by authorized agencies is currently required for all bankruptcy filers, taking this course even without later doing bankruptcy might be a good option for those wanting more information about alternatives to bankruptcy. Many of the same agencies offering the course provide credit consolidation services. However, be aware that private credit consolidation companies are in the business of making money by arranging repayment of debts.
Often, clients come to me after having unsuccessfully tried credit consolidation and having automatic deductions of monthly payment amounts withdrawn from their bank accounts. In addition, Chapter 13 bankruptcies offer the advantages of private credit consolidation with the legal protections of bankruptcy by arranging for repayment on the debtor’s terms. I usually recommend people considering bankruptcy to start trying to negotiate total balances owed and payment plans directly with the creditors, most of whom are happy to get some portion of what is owed. Be sure to check first whether you qualify for bankruptcy in your jurisdiction, as the median household income amounts and exemptions allowed for property would vary from state to state.
September 28th, 2009 by Administrator
