Real Estate
When All is Lost
By Dan Smith

When All is Lost          

This year has been a hard year for many homeowners. I can’t remember a year in which I had so many calls for refinances that simply could not be done. For some it was the need to take out equity to pay off debt that had accumulated. For others it was just trying to get out of a nasty adjustable rate loan someone else had recommended to them. But whatever the circumstances have been, some homeowners have had to face a tough choice of whether they can even keep the house they are living in. But there are some facts that you need to understand, to make the appropriate decisions. I called a local bankruptcy attorney, Kurt Todd (at 303-292-1200), who was willing to chat and offer some insight.

First you need to look at your cash flow and the cause of the problem you are in. In other words, is it the credit card payments alone that are making your financial life impossible? If they were gone, would you be able to make the house payment with the income you are making now? If that’s the case then you may want to sit down with a bankruptcy attorney to discuss a chapter 13. Another option may be a credit counseling agency (which in most cases creates the same derogatory entry on your credit report as a chapter 13). With either of these two options you can reschedule the debt you have to a smaller more manageable payment, which may allow you to keep your home. You will likely not be able to get any new credit for a while. But that may be a good thing given the circumstances. For those people for whom even rescheduling is not enough, it also may be possible to file a chapter 7 and keep your home. There are instances where one can discharge just the consumer debt they have, while leaving their mortgage (and hence the home) out of the filing. But this can be tricky and here again you need to sit down with an attorney and see what will work for you.

There are also some things you probably shouldn’t do too. Don’t liquidate your retirement funds or life insurance policies to try and save the sinking ship. They are immune from bankruptcy or foreclosure, in that no one can force their liquidation to pay debt off. You may well need these funds later to help you get back on your feet. It may also not be a good idea to try and refinance either. Too many people refinance all the equity out of their house, and then find that it is nearly impossible to resell because they have borrowed as much or more than the house is really worth.

Of course no one what to find themselves in this predicament in the first place. But statistically most people drift into this situation over time, rather than being thrust there by some act of God. So in most cases this sort of thing could have been avoided by making better decisions and using more financial discipline. One thing I can tell you for sure: It is a LOT easier to make the tough decision to take on a second job, downsize your car(s), have your spouse go back to work, or even sell the house, than later having to decide between a bankruptcy and/or a foreclosure.

For expert advice on this or any aspect of home finance, call the professional. Dan Smith can be reached at 303-674-0201, or visit him anytime online at www.ColoradoHomeLoans.com