Bankruptcy and/or Foreclosure

Posted on April 30th, 2010

In trying to stem the foreclosure crisis, the government has enlisted the help of lenders, servicers, investors, and of course homeowners, themselves. Conspicuously absent from this list of participants, however, are the courts.

Thus far, the only meaningful involvement by the courts has seen renegade judges unilaterally challenge the authority of lenders on a case-by-case basis. Sometimes, they have eliminated mortgages completely for homeowners facing foreclosure, but these stories remain the exception. For the most part, they have merely rubber-stamped the foreclosure petitions of lenders, since the law is the law.

According to experts, it is unfortunate that bankruptcy courts haven’t been vested with enough power to really help homeowners work around foreclosure: “A big advantage of bankruptcy over government-subsidized modifications is that bankruptcy is a difficult process that does not entice anyone to purposely default in order to get better repayment terms.” In other words, government programs are currently structured such that homeowners must (deliberately) default before they become eligible for relief. If the courts were involved, however, this incentive would disappear.

Under current laws, courts don’t have the power to modify primary mortgages, unless the borrower has first declared bankruptcy. Even then, the lender will still probably be successful in foreclosing on your home if it is determined that you can’t afford to continue making mortgage payments. [Thanks to aggressive lobbying, mortgage debt and student loans are basically "exempted" from the bankruptcy process].

If the borrower files for Chapter 7 Bankruptcy, then he can usually achieve a temporary stay of foreclosure. While this will give you automatic relief, the lender can usually petition to have the stay lifted within 3-4 months, which means that at best, this is merely a stopgap measure. If the borrower instead files for Chapter 13 bankruptcy, he can usually work out a repayment plan for the missed mortgage payments. Unfortunately, this procedure won’t do anything to reduce the size of one’s primary mortgage. (Second mortgages may be eliminated, but bankruptcy courts are barred from meddling with the primary mortgages). Rather, it will help those suffering from “temporary” financial distress that still have enough income to remain in their homes.

However, common sense dictates that those who could still afford to pay their primary mortgages probably wouldn’t go through the hassle of filing for bankruptcy, except in rare circumstances where their other debt was crippling, which means this avenue is basically useless. Fortunately, some institutions have started to lobby the government to think about changing bankruptcy laws, for the sake of creating an end-all solution to the foreclosure crisis. Let’s hope that they succeed!

Filed under Government Programs/Legislation, foreclosures | No Comments »

Plan Your Vacation And Keep Your Personal Finances Intact, Part 2

Posted on April 30th, 2010

Part 2 of 3: Protecting Your Credit

travel 2

Now that you’ve budgeted and built your piggybank for your trip to Disneyland or trek through Delhi in Part 1: Stay Out of Debt, preparing for vacation takes more than just packing sunblock. Protecting your wallet and credit is a crucial step that many travelers make an afterthought. Don’t fall victim to credit card bill shock or an empty bank account when you get home. Take every step to secure your finances while you are on vacation.

A big question for jet-setting travelers: cash or plastic? There are benefits and risks with both, so here’s a breakdown of how to take the right steps with both.

Carrying cash?

money

Always bring an amount of cash on vacation for emergencies. How much you bring depends on what you’re comfortable with. If you want to pay cash for everything to avoid a hefty post-vacation credit card bill, take precautions against theft: split up money in different suitcases when in transit and pockets when you’re out and about, keep all cash in your hotel safe (or as secure a place as possible) and only bring cash you need for the day, and be alert and aware in public and in large crowds at all times.

A debit card is often inadvisable to bring because it’s harder than a credit card to resolve unauthorized charges should your debit card get lost or stolen, and it’s harder to dispute an erroneous charge on your statement. Traveler’s checks, once an overseas staple, are typically more of a hassle to get and use than just bringing a credit card or extra cash. Traveler’s checks are also not as commonly accepted everywhere as a form of payment. Check out other cash-carrying tips on Bankrate’s Best ways to get cash overseas.

If you decide to bring debit or ATM card, call your bank and see if you can use your ATM card where you are travelling. Ask if you will be charged a foreign exchange fee, typically 1% to 3%, for ATM withdrawals, your daily withdrawal limit, and maximum number of withdrawals in a month. Wherever you go, make sure you have at least a small emergency stash of cash just in case.

If you plan to mix credit and cash….

Know how your credit card works.

credit card

In most instances, a credit card’s convenience, flexible spending, and spending protections make it the best bet for traveling. Also, it safer to bring around than packing cash and you can immediately cancel your credit card if lost or stolen. More need-to-know info:

Figure out which of your credit cards are good for traveling aboard. Watch out for extra fees and rates such as cash advance fees, foreign transaction fees, foreign currency conversion fees, and how widely accepted your card is. For example, Discover charges no fees for overseas transaction, but isn’t as widely accepted as MasterCard, Visa, and American Express. For a quick view, check out Bankrate.com’s nifty chart of currency conversion fees. Some cards also have great travel protection and perks like complimentary concierge service, fraud liability, travel and emergency assistance, etc. If you plan to place most purchases on credit, then tote a rewards card to cash in on big ticket spending. If none of your cards are good bets for travel, open up a new credit card like the ones recommended on SmartMoney’s The Best Credit Cards for Travel.
Notify your credit card companies that you will be on vacation and may be charging frequently on your card. This avoids any suspicion or alert that your card has been stolen, plus issuers may offer a higher credit limit, lower APR, or other perks if they know you’re about to do some heavy spending. While you’re on the line with your issuer, also clarify about possible fees they’ll be charging as you travel.
Bring your issuer’s phone number with you to call should your card be lost or stolen.
Check your credit card limit. Whatever you do, do not exceed this limit while you are travelling! Bring more than one credit card with you, but leave the rest at home. In any case, you should budget well enough—and stick to it—to never worry about maxing out your credit card.
Keep receipts of credit card purchases to check your credit card bill when you get home to make sure all purchases on bill match receipts, exchange rate correctly calculated, and no additional charges or purchases were made on your card.

Follow these money tips to smooth out any financial wrinkles and protect your money. Always keep in mind how all of these transactions will affect your financial situation—your level of savings, level of debt, and credit score. While you budgeted like crazy planning for vacation, don’t throw it all away by withdrawing heavily or charging on credit while you are traveling. Exceeding your credit card limit and going into debt will damage your credit score far longer than your vacation lasts.

Get ready for the final part of our travel series with extra money travel tips on How To Stay Financially Fit. Coming soon!