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Keeping Your Home Despite Mountains of Debt

Guest Post by Donna Swanson. Edited by Mazyar M. Hedayat, Esq.

Related Videos: Check out these videos from Foreclosure Alternatives, a presentation by Attorney Mazyar M. Hedayat in October 2012 at Rasmussen College, Romeoville.

You can find yourself in serious debt anytime, and suddenly. Reasons range from an upward adjustment in the interest rate on your ARM loan to systemic unemployment, the state of the housing market, failed ventures, even natural disasters like Hurricane Sandy. Let’s say you’re confronted by out of control debt, sudden illness, or job loss; could the resulting budget chaos threaten your home? Could the effect of a sudden, unexpected event nudge your budget over the edge and invite the possibility of foreclosure?

The short answer of course is “yes.” The threat of foreclosure is real. But taking the right steps will help keep foreclosure at distance. Start by becoming familiar with government programs that offer help in troubled times, such as:

HAMP – the Home Affordable Modification Program is designed to support those Americans who are employed, but are struggling to make their monthly mortgage payments. Through this program, eligible home owners may be able to have their mortgage payments lowered (modified) to be more affordable in the long-term. While this program existed previously, President Obama made the group of people eligible for this program wider in June of 2012 by allowing debtors whose income to debt ratio is 31% or less, those who defaulted on their trial period payments or on their modified payments, and those who are applying for non-primary residences that they rent out or intend to rent to be eligible for applying for a mortgage modification.

HARP – even those who are currently able to make their mortgage payments may find themselves struggling to do so or find these payments are becoming more burdensome. In such a situation, the government has provided the HARP, Home Affordable Refinance Program, which allows those who are current on payments, but their home’s value has decreased, to refinance their mortgage into one that is more affordable and stable.

UP – for those that meet eligibility requirements, which includes being unemployed and unable to meet mortgage payments, the Home Affordable Unemployment Program allows them to decrease their mortgage payments to 31% of their income or stop making payments for a year or longer.

Still other alternatives are also available under the rubric of the Federal Government’s Making Home Affordable program.

Non-governmental Alternatives to Foreclosure include contacting the loss mitigation department of your lender to seek mortgage modification and taking matters into your own hands with the aid of a good Attorney. Such choices include:

Chapter 13 Reorganization – by filing for Chapter 13 bankruptcy with the support of a bankruptcy lawyer, a person not only receives an automatic stay, which stops creditors from seeking collection of debts including foreclosure proceedings until the bankruptcy filing is complete, but also allows a debtor to create a repayment plan for their debts that works better with their financial situation, making it easier for them to make monthly mortgage payments. Additionally, under certain circumstances, a second or third mortgage may be reclassified as unsecured debt, allowing it to be discharged at the end of the bankruptcy.

Truth in Lending Claim – according to the Truth in Lending Act, lenders must disclose, or tell, borrowers certain information, such as the amount that will be financed, potential penalty charges, number of payments that need to be made, and other vital information. Should they fail to follow the requirements of this Act, the lender may be in violation, allowing the borrower to file a claim and stop foreclosure.

Bankruptcy Exemptions – Chapter 7 bankruptcy exemptions may help a debtor to protect their real property, such as a home. However, in some cases the value of a person’s mortgage may be greater than what these exemptions allow for, meaning that a person may not be able to use them to protect their home. Should the amount that is owed be less than the total amount of real property / home exemptions a debtor is allowed to claim, though, they may be able to prevent foreclosure.

Facing the prospect of foreclosure is frightening and stressful. Fortunately you are not without options to protect your home. By exploring these and other options more thoroughly and with professional help, there is a good chance that you can take action to save your home.

Donna Swanson, a writer interested in bankruptcy law and proceedings, regularly contributes to a number of online resources to help people considering bankruptcy to understand all their options. Ms. Swanson previously contributed to a variety of financial blogs but recently turned her attention to writing primarily for bankruptcy lawyers and sites due to an increased interest over the past few years. Donna works from home and spends free time raising awareness for children with disabilities.

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