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On a financial precipice
Question: There is a leak in my "solar equity energy". I did the "home ATM" and have refinanced myself into oblivion. I have an ARM which is at 7.5% and about to change again. My income has just been cut in half, and I'm slipping behind on mortgage and credit card payments. I owe $14k on two cards. Is a loan modification going to help me out if my income isn't where it used to be? Am I going to lose my home of 12 years? Luanne, Orlando, FL
Answer. There are no easy answers for dealing with the kind of financial predicament you're in. I don't know if you'll lose your home, but it's a risk.
I would find a qualified credit counselor to go over your finances. You can find a reputable one in your area by going to the website of the National Foundation for Credit Counseling. (Steer clear of outfits that advertise on cable and radio promising they'll slash your debt for a hefty upfront fee.) The NFCC credit counselor's have seen everything when it comes to money trouble. Hopefully, you'll be able to come up with a realistic plan that satisfies your creditors and relieves you of financial pressure.
However, it doesn't always work. Sometimes there just isn't enough money. In that case, you'll want to consult with a bankruptcy attorney. You can start looking for one at the National Association of Consumer Bankruptcy Attorneys or the American Bankruptcy Institute. Bankruptcy is how many financially troubled folks get a fresh start. In many cases the bankruptcy courts will let you keep the home. An attorney will be able to advise you of your rights--and risks.
You may want to do some research on your own about getting rid of debt of your own, what credit counseling can and cannot do for you, and when bankruptcy is a smart move. If so, look at Reduce Debt, Reduce Stress by Gerri Detweiler, Nancy Castelman and Marc Eisenson (Good Advice Press) 2009. These three veterans of the get-out-of-consumer-debt movement really know their stuff. They offer plenty of practical information.
My final piece of advice: Figure out how you got into this financial quagmire so that once you escape you don't fall back into debt.
About the author
Christopher Farrell is economics editor of Marketplace Money, a nationally syndicated one-hour weekly personal finance show produced by American Public Media.
For the time being though, stick to the necessities and spend conservatively on them.
Necessities are: food, shelter, clothing, transportation, and utilities.
1. make sure simple groceries and utilities are taken care of.
2. make sure your rent or mortgage is current
3. make sure the car payment is up-to-date.
If you can pay for these out of your current reduced income, then you can probably avoid bankruptcy in the short term. Don't pay anyone else until these are done.
Try to work with other creditors, calling them on your terms. Ignore calls from collectors.
You are not alone in this and working with a councilor may save you from the permanent mark of bankruptcy, even though shorter term hits to your credit score may not be avoidable.
