Keeping Your Property and Possessions: Preventing Repossessions and Foreclosures

Many people get into trouble with debt, and it's usually credit card debt. However, there are also people who struggle to make the payments on their secured debt, and they need help, too. An example of secured debt is a house or car you and the bank own together. If you are late on paying for your secured debt, the creditors can take the property by repossession or foreclosure.

Preventing Repossession

Money you owe on a house or a car is a priority because it affects your life. Most people need a car to travel to and from work, so if your car gets repossessed you may not be able to work, which will only make your debt problems worse. You need to go through your budget and see if you can cut down on your expenses and bring your car payments current, or work a part-time job long enough to get caught up.

If you can't do either of those, call the finance company and explain your hardship such as a lay-off, divorce, illness, retirement, relocation, reduced income, college expenses, unprofitable business, death in the family, reduction in hours/overtime, etc. You can ask for a deferment or extension.

This means your creditor may let you make an interest-only payment or skip a payment for one or two months and pay back that amount at the end of your loan. You will be paying more interest that way and some creditors may charge a fee, but it will get you current on your payments.

Unfortunately, not all creditors are willing to work with you. They don't have to give you any kind of deferment or extension on your loan, regardless of the hardships you may be facing. Your creditor can refuse to accept late payments. They may demand that you bring all payments current or immediately return the car.

If your creditor refuses to work with you and you're going to lose your car through repossession, a voluntary repossession may reduce some of your creditor's expenses, which you would be responsible for paying. Even a voluntary repossession shows on your credit report for seven years and you're still responsible for the remainder of the balance, but it's somewhat better than forcing your creditor to come and retrieve the car themselves.

Preventing Foreclosure

Use a budget to try to reduce your living expenses until you can get your mortgage up to date. Your mortgage is a priority over your unsecured debt because shelter is a necessity. If you still can't pay the mortgage, call the creditor and explain your hardship. They may lower your interest rates or monthly payments to help you catch up. Another option is to sell your house to prevent foreclosure.

Foreclosure is an urgent matter. Procedures vary from state to state, but most mortgage companies send a default letter when you are 90 days behind and they usually begin foreclosure proceedings at 120 days. There are some things you can do to try to avoid foreclosure, other than selling your home. Two of these are temporary injunctions and refinancing.

A temporary injunction is a short-term option that stops foreclosure by a court order. You may be able to do this if your financial situation is likely to improve and your mortgage company won't work with you. Ask an attorney for advice if you're considering this.

Another option is refinancing your home. You take out a new loan (with lower interest or payment amounts) to pay off the first one. You need a good debt to income ratio and good credit to qualify for refinancing with a reputable bank or mortgage company. If you already have a low credit score or problems on your credit report from late payments, you may not qualify.

Because foreclosures and repossessions are so significant, stopping them should be more important than worrying about unsecured debt. If you're in a serious financial jam and can't see any way out, consulting with a credit counseling or debt consolidation service - or talking to a good lawyer - may help you to see your options and make the best decision for your situation.