Get Out Of Debt

Debt consolidation and consumer credit counseling are both ways of eliminating your debt. Consumer credit counseling is actually a form of combining your bills, but it does not involve a loan. Sometimes the term debt consolidation can also refer to a home equity loan that is used to pay off outstanding obligations. Consolidating your bills refers to a solution that consolidates your debts and allows you to make one monthly payment to cover all your debts.

A debt consolidation loan is a viable means of paying off your debt, but I do not recommend it. If you have credit card debt or are enrolled in credit counseling and do nothing, your creditors can report you to the credit bureau and make numerous collection calls, but that is about it. However, if you have a debt consolidation loan and cannot make the payments, the consequences are much more severe. Your creditor can start foreclosure proceedings on your home. Many people have debt consolidation loans, but there are better ways.

Consumer credit counseling is a form of consolidating your debts, but it does not require a loan. Debt counseling is a way for people to get out of debt without incurring additional debt. A debt management agency can help you get on a plan that will help you have your unsecured debts paid off in five years or less. If it takes longer than five years, you may want to consider other debt relief options.

Your credit counselor will interact with you lenders and they will no longer be allowed to make collections calls to you as long as you follow the terms of the plan. There are many benefits to debt consolidation with a debt service. Here are just a few of the benefits you will see by consolidating with a credit counseling agency:

*Reduced and possibly eliminated interest rates
*One convenient payment each month
*No more collection calls
*No more fees
*Budgeting and financial education resources

The biggest part of being successful with a debt management plan is not getting into something that you don’t think you can manage. If you are given a quote that you don’t think you can handle, you are setting yourself up for failure if you accept the proposal.

Debt relief is something you need to go into with an open mind and the attitude that you are going to do what it takes to become debt free. The most difficult part of getting out of debt is recognizing that there is a problem and asking for the necessary debt help.

You see, making a decision about which path to pursue depends on your evaluation of your individual situation.

Bankruptcy:

Pros:

o Chapter 7 Eliminates Debt and allows you to keep any equity in your home. If your problem is primarily consumer debt, this may be the best option for you – if you qualify.

o Chapter 13 restructures debt allowing you to pay off the amount in a way that makes sense for your family.

o Filing for bankruptcy stops the foreclosure action on your home.

o If you lose the home during bankruptcy, you will be able to qualify for a new mortgage in as little as two years as long as you keep your credit clean after discharge.

o Many people find that their credit scores actually rise slightly after bankruptcy because there is new money available for purchases.

Cons:

o Many people who file for Chapter 13 fall out of bankruptcy and lose the court protection provided. This means that they often not only have the bankruptcy on their record, they also face foreclosure proceedings once again.

o If you abuse the system – doing a “face filing” bankruptcy for the sole purpose of delaying the foreclosure, you may face fines from the court.

o Bankruptcy stays on your credit report for ten full years – longer than just about any other negative credit mark.

Foreclosure:

Pros:

o Stays on your record for just 7 years

o Won’t risk falling out of foreclosure and having both a bankruptcy and foreclosure on your record

Cons:

o You lose your home and any equity in it

o Generally cannot get a new mortgage for at least 4 years.

o Possibility of a deficiency judgment against you which will require a bankruptcy filing anyway

Chapter 13 payments are arranged through the reorganization of debt at the time when bankruptcy is filed. The debtor is required to make regular payments directly to an assigned Trustee who oversees the case. When Chapter 13 payments are received, the Trustee disperses payments to creditors until accounts are paid in full.

In some instances, Chapter 13 payments can be made through payroll deductions if approved by the bankruptcy court. Upon acceptance of the bankruptcy repayment plan, chapter 13 payments are setup to repay creditors and tax liens, if applicable.

If the debtor owns a home, filing Chapter 13 bankruptcy can halt the foreclosure process. However, if the debtor fails out of bankruptcy, the lender has the authority to initiate foreclosure proceedings. Additionally, the court may require the debtor to liquidate their assets under Chapter 7 Bankruptcy Code. If this occurs, the debtor must relinquish their property to a Trustee who will sell the assets and repay creditors.

Chapter 13 bankruptcy is available to all U.S. citizens. This chapter allows individuals to reorganize their debt and make payments over an extended period of time. However, certain eligibility requirements must be met and include outstanding unsecured debts must be less than $307,675 and secured debts must be less than $922,975. Additionally, the debtor is required to undergo credit counseling within 180 days prior to filing.

When an individual files Chapter 13 bankruptcy they must provide a certificate of credit counseling, proposed repayment plan, proof of income, detailed list of expenses, and a recent year tax return.

