Short Sale or Foreclosure?

The decision to do a short sale or to let your home go to foreclosure, is not an easy one. While for some homeowners, it is easier to throw up your hands and let the bank take your home, that might not be the wisest thing to do.

 

Benefits of a Short Sale

• You are in control of the sale, not the bank.
• You may sleep better at night knowing who is buying your home.
• Your home sale will be handled like any other home sale.
• You will be eligible, under Fannie Mae Guidelines, to buy another home in 2 years instead of 5 years.
• If your credit report does not reflect a 60 day late pay, under Fanny Mae guidelines, you will be eligible to buy another home immediately.

Benefits of a Foreclosure

• No mortgage payments to make
• The home is yours until the foreclosure is final
• No strangers touring your home
• Some banks offer "cash for keys" after a public sale

How do Short Sales and Foreclosures affect your credit score?

A short sale may be considered to be a derogatory mark on your credit even though credit bureaus do not show the word "short sale" on your credit report. It may say "paid in full for less than agreed" or "settled for less," among other categories. Some clients have reported negative FICO score drops from 50 points to 130 points.  Major point drops are typically due to being in default, meaning you have fallen behind on your payments.

Alternatively, a foreclosure will generally remain on your credit report for 7-10 years and your credit score will drop by over 150 points.  If a prospective employer runs a credit check on you, your job application may be denied if you have a foreclosure on your record. 

Which one is better?

As you can see there are a lot of potential problems with both a short sale and foreclosure. So, which one is better? Short sale wins every time. In all aspects, a short sale is more beneficial to you, the home owner, as well as the bank. It saves them money from legal fees and paying for the foreclosure process, and it also saves your credit report, potential taxes, and deficiency judgments.

If you’re facing a financial hardship and think you may need to seek a short sale, talk to a Realtor ASAP to get the process started. The faster the better. Don’t wait until the sheriff is knocking on your door to repossess your home. 

photo by: respres

 

Student loans are a necessary evil for most people.  In order to get a good education after High School, you apply for scholarships, grants, and any other sort of financial aid available. If you are very lucky, you have a college fund set up and ready to pay for that fancy education.  If you are not so lucky, you break down and take out a Student Loan.

Once you graduate, you are usually given a six month grace period to get a job and get on your feet.  After that, you've got to start paying off that debt. 

You should, of course, pay back the debt if you are able to do so. Student loan companies have hardship programs and payment rehabilitation programs available to you if you are struggling.  You can even file for deferment or forbearance to take a break from payments for a short amount of time.  If you have been faced with some unforeseen financial hardship, you may have to file bankruptcy to get you out of debt. But....

Can you file bankruptcy with student loans?

Student loans are difficult, but not impossible, to discharge in bankruptcy.  To do so, you must show that payment of the debt “will impose an undue hardship on you and your dependents.”

Courts use different tests to evaluate whether a particular borrower has shown an undue hardship. A common test is the Brunner test which requires a showing that:

1. The debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for the debtor and the debtor’s dependents if forced to repay the student loans
2. Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans
3. The debtor has made good faith efforts to repay the loans. (Brunner v. New York State Higher Educ. Servs. Corp., 831 F. 2d 395 (2d Cir. 1987).

If you can successfully prove undue hardship, your student loan will be completely canceled. Filing for bankruptcy also automatically protects you from collection actions on all of your debts, at least until the bankruptcy case is resolved or until the creditor gets permission from the court to start collecting again.

Assuming you can discharge your student loan debt by proving hardship, bankruptcy may be a good option for you. It is a good idea to first consult with a lawyer or other professional to understand other pros and cons associated with bankruptcy. For example, a bankruptcy can remain part of your credit history for ten years. There are costs associated with filing for bankruptcy as well as a number of procedural hurdles. There are also limits on how often you can file for bankruptcy.

Whether a student loan is discharged based on hardship is not automatically determined in the bankruptcy process. You must file a petition (called an adversary proceeding) to get a determination. 

If you already filed for bankruptcy, but did not request a determination of undue hardship, you may reopen your bankruptcy case at any time in order to file this proceeding. You should be able to do this without payment of an additional filing fee. 

Bankruptcy with student loans should ALWAYS be a last resort!

If you are struggling with your debt payments but you are not ready to throw in the towel and file bankruptcy, you can get help in other ways. 

Start by creating a budget for yourself.  Once you track your spending for a month, using this Free Budget Spreadsheet, you will be able to see where you can make changes. 

Next, explore other options to reduce your monthly payments.  If you have outstanding debt that is not part of your student loans, there are programs available to help you reduce your monthly payments and interest.  This can help you free up some money to put towards paying off those student loans!

For more information on programs available to you,

click the link  below!

 

What's your new years resolution? If you're like most people out there you have probably vowed to exercise more, spend more time with family, or even simple learn something new.  I did a little research and one of the top ten new years resolutions being made of 2011 is to become more financially stable.

Here are my top 5 tips to get you financial success in the new year!

#1 REVIEW YOUR CREDIT REPORT - Much of your financial future depends on the contents of your credit report. It is incredibly important to obtain your report, review it for accuracy and dispute any errors. Everyone is allowed one free report from each of the three major bureaus once every twelve months. You can access all three of your credit reports at www.annualcreditreport.com. 

#2 REDUCE YOUR DEBT - If you’ve dug a deep financial hole, stop digging. Piling new debt on top of old is a red flag that you are living beyond your means. Lock up the credit cards until they’re paid in full.  If that is not an option, or you need your credit cards just to maintain your monthly bills, you might need the help of a trained Debt Solutions Specialist.  They can help you determine what options are available to you and work with you to eliminate your debt fast!   

#3 TRACK YOUR SPENDING FOR ONE MONTH – Have everyone in the household participate. Write down every penny that is spent. It’s the small, miscellaneous expenses that often wreck the best of plans. At the end of the month, come together to review your spending. This is the only way you can truly know where your hard-earned money is going.

#4 MAKE A SPENDING PLAN – Once you’ve tracked your spending, you can then make decisions as to how you want to allocate the money. Continue tracking with the new plan in place. Keep doing so until you find a plan that is right for your family. Click on the link below for a FREE BUDGET WORKSHEET!

#5 COMMIT TO SAVE -  If you are anything like me, you are great spender and a lousy saver. However, without a well-funded savings account, you are on a very slippery slope, one that becomes treacherous with the next unplanned expense. Put 10 percent of each take-home check into a savings account. Make this a non-negotiable bill and have it automatically withdrawn from your checking acount. You can also find extra money to dedicate to saving by putting all raises, bonuses, birthday checks, into savings. This will create a cushion that should see you through most short-term emergencies.

Good luck on becoming financially organized in the new year. Let's talk next year and you can let me know just how well you did!