A grinding recession has put already struggling homeowners in a position where household debt loads are quickly becoming unmanageable. Loan modification has become a well known remedy for those experiencing hardships including toxic mortgages, job losses, being underwater on the house, divorce, etc. It has been widely reported that fully half of these modifications end up back in default within six months. Recently Fitch Ratings published estimates that the re-default rates on mortgages would rise to 70% by yearend 2009 due to inadequate terms on the loan modifications and additional household debt that isn’t included in calculating a what a homeowner can actually afford to pay on the monthly mortgage payments.

Once a homeowner has engaged a firm to negotiate a loan modification on his behalf, entering a debt settlement process can double or triple the decrease in monthly payments gained from a loan modification by itself. The debt settlement aspect of this combination has several advantages in terms of the loan modification and the benefits that would accrue outside of it:

1) Monthly consumer debt/credit card payments are typically cut by 50% within one month of starting the process.

2) The documented decrease in consumer debt payments makes the overall financial picture of the homeowner look much better. As lenders broaden their scope to account for consumer debt and ability to pay after a loan modification, the decreased payment as a result of the debt settlement could be the difference between getting a loan modification and being denied.

3) Engaging in a debt settlement will hurt the credit score of the consumer/homeowner but credit scores aren’t a major factor in determining whether a loan modification will be accepted or not. Acceptance for the loan modification is mostly contingent on ability to pay meaning that a debt settlement, even accompanied by a declining credit score, can help make the case for a modification.

4) The timing for completion of debt settlements varies from eighteen to forty-eight months during which time the credit score of the borrower will decline. Over time, as each account is paid off in the settlement the borrower’s credit score will begin to increase. Concurrently, initial interest rates on a new loan modification are typically set for three to five years before payment increases start to go into effect. An attorney negotiating the terms of a loan modification to coincide with completion of a debt settlement can put his client in a position where the homeowner could apply for a refinance at a time when his credit scores are on the upswing.

5) Even if a refinance is not available to the homeowner, timing the conclusion of the debt settlement process to precede the first interest rate bump on the modified loan proves to be advantageous as the homeowner/consumer would have additional cash flow as he finishes his payments to the debt settlement.

For consumer/homeowners with burdensome mortgage and consumer debt payments, combining the two processes can make a significant difference in cash flowing out of the household, the difficulty in managing the debt, and dealing with the possibility of foreclosure. Have attorney assess your total financial picture so that the two processes can be synchronized for optimal results.              

Bankruptcy can be a dirty word, and an even dirtier experience.  If you are facing a dangerous financial situation where bankruptcy seems like an option, you could be dealing with quite a bit of fear.  Part of what leads people to make bad decisions is thinking they are the first and only people to go through difficult financial situations.   However, when it comes to bankruptcy, many people have faced these unfortunate circumstances.  Loan modification attorneys work with people everyday who are considering bankruptcy as an option, thinking that bankruptcy will help them keep their homes.

Most recently, former pro bowl quarterback of the Cleveland Browns Bernie Kosar declared bankruptcy.  After donating millions to charity, lending tens of millions of dollars to friends and family and going through a messy divorce, Kosar finally had to succumb to the financial pressures.  Kosar has been a successful businessman, a skilled athlete and more.  Yet, in the midst of his success, financial troubles haunted him.  Many people make a great deal of money over their lives, yet they still face difficult financial situations.  Kosar still has to watch over his daughter, try to keep a roof over their heads and figure out the next steps in his life.  Declaring bankruptcy can impact someone in ways they never though of, and Kosar is going through those challenges.  Getting a loan is difficult, getting a reasonable interest rate is impossible, and it can even impact your career.

If you are facing foreclosure, you may think that a bankruptcy is the way you should go.  Bankruptcy professionals tout the benefits of declaring bankruptcy; however, bankruptcy has various negative impacts on your credit history, your finances and your life.  Declaring bankruptcy will stay on your credit report for years, up to a decade in fact.  That means that every loan, credit card and line of credit you ever get will be impacted by your bankruptcy.

Bankruptcy is also sold as an option to avoid foreclosure.  However, there are much better options to not only stave off foreclosure, but keep your credit in a much better place.  A California loan modification could be an alternative to bankruptcy that keeps your credit rating from falling through the floor and your interest rates from going through the roof.

California loan modification attorneys work hard to discover what your options are.  Rather than living in a home you think you can’t afford, a loan modification attorney can help you stay in that home for decades and give your family the future (and present) they deserve.  Your hard work to buy the home should not have to be ruined by a bad economy or a subprime mortgage loan.  With a skilled California home loan modification attorney working with you, the chance to stay in your home and build a better tomorrow is a reality.

Bankruptcy might seem like an option to avoid foreclosure, but all it does is further bury you in a financial hole.  A loan modification could be the way you avoid foreclosure and get out of your financial nightmare once and for all.

Visit Feldman Law Center at feldmanlawcenter.com or call 800-588-0425.