Collection actions against the debtor cease when the debtor files Chapter 13. However, it does not dismiss outstanding balances. As long as payments are made to the Trustee and disbursed in a timely fashion, no further action will be taken against the debtor. If the debtor is unable to make payments according to their chapter 13 agreement, the creditors can move forward with collection actions.

If circumstances arise that cause the debtor to become unable to make chapter 13 payments, the Trustee must immediately be contacted. If the financial setback is temporary, the Trustee may agree to reducing payment amounts or extending the repayment period.

In cases where financial setbacks are long-term, the court may modify chapter 13 payments, discharge the debts on the basis of hardship, convert to Chapter 7 liquidation, dismiss the Chapter 13 case, or temporarily suspend payments.

Chapter 13 bankruptcy provides individuals with the opportunity to retain their property and make a fresh start. When creating the repayment plan it’s crucial to arrange chapter 13 payments that are reasonable so the debtor can consistently make payments in a timely fashion. Otherwise the effort will be fruitless and cause the debtor to fail out of bankruptcy and lose their home, automobile and other valuable assets.

Recent data from the national Association of Realtors has shown that the first half of 2010 has shown a slight increase in short sales among at risk properties. A 2.3% increase is the average for the nation. While some areas have higher amounts, many areas are showing less than 1% increase.

Short sales have been promoted as an option to avoid foreclosure. Homeowners negotiate with the bank to sell their homes for less than the market value or the amount owed. As a way to keep more distressed homes from entering the market, lenders were encouraged to use this tool.

However, market statistics are showing that the process is not being utilized to its fullest, nor is it preventing foreclosures from occurring. These same statistics show that foreclosure notices reached over 1.9 million in the first 6 months of 2010 and that 1.6 million properties were affected.

Lenders are always leery to use this form of loss mitigation, and often the process is slow and grueling. Sales often take to long and the homes enter foreclosure proceedings. Many people find that negotiating with the lender, even with assistance, can be difficult.

Analysts are predicting that the later half of 2010 should show a large increase in the number of short sales that are approved. As banks and private lenders prepare to close their books for the year, the prospect of having too much inventory is frightening. In an effort to prevent this, it is anticipated that short sales will have a significant rise.

Current figures show that the remainder of 2010 does not look good for the real estate market. Year end sales are often lower, even during good times. One of the only ways to keep the foreclosure numbers down is to approve the short sales.

There are many realtors that are now specializing in this type of transaction. Distressed property specialists are the titles they are using. These realtors know and understand the process of the short sale. It is with great hopes that these experienced sales people will be able to change the course of foreclosures and encourage the use of short sales.

Short selling was, in the past, a very rare transaction. Now, with housing prices as low as they are and the amount owed against the homes so high, this process may be the only salvation an upside down mortgage holder has to avoid the foreclosure process.

The real estate market is said to be beginning its rise back from the doldrums but the problems that people faced during that rather sad period are still very much around. While there are different kinds of options that homeowners can choose from when they are faced with difficulty in paying their mortgages, not all of these options are viable.

Sadly, many homeowners are forced to either declare bankruptcy or allow foreclosure proceedings to be initiated. However, there is another option that homeowners can avail of in for loans related to real estate—short sales. It is important to discuss this difficult decision with their lenders because there needs to be approval on their part since agreeing to short sales will mean that they will be accepting a loan payment that is less than what is actually owed to them by the homeowners.

They also need to meet the requirements set by their lenders and submit whatever documentation is asked of them. Once they are deemed qualified for short sales, real estate agents can begin to market the house and let people know that it is available for purchase. The homeowners may need to inform their lenders of who their real estate agents are in order to create a smoother transition during the short sale process. Some of the documents that may be asked of homeowners applying for real estate short sales are

1.) a preliminary net sheet, which is a statement that clearly shows how much the homeowners are expecting to receive upon the sale of their property, any outstanding debts and fees, and other financial matters,

2.) a hardship letter, which is considered a statement of facts that underscore why homeowners are facing the financial difficulties they find themselves and why they have been forced to pursue short sales,

3.) proof of income and assets, which is a factual document disclosing your finances and assets to clearly show that the homeowners cannot afford to meet their mortgage payments, and

4.) bank statements, which present the deposits and withdrawals homeowners have made using their bank accounts.

Once a prospective buyer places a viable offer on the table, homeowners need to send a copy of the offer to their lenders. The offer will need to be studied and decided upon and lenders have the option to refuse an offer and