on Sep 30th, 2007What about your credit cards? Strategies to keep good credit despite foreclosure
Someone posted about having $33,000 in credit card debt, as well as a foreclosure situation. What should they do?
Is this your situation?
If you are in foreclosure, chances are you also owe money on your credit cards.
So let’s discuss what you might consider doing and not doing to get out from under.
It’s important that we understand the two types of debt. Secured debt is debt like a mortgage on your house and a car loan. The lender has the ability to foreclose and take back your house or your car.
Credit card debt is usually unsecured debt. There are secured credit cards, but for the purposes of this article we are assuming your debt is the normal unsecured type of credit card debt.
If things get really hairy, you could always file for bankruptcy protection. But remember, bankruptcy won’t really touch secured lenders. They will temporarily stop hounding you, but they will file a “motion for relief from automatic stay” and the court will let them continue with the foreclosure.
Bankruptcy only temporarily delays secured lenders from foreclosing. It won’t affect them in most other ways.
So why consider bankruptcy? Only to get rid of unsecured debt. Bankruptcy takes the form of chapter 13, which lets you pay off a percentage or all of your debts over a period of years, or chapter 7, which gets rid of all your debts. Either way, at the end of the chapter 13 period or the chapter 7 period, you will get a discharge which gets rid of all the unsecured debts you listed in your bankruptcy.
You should be very cautious about filing bankruptcy because there is nothing more damaging to your credit.
However, you should also be sure to consult with a good bankruptcy attorney and follow her advice.
One thing to consider as an alternative to bankruptcy is an out-of-court workout program with your credit card companies. Essentially you put together a letter stating your hardship situation and making a financial offer to pay off a percentage of your debt in exchange for their wiping things clean. You offer to pay the debt on an interest-free basis.
Why should your credit card companies accept a percentage of what you owe, paid over months or years, without interest?
Pay your lenders more than they would get in a bankruptcy — and you may end up with decent credit!
Because this way, they will get more than they would if you were to file bankruptcy.
A credit card workout solution is a very good strategy for many people who have no other reason to file bankruptcy besides credit card debts. It can also work for medical bills and other unsecured debt.
You use the big threat of bankruptcy to negotiate a favorable solution with your creditors and you avoid the big hit of bankruptcy.
What many people don’t know is that creditors can actually remove things from your credit report. They may say they can’t, but they can. There are various ways for them to do this. So smart people who have the knowledge can bargain with their credit card companies and can end up with pretty decent credit.
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It goes without saying that it’s not an easy matter to keep good credit. And not everyone can manage to do it. However, it is possible and it requires time and efforts.