Baltimore HUD Homes Blog

I like to tell my clients that financial crisis is like art: It’s different for everyone but you know it when you see it. If you are gasping for breath in the middle of the night obsessing about bills you cannot pay, you should know your options. Bankruptcy, in the Chapter 13 or the more rigorous Chapter 7 version are legal protections that can be valuable

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but thanks to a push by the Bush administration they are more difficult to qualify for and may not provide the protection you would expect. Consumer credit counseling are marketed by so-called “non-profit” companies so aggressively that one has to assume there is profit in there some where…there is and you don’t want to go there.

Chapter 13 Bankruptcy

The Chapter 13 Bankruptcy is in fact a renegotiation of your debts with the intention of paying them all off in a reasonable time frame. The day that you satisfy your Chap 13 obligations you will be able to apply for credit. By immediately reestablishing credit lines and maintaining excellent payment a Chap 13 “survivor” could get a conforming loan in as little as two years, I see it everyday.

Chapter 7 Bankruptcy

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This really is the death sentence. Going Chapter 7 Bankrupt will effectively seal your ability to get any credit for at least 3 years, 7 years for A credit. This means that you are completely writing off your debts with no intention of paying them in the future. Do not do this if you foresee any need for credit. If on the other hand you own your home and are truly swamped to the point that you can’t meet your mortgage you may need to consider this remedy so you can clear the slate and focus on the most important obligation - your home.

Consumer Credit Counselling

CCCS as it is know in the mortgage industry is usually looked upon just like a Chapter 13 Bankruptcy because you are formally, legally renegotiating your debts. Counselors do not always make clients aware of this which causes many a befuddled applicant to tell their loan officer, “I just wrapped all those debts up in Credit Counseling, why would you decline my application?” The befuddled applicant was declined because the underwriter looked at him like he was in the midst of a bankruptcy. Moreover while a client may make monthly payments to the Service, the Service does not always pay the debtors on time. If you truly need a credit counselor look for one that won’t actually restructure your debts. Better yet look for better options Do that on your own so you won’t have anyone else to blame but yourself

Your best option if you don’t have a sheriff knocking on your door is to look into ‘bankrupting’ yourself. By that I mean restructure your debt today, on your terms. This may mean prioritizing which creditors you will pay and which ones you will tell to “go ahead and write this one off…”. It’s the same thing the court would do but you avoid that permanent stain on your credit report and experience debt relief immediately. You can find more information for a Do-It-Yourself Bankruptcy here.

Mitchell Torek - AKA LoanLad - has counseled hundreds of his own clients to better credit as a mortgage originator. After years of helping good people in bad circumstances he decided to write the recipe down so people could do the cooking themselves. Today, “Loanlad’s Free Credit Repair” is the preeminent source for credit repair advice on the web.

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