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Money Girl
095 MG Foreclosure or Bankruptcy, What's Worse?
Hey, Fidelity. How can I remember to invest every month? With the Fidelity app, you can choose a schedule and set up recurring investments in stocks and ETFs. Oh, that sounds easier than I thought. You got this. Yeah, I do. Now, where did I put my keys? You will find them. Where you left them. Investing involves risk, including risk of loss. Fidelity brokerage services LLC member NYSE SIPC. With the Wells Fargo Active Cash Credit Card, you can earn unlimited 2% cash rewards on purchases you want and purchases you need. That means you earn on what you want, like trying out that new workout class and 2% cash rewards on what you need, like a foam roller for your sore muscles. That's the beauty of the Active Cash Credit Card. It's ready when you are with unlimited 2% cash rewards. The Wells Fargo Active Cash Credit Card. That's real life ready. Terms apply. Learn more at Wells Fargo dot com slash Active Cash. Hello and welcome to Money Girl's Quick and Dirty Tips for a richer life. I'm your host, Laura Adams. As the national foreclosure rate continues to rise, I've had several people ask me how it differs from bankruptcy. In this episode, I'll give you an overview of both legal processes and how they can affect your financial future. You're probably aware that foreclosure is the final option that a lender has when a borrower doesn't pay their loan. It's a forced sale of the real estate that secures a loan. The proceeds of the sale allow the lender to recover all or a portion of the amount they're owed by the borrower. The foreclosure process varies from state to state. I'll put a link in the show notes where you can compare the state-specific foreclosure laws. But when property is said to "be in foreclosure," this means that the owner's lender has begun the legal process to force the sale of the property. It starts once the lender files a public notice in the county records called a Notice of Default or List Pendants. This puts everyone on notice that the borrower is facing foreclosure. If payments are not submitted to make the loan current, the lender's next step is to announce the date of the foreclosure sale by filing a Notice of Sale. The foreclosure sale is actually an auction that normally takes place on the steps of the county courthouse. The opening bid for the property is usually set by the foreclosing lender. If no one bids higher than the lender, they take ownership. Once a lender or bank owns a foreclosed property, it's called a real estate owned or REO property. The law allows a homeowner every opportunity to stop the foreclosure process. The borrower can make the loan current or sell the property at any time. Right up to the minute the auctioneer says sold. In many states, there's even a period after the foreclosure sale during which the borrower can get the property back with full payment. This is called a statutory rate of redemption. If your debt problem is due to the fact that your house payment is too high for your income, consider these five solutions to avoid foreclosure. Number one, if your financial shortfall is temporary, due to a job loss, for example, as soon as you're back on your feet, your lender may agree to a repayment plan. This would slowly get you caught up on all miss payments while you continue to make the regular monthly payments. Number two, negotiate a loan modification plan with the lender for a lower interest rate and/or longer payback term to lower the monthly payments. September is a great month for planning. We start thinking about the rest of the year, whether it's back to school, big year-end work projects, holiday plans, or travel. Planning ahead is crucial in life, especially when it comes to what happens when you're gone. Getting life insurance may sound daunting, but policy genius makes the process a breeze. 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That's for the lawyers to figure out. So just know, it's not going to happen again. Until it does, again. At Credit Union of Colorado, we have better interest rates and seamless mobile banking. All while having a heart, Credit Union of Colorado. Honestly, good. Learn more at honestlygood.org, federally insured by NCUA. Are you struggling to close deals? Cold outreach is wasting the time of both the buyer and seller at every stage, especially when sellers are using outdated data. Your organization can overcome these challenges with LinkedIn Sales Navigator, the first deep sales platform. Right now, you can try LinkedIn Sales Navigator and get a 60 day free trial at LinkedIn.com/trial. That is LinkedIn.com/trial for a 60 day free trial. Let LinkedIn Sales Navigator help you sell like a superstar today. 3. Request for Barants or a temporary suspension of payments with the lender. 4. Request the lender take a deed in lieu of foreclosure. This means giving the property to the lender and walking away debt free. This may be attractive to a lender if the cost of foreclosure would be greater than their equity loss on the house. 5. Sell the house and pay off as much of the loan as possible. If your loan amount exceeds the sale price, this is called a short sale. Not only does foreclosure remain on a credit report for up to seven years, but it can trigger some nasty tax consequences. This happens when the sale proceeds at auction or from a short sale are less than what's owed on the delinquent loan. The difference is considered taxable income in certain situations. And when the sale doesn't cover the full debt, in many states, the lender can file a deficiency judgment and sue the borrower for their loss. All these bad consequences to foreclosure may leave you thinking that bankruptcy would be a better option. Bankruptcy is a legal process that's completely separate from foreclosure. There are strict requirements to qualify for financial relief under any type of bankruptcy. Filing is a complex process that costs money and usually requires the guidance of a specialized attorney. The most common types of bankruptcy for individuals are Chapter 7 and Chapter 13. Chapter 7 involves liquidation, which means that a court appointed trustee takes over your non-exempt possessions to sell them or give them to creditors. This discharges unsecured debt, but does not erase things like judgments, tax bills, child support, or secure debts such as home loans. So, Chapter 7 bankruptcy will not stop a foreclosure sale. It is the best option for people with little property, but a lot of unsecured debt such as credit cards or medical bills. Chapter 7 stays on a credit report for 10 years. A Chapter 13 filing is known as a wage earners plan or a debt adjustment bankruptcy. It requires a regular source of income to pay debts over time to a trustee following a court-approved repayment plan. This delays and reduces payments to all creditors, including home lenders. So, Chapter 13 can stop foreclosure as long as the agreed upon payment plan is honored. It will stay on a credit report for seven years. There's no simple answer for which option is best, or should I say the least worst. To choose between foreclosure and bankruptcy is like choosing between a root canal and open-heart surgery. They're both going to be uncomfortable, but are options of last resort to put a debtor on the road to financial recovery. If you're a homeowner in default on your home loan, you'll first need to decide whether you want to try to keep your home. If you do, communicate with your lender as early as possible about every option they're willing to consider. But if reducing your monthly payment or even eliminating it altogether through foreclosure or a short sale would still leave you in a dire financial condition, consider discussing your eligibility for bankruptcy with an attorney and a qualified credit counselor. I'm glad you're listening and hope you'll go to podcastawards.com right now to submit a quick vote for The Money Girl Show and all your other favorite podcasts. Chaching. That's all for now. Courtesy of Money Girl. Your guide to a richer life. [MUSIC PLAYING]