Chapter 8

What can you do to protect your credit score in the event that you are no longer able to make your mortgage payments?

Alternatives to safeguard your credit include: sale of the home, through a direct sale; a short sale; and assumption of the loan by the lender.

If you are in a position in which you cannot make payments on your home, what should you do to prepare for a meeting with your mortgage lender?

Before calling the lender, review the original mortgage loan papers and re-evaluate your budget and personal cash flow statement. Look at your debt to income ratio. Make sure documents are up-to-date. Be ready to explain to the lender where you currently stand and be ready to recommend a payment plan.

Why is it important to pay yourself first?

By paying yourself first, you are making a commitment to your future financial fitness. Regular savings from paying yourself first is a life-long habit to develop financial security.

Wage Earner Bankruptcy

Chapter 13 bankruptcy for individuals with a regular source of income

How does Chapter 7 bankruptcy compare to Chapter 13 bankruptcy?

Chapter 7: quick and simple form of bankruptcy where liquidation of assets is distributed to the creditors. Chapter 13: bankruptcy is where you retain your assets and propose a reorganized debt payment plan to the creditors.

Acceleration clause

Clause that allows the lender to demand full repayment of the loan amount if payments are past due

What are some strategies for managing past credit card debt?

Contacting the credit card companies and trying to renegotiate the interest rate. If you are struggling to make credit card payments, call the companies to explain your circumstances. Create a plan of action to pay off debt and follow through on the plan

What is the one question you need to ask yourself each time you consider taking on more credit?

Fiscal fitness compares to physical fitness in the following way: if you want to lose weight, you need to eat fewer calories and exercise more. To achieve personal financial success, you need to spend less and make more.

What risk does debt consolidation bring?

It only treats the outcome, not the source of the problem. If you keep using credit cards as you did in the past, you soon will be carrying a new balance on the credit cards as well as paying off the consolidation loan. Doing so just adds more debt to the pile instead of eliminating it. If you secure a consolidation loan, you are paying off unsecured debt with a lien on the car or home. If you declare bankruptcy, the new lender can take away the home or car that was used as collateral, whereas unsecured lenders do not have any claims to these.

What types of activities are not permitted under the FDCPA?

1. Call before 0800 or after 2100 2. Call you at work if you ask them not to 3. harass you, use bad language, or threaten you 4. conceal their identity 5. Lie or falsely imply you've committed a crime 6. Disregard a written request from you to cease further contact 7. Falsely represent the amount, character, or legal status of any debt

What are the steps of digging out of debt?

1. Stop using credit cards 2. create a realistic budget 3. exercise the "ten seconds" and "month-end" spending holds 4. don't buy stuff you can't afford 5. pay off debt 6. Make payments on time 7. Increase income

What steps can you take to restore you credit after bankruptcy?

1. change your lifestyle 2. pay everything on time 3. plan to buy with saved cash instead of using credit 4. establish a secured credit card

How do you identify legitimate credit counselors who can help you dig out of debt?

Make sure the credit counselor is associated with the NFCC or the AICCCA

Summarize the consequences of bankruptcy?

Possible loss of your home and/or possessions, being bound to a strict budget to repay creditors, and having a low credit score, thus making it more expensive to get car insurance, buy phone service, rent an apartment, and get a loan. You will continue to be responsible for student loans and other court-ordered obligations. Bankruptcy shows up on your credit record for 7 to 10 years.

What are your short term and long term options for maintaining your credit if you are at risk for foreclosure?

Temporary options include reinstatement of the loan, forbearance, or creating a catch-up repayment plan. Long term solutions are a land modification or filing a partial insurance claim.

What are some of the signs of out-of-control credit card spending?

Unable to make minimum payments, tapping home equity to pay off credit cards, taking money from retirement savings to pay off credit cards, borrowing money from family members or friends to cover payments, getting cash advances on credit cards, using a bail out lender.

Liquidation

a sale of a debtor's nonexempt property and the distribution of the proceeds to creditors

Forbearance

a temporary reduction or suspension of mortgage payments for 3 or 4 months, followed by a new repayment plan for the loan

Cramdown

an arrangement in which the mortgage terms are altered in attempt to keep the borrower from foreclosure

Deed-in-lieu of Foreclosure

an arrangement whereby property is given to the lender in return for forgiveness of the mortgage balance

What are some early warning signs of financial trouble?

living paycheck to paycheck, using credit cards without the cash to pay them off when the bill comes, paying only the minimum amount due on credit cards, credit card balances increases month to month, net worth decreases each month, charging essentials with a payoff plan, not having a bidget and not knowing your monthly income and expenses, and no emergency fund.

Reinstatement

temporary solution to the risk of foreclosure that involves re-establishing a loan if the terms of a new agreement are met

What does it mean to be frugal?

to avoid waste and be resourceful when looking into options on how to fulfill your needs for goods and services.

Short Sale

when a residential property cannot be sold for the full amount of the loan and the lender accepts the selling price as satisfying the mortgage.