I just read a column on www.bankrate.com that came out this week by a well respected bankruptcy adviser. To put it mildly, the column made my head spin!
A reader wrote in asking if, now that their bankruptcy was filed, whether it would be a good idea to stop making payments on their mortgage (which was current!) in order to “force” the lender to modify the loan or allow them to refinance.
The adviser responded (in part) that if the reader decided to go that route and see if they could bluff the lender into refinancing they should continue to set aside the monthly payment amount in a savings account. That way, the expert reasoned, “you will have the funds available to bring the mortgage current in the event the lender calls your bluff.”
This is EXACTLY why people who have gone bankrupt should seek out a professional who knows the steps to take and the steps to avoid if they’re looking to rebuild their credit after bankruptcy.
The worst thing you can do after your bankruptcy is to add any new negative information to your credit report. The bankruptcy should be the last negative item you ever have reported on your credit report if you want to truly raise your FICO score.
Here’s what happens if you withhold your mortgage payment trying to get a lender to refinance or modify the loan. Regardless of whether or not the mortgage lender decides to change the terms, 30 days after you miss a payment, that late payment gets reported on your credit reports. Most lenders won’t even consider a loan modification until you’re 120 days late.
What’s more, most lenders won’t refinance a loan if you’ve got new dings on your credit report, especially on the heels of filing bankruptcy.
Here’s a better idea. Now that you don’t have any other outstanding debts except for the home mortgage, you keep the mortgage current at all costs. Within a year, because you will have no other negative credit items on your credit reports, you should be a in strong position to refinance, either with your current lender or with a new lender. Your debt to income ratio will be lower, because no longer have the credit card debt, and you’ll have a solid year of good payment history after your bankruptcy.
It’s crazy advice like what this bankruptcy attorney shelled out that makes it even more important for EVERY person who declares bankruptcy to read the 48-page Do’s and Don’ts of Bouncing Back From Bankruptcy (available only as an e-book). It’s a FREE resource that will increase your present peace of mind and future financial security. To get your free copy, visit www.newcreditafterbankruptcy.com – yes you’ll have to give me your email address and I promise to only mail you important stuff of interest from time to time!
Paula Langguth Ryan is the author of Bounce Back From Bankruptcy: A Step-By-Step Guide to Getting Back On Your Financial Feet, 4th edition, the world’s best-selling and most recommended book on rebuilding your credit after bankruptcy. The Do’s and Don’ts of Bouncing Back From Bankruptcy is excerpted from the full 262-page paperback book. For more details on either of these titles, or to request a 30 minute bankruptcy recovery consultation with Paula, visit www.paulalangguthryan.com/bankruptcytools