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Foreclosure or Bankruptcy, what is best for you?


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Presently the average American is over 100% in debt. That means that over 100% of their earnings should go to pay off their debt. With the economy in free fall and unemployment on the rise, over 5 million homeowners are facing an unfortunate reality of a lost job and tough times ahead. If you're one of these American's, you have already looked to the future and realized how far you can stretch what limited cash assets you have that have not disappeared into ether. Some say we must go back to consider life's essentials: Shelter, Electricity, and Food.

Unsecured Debt: This is your credit-cards. Pick up the phone, call your Credit Card Company and say, "I am broke, am considering declaring bankruptcy and need to speak to a Supervisor". After you do that, ask the supervisor if you can do one of the following: (1) Make a one-time payment to satisfy the debt; (2) Request a reduction in payment, making sure that the reduction includes a reduction in your monthly interest payments. Have your attorney contact the Company if they say "No" to either (1) or Don't be shy!! Don't be embarrassed!! Disengage yourself and act as if you're calling for your teenager and you just found out she bought $6,000 purse online and you want to send it back. By disengaging yourself your emotions are restrained, and you can be more objective to getting the best deal.

Secured Debt: This is your car or boat. Not all debt is unsecured (e.g. credit-cards). If you have a car and the payment is killing you, then perhaps you should consider a voluntary vehicle turn-in. You can do this by contacting your vehicle loan company and conducting the transaction similarly as you did with a credit-card- let's rehearse. You must be able to explain your hardship. For instance, you lost your job. Pick up the phone, and call. If they answer talk to them: " I have a car loan with you, and I lost my job and I can no longer afford the payments. I would like to speak to a loan officer regarding a voluntary turn-in of the vehicle because I don't want you to repossess it from me." They are going to do one of two things, (1) Tell you where to bring the vehicle, or (2) They will attempt to talk you into keeping the car and changing the credit terms. Remember, the automakers are producing over 10 Million cars per year, with the auto market down over 42% just in the last six months. Nobody wants a used car on their lot. If your creditor would like to refinance, then you have an opportunity to keep your car and lower your payments. As an average, say your $300-a-month car payment should be able to be knocked down to $200-a-month. Base this on the same interest rate with no penalties. See if they will go for it. If not, tell them you are going to write them a letter and tell them to come pick it up and stop your payments immediately. You will be responsible for any deficiency and the difference of the value they sell the car for, but now you have moved back to (1) and have an unsecured debt to them as if you have a credit-card. New debt, new negotiations. The same scenario would apply to anything in store financed (e.g. televisions, furniture), or boats and jet skis. Look at your loan agreement for the words "secured" to decide if you have a secured

Foreclosure: After you have addressed your secured and unsecured creditors, it is time to address your mortgage. In Florida, we have the protection of the Homestead Exemption Statute. Without going into too much detail, what it essentially means is that unless you have a mechanics lien, or a judicial decree, nobody can take your home away but your mortgage company (unless eminent domain issues apply). Just as you did with your secured and unsecured debt, you want to call your mortgage company. First, you pick up the phone and say, "I lost my job, I have no money and I believe I am not going to be able to pay my mortgage shortly." Your options are similar as before: (1) Lower my interest rates or monthly payments, (2) Restructure my loan agreement, or (3) Talk to my attorney because I can't afford my house. After this phone call is made, you need to consult an attorney about the next step to take. You need to consult an attorney before you make one more house payment. Do not worry because you are not going to get kicked out of your house tomorrow.

Foreclosure: After you have addressed your secured and unsecured creditors, it is time to address your mortgage. In Florida, we have the protection of the Homestead Exemption Statute. Without going into too much detail, what it essentially means is that unless you have a mechanics lien, or a judicial decree, nobody can take your home away but your mortgage company (unless eminent domain issues apply). Just as you did with your secured and unsecured debt, you want to call your mortgage company. First, you pick up the phone and say, "I lost my job, I have no money and I believe I am not going to be able to pay my mortgage shortly." Your options are similar as before: (1) Lower my interest rates or monthly payments, (2) Restructure my loan agreement, or (3) Talk to my attorney because I can't afford my house. After this phone call is made, you need to consult an attorney about the next step to take. You need to consult an attorney before you make one more house payment. Do not worry because you are not going to get kicked out of your house tomorrow. Fortnuately, new law is pending in Congress that will allow you to restructure with your bank without consideration. Something previously only allowed between merchants in contract law. We have all seen claims that can be postponed indefinitely. The fact is nobody really knows how long it can be postponed, as the courts begin to be clogged with foreclosures; yet, if you have to pay a power bill or your mortgage at this point - pay your power bill. The electrical company can cut you off, there is no laws that say they have to put you back on. The power company is absolute. You consumed the power, so consider your wallet wisely if you know your going to go under with your mortgage conserve your assets to take care of the same things our grandparents would a roof over your head, electricity, and food. It is the ultimate fall back situation, but faced with the alternative many of us will have little choice but to recess until the billion dollar budget plans put in place by the federal government, and a general credit stabilization takes place.

There is no need to be ashamed nor afraid; you are a survivor and this is part of surviving. Material things can be replaced. See your icebergs before they arrive, and start planning ahead. Keep a three (3) month plan in place, if you get within the ninety (90) day period and do not see the light at the end of the tunnel, you must hunker down and take care of the primary things that support life - shelter, electricity, and food.

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