Mortgage deliquencies rise. What can you do?

Subprime mortgages — those made to borrowers with less than good credit at higher than usual interest rates — are in trouble. Lenders now admit they got too loose with their requirements in 2003 and 2004 when interesr rates were low, and many of those loans are now in delinquency. The rate of delinquency continues to rise at what the Wall Street Journal calls “an alarming rate.”

If you are in this position, behind in your mortgage, here’s what you can do. First, forgetting the arrears, ask yourself whether or not you can make ongoing payments. If you can, then I would talk to a bankruptcy attorney about a Chapter 13.

Under a Chapter 13, back mortgage “arrears” are paid off slowly over time and other debts are cut down, often to 10 cents on the dollar, and you can get on with your life and keep your house.

If the answer is “no” — you cannot continue to make payments at the current level — then the first thing to do is to talk to your lender to see if they will lower the interest rate (and your payments) to a rate you can deal with.

If they won’t do that, I would still recommend a conversation with a reputable bankruptcy attorney about the likelihood that a chapater 13 can work for you. It may be that you can package up your arrears, and lower your monthly payments to a level you can cope with.

Do not worry about what this will do to your credit rating. No one who is way behind in their mortgage payments has a very good credit rating. Bankruptcy may actually improve it!

For more information on bankruptcy, click here.

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