BY JOSE H. CARABALLO
Bankruptcy is an uncomfortable subject for a variety of reasons. The most obvious is the potential havoc it can wreak on your client’s finances. Running a close second is the negative stigma which is often attached to the process. This negativity is important to mention because strong emotions can sometimes lead your clients to unsound financial decisions with devastating results.
Bankruptcy becomes a viable option for someone who is “upside down” in terms of cash flow. In other words, when a person has more money going out each month than coming in, bankruptcy should be considered if no reversal of this negative cash flow is within sight. The longer someone waits to explore the various options available, the more serious his or her situation may become.
For many homeowners in the midst of this upside down cash flow, speaking to a qualified mortgage professional is a great option. An experienced loan officer can objectively look at their finances and help them determine if restructuring the mortgage would not only help, but possibly even alleviate any need for bankruptcy.
If bankruptcy is the only option, your client should seek out a reputable bankruptcy attorney and credit counselor. A qualified mortgage specialist can provide references for them as well, as he or she works with these professionals on a regular basis. Reliable references are essential in this case because experienced professionals greatly increase the odds of a successful bankruptcy experience. It’s that simple.
Here are some additional steps your clients can take to make the bankruptcy process as painless as possible:
Encourage them to save all paperwork regarding the bankruptcy, and keep it organized. This will prove beneficial after the bankruptcy as they will have all of the pertinent information in one place. Also, inform them to be sure to write down the discharge date. It’s surprising how many people forget to do this.
Have your client establish a household budget. This can be accomplished in many ways, but there are several inexpensive computer programs available which do an excellent job.
Throughout the bankruptcy, encourage them to do their best to not only live below their means, but to save as much cash as possible. The should also be prepared for a barrage of junk mail. There will be sharks on the loose who are hoping to capitalize on your client’s need for credit.
Tips for Rebuilding Credit:
If your client must buy a car, they should focus on transportation as opposed to style. They should buy an inexpensive, used car, and try to get a loan for it. It’s a good idea to figure out what the budget allows in terms of a dollar amount first. This means obtaining financing prior to looking for a car.
Get a secured credit card. Secured credit cards allow for the cardholder to deposit a said amount of money into an account, thus establishing the spending limit of the card. Some of these cards will reward responsible borrowers by upping the limit without an additional deposit. Some will even convert the account into a traditional credit card. Your client should be wary of offers of “easy credit” or any card which asks them to call a 900 number, as they will be charged for that call.
Next your client should meet with a reputable credit repair specialist. Not only can they help clean up the damage to your client’s credit report, but they can advise you on specific ways to rebuild the credit lost as well.
While it does take time, there is definitely life (and credit) after bankruptcy. Some mortgage lenders will even lend to your client within a year or so after a bankruptcy. If done correctly the rates on these loans can be quite decent. So, If your client is in serious financial trouble, the trick is to get them the help and advice necessary from trusted professionals as soon as possible. Because a reputable mortgage consultant deals with issues like these all the time, they can be a very good source for your client on the road back from bankruptcy.
JOSE CARABALLO IS BRANCH MANAGER AT THE CORAL GABLES OFFICE OF SOURCE ONE MORTGAGE AND FOUNDER OF THE SOUTH FLORIDA INSTITUTE OF EDUCATION. CARABALLO IS CURRENTLY PRESIDENT-ELECT OF THE MORTGAGE BANKERS ASSOCIATION OF GREATER MIAMI. HE CAN BE REACHED AT 305.968.1257 OR [email protected].
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