Should we pay our credit cards then default on our mortgage in order to qualify for a loan modification?
We are current on our mortgage payment. We cannot continue to be current and pay our credit card debt and put food on the table, clothing, medical, etc. Should we pay the credit card debt and eat and default on the mortgage payment or file bankruptcy and try for the modification. We have asked to refinance and they would not because we owe more on the house than what it is worth. They said because we were not 90 days behind they could not help us. Any advice?
Mortgage Loan Modification Answer:
First of all, lenders are not supposed to require you to go into default or else they can't help you. However, if you apply for a mortgage loan modification, it seems they will give you higher priority if you have stopped making your payments.
If you do decide to go delinquent with your mortgage payments, know that your credit will be adversely affected. This is a big deal for some people, but I am of the opinion that it's a small price to pay to obtain an affordable monthly mortgage payment that would allow you to stay in your home IF that is your ultimate goal.
And as long as your credit is going to suffer any way, why not go delinquent on your credit card debt as well and negotiate a settlement to pay cents on the dollar of what you owe? Credit card debt is unsecured and can be wiped out through Chapter 7 Bankruptcy. I would try negotiating credit card debt settlement (and try it on your own instead of paying very high fees to companies who don't have a high success rate) before you consider bankruptcy, unless it's the only way you can reduce your debt and save your home. It is a rigorous process and you will have to qualify due to new laws.
What I did was I went delinquent on our mortgages and credit cards, then applied for a mortgage loan modification while I simultaneously negotiated to settle our credit card debt for cents on the dollar. It worked! Now we are credit card debt free and our loan modifications were approved within 6 weeks of re-applying (the company I initially hired burnt up 6 months of our precious time and went bankrupt; the lead attorney has just been disbarred for loan modification fraud). I did all the negotiations on my own after I re-applied.
You can do it too!