If We Stop Paying Our Credit Cards Will it Affect Applying for a Loan Modification? – Wong

“Dear Steve,

My husband and I owned a small business, the harsh economy has make our income lower than we expected. We purchased our house 4 years ago, the value has gone down a bit but I don;t think we are up-side-down on our mortage. Our credit used to be really good but because we have maxed out all the credit cards so our credit is not too good now. We are 130K in debt. We are expecting a few deals to go through with good profit but I can not make my next month’s credit card payment (which I have always paid on time).

If I stopped paying my credit cards payment will it utimately affect my mortage or loan modification which I am thinking of getting?? Our house has personal meaning to us and we really do not want to jeopardize it.


Dear Wong,

I don’t know if it will hurt your chances of getting a loan modification. You should check with your lender or a HUD housing counselor now and find out what the modification requirements are for your lender. But that’s not really the issue here.

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As you said, your cards are maxed out, your income is down and you can’t make your payment next month. I’m afraid it is what it is.

I also get the sense you are struggling with the current mortgage payment and that’s why you want to seek a loan modification. The bad news is that loan modifications take forever and even once granted the benefit is not sufficient for most people to make a substantial difference.

One course of action at this point, if you want to keep the house, is for you to immediately find a local bankruptcy attorney you like, make an appointment, and go in and talk face-to-face. You’ll probably discover that a Chapter 13 bankruptcy will allow you to keep the house and you will enter into a reduced payment plan for the other debts based on what you can afford. The bankruptcy will give you protection from your creditors that no other solution can give you.

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Otherwise, if you can’t make the credit card payments next month, don’t make them. You’ll wind up in collections but if the deals are going to close really soon and you will be able to get current on your debt and not have any more problems than you’ll just have a late payment on your credit report.

Please update me on your progress by

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

Damon Day - Pro Debt Coach

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Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
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