Recently in Debt Negotiation Category

If you work with a legitimate provider, debt negotiation can be a big help when you're drowning in debt and dealing with creditor harassment. Unfortunately, there are some types of debt that don't typically qualify for settlement.

The five types of obligations that are the hardest to resolve through debt negotiation are student loans, tax debt, alimony and child support, utility bills, and secured debts. The fact that they present challenges, however, doesn't mean there are no options.

Student Loans

Unfortunately, student loans are extremely difficult to discharge through bankruptcy, and lenders know it. Student loans are rarely written off and forgiven, and if the lender obtains a judgment against you, they can enforce it through wage garnishment, liens and other harsh means.

The Treasury Department announced its April figures for the Home Affordable Modification Program (HAMP) on Monday, revealing a surprising statistic. Nearly twice as many homeowners with loan modifications through the program dropped out in April than had done so in March.

Overall, over 299,000 applicants had received permanent home loan modifications through the program as of April. That number accounts for about 25 percent of those who started the process since March of last year. The average reduction in the mortgage payment for those who completed the program and obtained a permanent modification was $516, or 36 percent.

The rate of homeowners dropping out before obtaining a modification - starting the process but either not being able to negotiate a modification at all or failing to make the first three payments on time - rose abruptly from approximately 155,000 in March to about 277,000 in April.

Among those who succeeded in negotiating a modification and made the first three payments, 1.3 percent dropped out, most often because they defaulted on the modified loan.

The total number of permanent mortgage modifications does continue to grow overall. Nearly 300,000 homeowners have completed the program, an increase of 68,000 or almost 13 percent over March.

In this economic downturn, a lot of responsible people are among the long-term unemployed and drowning in debt. If your credit score is already plummeting, is it worth it to try debt negotiation or consolidation? Or should you file for bankruptcy?

The truth is there's no one-size-fits-all answer. Whether to file for bankruptcy or seek alternatives to bankruptcy is a decision you need to make based on concrete information, understanding the options available, and a clear look at your goals.

The very first thing you should do is contact a reputable credit counselor who can help you determine how much you can afford to pay. Don't believe slick advertisements claiming they can settle your debts for 40 cents on the dollar.

Look for companies that belong to the National Foundation for Credit Counseling (NFCC) or the Association of Independent Consumer Credit Counseling Agencies (AICCCA). Bankruptcy lawyers are also a good resource, and the Bankruptcy Legal Group offers some of these services.

Simply stated, homeowners who are "underwater" - owing more than their homes are worth - are much more likely to default than similar borrowers who do not. As currently structured, the Home Affordable Modification Program (HAMP) offers access to debt negotiation programs that can result in the reduction monthly payments. However, it does nothing to promote principal reduction. Critics, including regulators, members of Congress and mortgage bond investors are calling for that to change.

The April report on HAMP by the Congressional Oversight Panel (COP) appears to indicate that those homeowners who seek relief through HAMP may actually end up more deeply underwater than they were before they entered the program.

Of those who received a five-year mortgage modification through the program, the report found, the average borrower entered the program underwater by about 35 percent. Upon leaving the program, the average was more than 43 percent.

The reason for the increase is simple: Reductions in interest and extensions in mortgage terms are virtually the only relief offered through HAMP. They can reduce the borrower's monthly payment but do nothing to address the problem of negative equity.

The federal HARP and HAMP programs have failed to prompt mortgage lenders to enter into practicable debt negotiation with enough troubled homeowners, says commentator Philip Holmes of FinancialWire, and lack of lender motivation is the likely reason.

Bank of America recently promised to work with more underwater mortgage borrowers to actually reduce principle, as opposed to merely modifying mortgage terms to lengthen the repayment period or agreeing to reduce penalties. B of A's pledge is voluntary -- probably not much different from an agreement to participate in the Home Affordable Modification Program (HAMP) or Home Affordable Refinance Program (HARP).

A California Senate bill intended to pressure mortgage lenders to take more effective debt negotiation actions before they foreclose on struggling homeowners has cleared the Banking, Finance and Insurance Committee. There are additional hurdles before the bill could reach a full Senate floor vote.

The foreclosure prevention bill, Senate Bill 1275, would force banks and loan services to make greater efforts to secure loan modifications that are workable for borrowers before proceeding with the home foreclosure process. In addition to endeavoring to reduce the likelihood of foreclosures, the bill seeks to hold banks accountable for unwieldy or even illegal collection practices.

If passed, the bill would give mistreated borrowers the right to have their foreclosures voided by the courts and to seek monetary damages.

Student loans have increased about 50 percent since 2007, according to Equifax. In 2009, alone, students took out $55 billion in loans. Debt and unemployment are at all-time highs. Students are graduating with bigger bills and without the money to pay them.

Many students are taking out loans to attend graduate school immediately following undergraduate programs because of the poor economy.

To this point, most of this money has come from private banks and lenders, used as middlemen by the government, who guarantees the loans. Billions of dollars have been spent by Washington to pay interest on these loans, but maybe not for much longer.

Is the prospect of bankruptcy reform dead?  Will bankruptcy judges ever be given the power to help the masses of distressed homeowners lining their courtrooms? 

President Barack Obama promised the introduction of Main-Street-centered legislation intended to help distressed homeowners.  But it seems as though every time President Obama has a brilliant plan, the bank lobby groups refute with their own brilliant plans.

And their brilliant plans often involve large dollar figures and extreme lobbying- all directed at the legislators.

Last May, the Senate blocked a piece of legislation that many San Diego bankruptcy attorneys were anticipating. As one Senator said:

 "The banks--hard to believe in a time when we're facing a banking crisis that many of the banks created--are still the most powerful lobby on Capitol Hill. And they frankly own the place."

Many underwater San Diego homeowners are simply walking away from their mortgages, rather than risk insolvency at the hands of high housing costs.  

Is walking away really the solution to San Diego's housing and bankruptcy woes? 

Remember the days when homes were worth more than you bought them for?  The days when you could rely on that huge equity in your house and ask the bank for a HELOC loan? 

Those days are forlorn.  Home equity is becoming something we only speak about in tales of the past.  In the past year, home values dropped. For many homeowners, the values dropped to well below their purchase price.   

It's 2010 already, over two years since the housing crisis began, and housing prices are not climbing as optimistically as one would have hoped.  In fact, December reported the largest monthly drop of previously occupied home sales in more than 40 years.  San Diego, however, appears to be in better shape than the rest of the nation. 

December sales fell 16.7 percent  across the nation.  This was in part due to the fact that President Obama's first-time homebuyer's credit was set to expire on November 30, 2009.  The tax credit has been extended to homes purchased by April 30, 2010, and has been expanded beyond first-time home buyers to include long-term homeowners as well .  Despite the extension and expansion of the credit, the drop in sales after the sunset of the previous credit raises the question of the sustainability of the housing market after April 30. 

After all, if housing sales declined at the sunset of the previous tax credit initiative, whose to say that the same won't happen after the new sunset date?