This morning’s Atlanta Journal/Constitution published an article entitled “Georgia Foreclosures Jump 99%; rate is nation’s 3rd highest.” According to this article, one out of every 449 houses will go into foreclosure. Why the increase? Interest rates on adjustable rate mortgages are going up. In addition, underwriting standards by major lenders were relaxed over the past few years.
In my bankruptcy office, we have been seeing the increase in foreclosure traffic in the form of clients looking to file Chapter 13 to save their homes. Chapter 13 stops a foreclosure and provides a three to five year payback of the mortgage arrearage. However, Chapter 13 cannot stop a mortgage rate from adjusting nor can it change the terms of your mortgage. Furthermore, when you file a Chapter 13, you still have to make your regular mortgage payment in addition to your Chapter 13 trustee payment.
One of the first tasks we undertake with our clients is the creation of a budget. Once we know where your money is going, we can decide if saving your house through a Chapter 13 is feasible at all. Many of my clients have never sat down to write out a budget – it can be enlightening and I recommend this process to anyone, homeowner or not.
The AJC article quotes my colleague at the bankruptcy bar, attorney Herb Heitman, who notes that lenders are much more willing to negotiate outside of bankruptcy than they were in the past. I think that this point is very important. While bankruptcy is a solution to a pending mortgage foreclosure, do not rule out direct negotiation with the lender. If you go the direct negotiation route keep the following in mind:
- start your negotiations early
- if you work out a deal, insist on written confirmation
- do not agree to give the lender direct access to your checking account
- do not sign any sort of “Consent Judgment” or legally enforceable document without consulting with a lawyer
- do not waive your right to file a Chapter 13
I would also urge you to be wary of contracting with fee-based debt negotiation services who promise to work out a deal. I have ended up with last minute Chapter 13 clients who have also paid several hundred to several thousands of dollars for worthless negotiation services.
And finally, if you do decide to pursue a Chapter 13 bankruptcy, I strongly urge you to avoid any of those “bankruptcy paralegal” services you see out there. While the Bankruptcy Code does permit “petition preparers,” as a practical matter, I do not see how a petition preparer would not be engaged in the practice of law. Given the complexity of the new bankruptcy law, I would be very wary of pursuing bankruptcy relief on your own or with a non-lawyer.