Time is Not on Your Side

There have been a number of reports recently about the uptick in foreclosures. This is due to the end of the pandemic moratorium and the temporary forbearances that lenders have been offering to assist homeowners during the pandemic. At the same time, bankruptcy filings continue to decline. This can be confusing, and even misleading, for those facing financial hardship. Whether you are dealing with credit card debt, mortgage arrears, or any other type of debt, it is important to be proactive.

It’s easy to try to hide from the problem and hope it will just go away. Unfortunately, it never works out that way. If a creditor has not yet commenced a lawsuit to collect or foreclose, eventually they will. The real question is how much more difficult will it be to address the problem down the road as opposed to attacking it head-on as soon as the problem presents itself. In this line of work, I cannot stress enough the importance of confronting a debt problem immediately as the results are often more favorable.

Credit Card Debt:

When people are struggling to pay down debt, they tend to do everything they can to stay afloat. This is a costly strategy that may not lead to any results. Most of the time amassing this debt was unexpected, so there is no solid plan to get out of it. This is where it’s best to seek the assistance of an experienced professional. There may be a number of strategies to explore, but only if you act fast.

Sometimes it takes a number of trusted advisors including an attorney and financial advisor to develop a strategy to address the debt. Some quickly rush to pull money from retirement accounts, but that can have serious tax consequences and leave little for retirement. The earlier you act, the more (and often better) options are available.

Credit card debt also carries a high-interest rate. I’ve spent a lot of time speaking about interest and how it can be your own worst enemy. The longer you wait to confront your debt, the more interest will accrue. Simply put, this means that you will have to pay back more money. This applies to taxes, student loans, and personal loans as well.

Mortgage Arrears:

If you fall behind on your mortgage, after about six missed payments your lender may no longer accept monthly payments. They will insist on a large payment to cure all of the mortgage arrears. If you are unable to do so, a foreclosure action will follow. In a foreclosure, once you are served with a summons and complaint you are given 20 or 30 days to reply. This is your chance to defend yourself and assert any defenses available to tell a judge why the bank should not be entitled to foreclose on your home. If you do not assert those defenses in a timely manner, they may be deemed waived. In addition, if your ultimate goal is to stay in your house and get back on track with your mortgage payments, the options are much more favorable early on.

If caught early enough, you may be able to craft a plan to cure mortgage arrears in just a few months. It requires discipline and a tight budget, but that’s the quickest and most cost-effective way to catch up. However, if you cannot set aside the monthly mortgage payment each month, plus savings to cure those arrears, you may need to explore other options. After so many months, curing your mortgage arrears on your own becomes significantly more difficult.

One option to stop a foreclosure is through a loan modification. This is where you present a case for the bank to restructure the loan so you become current and can resume making regular monthly mortgage payments. There is no guarantee with loan modifications, as you must qualify for a program offered by your lender and they often have strict guidelines. In addition, while going through the loan modification process, mortgage arrears continue to accrue – this can make it harder to catch up with a short repayment plan if a modification is unsuccessful.

An alternative to seeking a loan modification is filing a Chapter 13 bankruptcy. In a Chapter 13 bankruptcy, a debtor can create a repayment plan for up to five years to catch up on mortgage arrears and also address any other debt. Five years is a generous amount of time to catch up, and not something your lender will ever agree to outside of bankruptcy. However, the longer it takes to decide to get your paperwork together and file, the more arrears you will have to pay back. If you do not address your mortgage arrears quickly, you may reach a point where catching up over 60 months is no longer affordable.

I’ve seen too many homeowners bank on getting a loan modification and after months and months of working with the bank, they get denied. For borrowers with a monthly mortgage payment of $2,500, that could easily lead to more than $10,000 of additional mortgage arrears to address in a possible Chapter 13 case.

In my own experience, and after speaking with other experienced advisors, sometimes the best strategy may be to have patience. The key is acting early so you have a chance to explore every possible strategy. In the next post, I will address when it may pay to not rush into something.

If you or someone you know is facing debt and is not sure how to address it, contact Zimmelman Law PLLC to start crafting your personalized debt relief plan.

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Zimmelman Law PLLC

With over twelve years of experience, Matthew D. Zimmelman, Esq. has helped thousands become debt-free and saved countless New Yorkers from losing their homes in foreclosure. Whether you are an individual or a small business, looking to file bankruptcy or looking to eliminate your debt without filing bankruptcy, we are here to help you get a fresh start.

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