Tennessee Bankruptcy Lawyer Blog

I almost hate writing anything about the mortgage modification programs anymore, but I continue to get calls from Tennessee homeowners asking what to do after their loan modifications fall apart. In yesterday's New York Times, there is another report on the failings of the HAMP. The previous reports have focused on the shockingly small number of mortgages that have actually been permanently modified. However, the New York Times article is now reporting that the number of mortgages that are defaulting after receiving a modification nearly doubled in March. That's right, even those homeowners who receive a modification are defaulting on the new payments at an alarming rate.

What does this tell us? Probably a lot of things. But from the information I am getting from my clients, it tells me that most of the modifications (even if you get one) are not sufficient to fix the homeowners' problem. In several cases, my clients have indicated that the amount of reduction they were offered under the modification was less than a 10% reduction in the monthly payment. However, the article also states that those homeowners who received a new monthly payment of at least 20% less than their prior payment still defaulted at a rate of about 40%. For most homeowners who are already facing foreclosure or bankruptcy, dropping the mortgage payment by only 10-20% isn't enough.

So what should you be doing if you need a modification? First, at least try the modification process. However, just be prepared for some frustration because the process is not easy. Second, be prepared for some mortgage companies to tell you not to make mortgage payments during the initial stages of the process. If that happens, make sure you do not spend that money on other things. Many people end up in a worse position because they don't make any payments during the process and don't have the money to make those payments when the process falls apart. Third, and most importantly, get everything in writing (including a statement that the mortgage company will not foreclose on your house during the modification process).

I continue to hear radio commercials and internet ads for "debt assistance programs" that say there is a federal credit card bailout and that "you have a right" to reduce the amount you owe on your credit cards. I have yet to find the so-called federal credit card bailout. What I have found is more concerns than answers.

If you Google "debt assistance programs," you will come across numerous websites offering to help you reduce your credit card debt. If you also add the search term "expires" to the Google search, you will also notice that there are different dates of expiration on these programs. One website said the program expires on 2/12/2010, while another website with identical graphics said the program expires on 4/15/2010. It appears to me that these "expiration dates" are nothing more than marketing ploys to get you to call sooner rather than later.

There are some legitimate debt counseling services out there. However, my experience is that most don't work and, in many cases, my clients have spent huge amounts of money (usually in the thousands of dollars) in fees with these services. Even after that, most never see any reduction in the amounts owed on their credit cards. In fact, most people end up in a worse position.

If you are looking for help on reducing your debt, spend some time budgeting and getting help from debt counseling. Don't rely on someone else to pay your debts for a large fee, particularly if they charge a large upfront fee. You are just as capable of negotiating with your credit card companies as any of these services. If you are in real trouble, though, it's probably time to start talking with a bankruptcy attorney. Most of us will provide a free consultation to help you determine if bankruptcy is the right course of action.