Prevention/Solution

• The most effective solution is an agreement with the mortgage company where you make up the missed payments, or "arrearage," over the next several months. With this arrangement, you pay your monthly mortgage invoice and a determined amount of extra money each month, so that within a certain number of months you have completely caught up with your payments. You will need to supply an income statement and a monthly budget to your lender, so they can work out the appropriate payment plan and be sure that you can afford this higher payment for a particular time frame.
  If you are not able to pay a higher amount each month, then you can request a workable solutions application, where you write up a proposal as to how you will catch up on the back payments. Possibilities include distributing the arrearage over the balance of the loan, having the loan modified at a lower interest rate, extending the mortgage for an extra year or being allowed a forbearance on those payments until you can make them later.
  Mortgage companies typically are eager to work with their customers, especially when property prices are low.
  
  

Potential

• If you are fewer than 90 days behind on your payments and have significant equity, and if your credit rating is relatively good, you may be able to apply for refinancing. Talk with a representative of your mortgage company to find out if they offer this option for people in your situation, because some lenders will not allow refinancing if the borrower is behind on payments. You also can contact other mortgage companies and apply elsewhere.
  Refinancing involves rolling the arrearage into a new loan. The process will be very similar to when you applied for the original mortgage, including credit checks, a home appraisal, a large amount of paperwork and closing costs. Mortgage companies often will include the closing costs in the new loan if you are unable to pay them up front.
  
  

Considerations

• If you can no longer afford the mortgage payments with any of the previous options, you may have to sell your home. Once the foreclosure process has begun, you need to sell quickly, so you'll want to research realtors for someone with a good track record of selling property in a timely manner. Some real estate agents will purchase homes directly.
  If the only way to sell your property quickly is to sell it for less than you owe the mortgage company, you may be able to set up a "short sale" with an attorney. In this situation, the lender agrees to take a lower total payment than the amount owed.
  
  

Types

• Another option if you cannot sell your property for the amount you need is to apply for a deed-in-lieu program, which people can apply for if they are experiencing a long-term financial difficulty and have tried without success to sell their property for at least three months at fair market value. In this program, you achieve a full elimination of your mortgage by transferring your property to the lender.
  
  

Effects

• If you want to continue living in your home, and you are certain you can make mortgage payments in the future but have been unable to work out an arrangement with your mortgage company, filing for Chapter 13 bankruptcy protection is an option. When the filing is made, the court immediately issues an Order for Relief that stops all creditors from collection activity. Bankruptcy can take two to four months to complete, and even if your house has been scheduled for a foreclosure sale, the pending bankruptcy will stop this sale.
  Once your attorney negotiates the bankruptcy with your mortgage company, you will make your regular payment again along with part of the arrearage each month for the next three years. It is imperative you stay current on these payments, or the lender can ask the court to lift the protection and begin foreclosure again.
  If you cannot make mortgage payments anymore, then Chapter 7 bankruptcy protection will completely eliminate all mortgages and home equity loans, as well as canceling all unsecured debt such as credit cards. You cannot keep your home if you file for this type of bankruptcy, but you will gain at least two to four months to continue living in your home while you look for other living arrangements.
  
  

Warning

• Bankruptcy protection should be considered a last resort if there are absolutely no other options to stop foreclosure. Bankruptcy is stressful and difficult, and has a long-term negative impact on a person's credit.
  According to the American Bar Association, over 90 percent of homeowners who file for Chapter 13 bankruptcy protection eventually lose their homes to foreclosure. These people then have both a bankruptcy and a foreclosure on their credit record. Thus, you must be certain you can make payments as negotiated in the Chapter 13 protection.