How to Get Out of Debt With the Get Out of Debt Guy » heloc home equity

We Were Going to File Bankruptcy But Then Stopped to Negotiate With the HELOC Lender. – Dorn

Steve Rhode — Fri, 26 Feb 2010 21:02:47 +0000

Dorn

“Dear Steve,

We are filing for chapter 7 bankruptcy protection for our 50,000 in credit card debt. when we went to see a bankruptcy lawyer, he recommended that we also walk away from our home b/c we are upside down on the mortgage and heloc. At first it sounded great to do this and then I got nervous about my credit scores so, I have decided to try and do a home loan modification on the 1st loan and offer a lump sum payment to pay off the heloc loan. In the meantime I am also listing my home for a short sale at fair market value.

So as you can see I am trying to cover my bases. The reason we won’t do a chapter 13, is b/c the payment made up by the courts will be around 1600 dollars a month and will put us right back in the same financial harship we were in except that it would finally be over in five years. We really do want to save our home now and try to work it out with the lenders.

MY QUESTION IS HAVE YOU SEEN MANY COMPANIES TAKE SETTLEMENT OFFERS TO PAY OFF HELOC LOANS? I HAVE OFFERED 10% OF THE LOAN VALUE TO START AND AM ABLE TO GO A LITTLE HIGHER WITH THE HELP OF FAMILY. AFTER THE SHORT SALE (IF IT GOES THROUGH THE HELOC COMPANY WILL GET LESS THAN MY OFFER AFTER THEY PAY OFF REALTORS AND THE 1ST LENDER TAKES WHAT THEY NEED. AM I DREAMING OR ARE THESE LENDERS WILLING TO TAKE THESE SETTLEMENTS TO KEEP PEOPLE IN THEIR HOMES DURING THIS TERRIBLE ECONOMIC CLIMATE AND THE SKYROCKETING FORECLOSURES?

Dorn”

The Answer:

Dear Dorn,

I’m not sure how your second option helps your credit scores any better. Your credit report will still show a settled debt, a modified mortgages and maybe even some delinquent payments. It sounds to me like to are trying to bargain your way into what you think is a more responsible solution.

There are a number of reasons why a home equity line of credit lender might either not negotiate or take such a low settlement offer. None of those reasons have to do with logic from your point of view. They are all based on maximizing income for the HELOC loan servicer.

It is doubtful that the HELOC lender is holding the loan on your property. It was probably sold on the secondary market or sold as part of a bundle of notes. In that case the lender is just the servicer of the loan. Loan servicers make more money collecting your payments, charging you late fees, and chasing you.

I think the best way to plan your strategy is to first identify what the goal is you are trying to achieve. Is it to get a fresh start, labor as hard as you can to stay where you are, or what?

Once we know where you want to wind up we can plan the journey.

Just update me in the comments section on this question and I’ll answer.

Oh and by the way, lenders don’t give a damn about keeping you in your home. You are secondary to the ultimate goal, maximizing profits.

Big Hug!

@GetOutOfDebtGuy

P.S. Be sure to read ‘The Secret of Surviving Through Difficult Economic Times. What I Learned On My Journey‘.

Teresa Writes In And Asks “What Should I Do Next?”

Steve Rhode — Sun, 20 Dec 2009 06:59:52 +0000

From How to Get Out of Debt

“I have a lot of debt. I fell behind after being diagnosed with cancer. All the medical bills were paid at first but I maxed out credit cards and then took out a HELOC. The HELOC made my debt worst because it just consolidated the debt but left open credit that was used again.

Now I have a suspended HELOC with a high payment and all the credit card debt the HELOC had covered. In addition there is continued medical bills that must be paid. I’m now behind or in collections with most of my credit cards and having to get payday loans.

I tried working with a debt settlement company and they were helpful. I just don’t have the money to pay into the account due to medical cost. What should I try to do next?”

Dear Teresa,

First off let me just tell you how sorry that I am that you’ve had to live through all of this. Life for many is stressful enough but to add the threat of cancer and then top that off with debt problems, I’m sure that some days for you have been almost unbearable.

At some point you need to focus your energy on getting better and beating cancer, for good, rather than suffer under the continued stress and pressure of your financial situation. That pressure can actually make it harder to recover as the added worry and stress acts negatively against your body.

Now, I’m certainly not suggesting that anyone that has cancer should get a free pass from paying their bills. But your story is different.

You see Teresa when reading your question I went of Oh! to Oh No! I would safely guess that your current financial life is terminal and needs to be euthanized with a heavy dose of bankruptcy.

The combination of maxed out credit cards, followed by a HELOC (home equity line of credit) for debt consolidation, followed by maxed out credit cards and then a payday loan is nearly always fatal.

While a short-term cash loan or payday loan can be a valuable tool to use in certain situations, it is not a good sign at the end of the lending chain. The best time to use a payday loan is when you have a gap and need emergency cash before the next paycheck and can then immediately repay it. Using it at the end of the borrowing cycle is never a good sign.

What your story and chain of events tells me is that by the time you got to the payday loan you were totally tapped out and resorted to a payday loan to fund just a bit more, when nobody else would. Your financial hole is so deep now that it would probably take the rest of your natural life to just partially dig your way out.

It is now time to talk to a bankruptcy attorney and get a free bankruptcy review of what bankruptcy will mean for you. Speaking to a bankruptcy lawyer does not mean that you are automatically going to file but it will give you more information to judge what bankruptcy will mean in your specific case.

If you had to devote life energy towards either a goal of trying to settle the debt or move forward after bankruptcy, I’d suggest bankruptcy, strongly. And if you say that bankruptcy s not for you because you have a strong moral belief that you need to pay back your debts, there is nothing preventing you from doing that, after bankruptcy. Just because your debts are discharged it does nt mean that you can’t repay them, but now without collection pressure.

Please write back in an let me know how things go for you. I care and want to know.