- The Washington Times - Wednesday, June 25, 2003

Americans are headed to bankruptcy court in record numbers this year, after having broken the record over the past several years. It’s not just the economy. Every year — even through the boom years of the 1990s — the number of filings have outpaced the year before.

In the first quarter of the year, 404,154 nonbusiness bankruptcies were filed across the country, up by nearly 10 percent over the same period last year.

Also, the Joint Center for Housing Studies of Harvard University reported mortgage delinquency rates are on the rise nationwide — between 400,000 to 450,000 homeowners foreclosed their homes by the end of 2002. That’s almost double the rate in 2000.

Fortunately, it has been well below the delinquencies of the mid-1980s. A delinquency is when a conventional loan is 90 days past due.

Why are we seeing so many Americans in such dire straits? It’s not just the recession and job loss. The American Bankruptcy Institute reports that consumer debt is consistent with bankruptcy filings. We just take on way too much debt and cannot pay it off.

“Research by the Federal Reserve indicates that household debt is at a record high relative to disposable income. Some analysts are concerned that this unprecedented level of debt might pose a risk to the financial health of American households,” ABI reports on its Web site (www.abiworld.org).

“A high level of indebtedness among households could lead to increased household delinquencies and bankruptcies, which could threaten the health of lenders if loan losses are greater than anticipated,” ABI analysts say.

While I would much rather write this column from a preventive perspective, instead, let me give some direction from the Web to those who are about to sink. Once you get back in shape, vow on your great-great-grandmother’s grave that you’ll practice the GOOD policy, that’s for Get Out of Debt.

If you enter Avoid Foreclosure on your favorite search engine, about a bazillion sites come up. Many are reputable; many are not. If you’ve never heard of the organization, approach with trepidation. Find out what it is, how long it has been in business and what complaints have been filed against it.

I would start with the Department of Housing and Urban Development (www.HUD.gov), which has developed some guidelines for homeowners facing the possibility of foreclosure:

• Call your lender. When you’ve missed a payment — the first time — and you are in financial distress, that’s when you need to call your mortgage company. Don’t wait until you receive the “courtesy calls,” the letters from collections and finally the foreclosure notice.

The lending officials don’t want your house. They don’t want to spend the money and effort it takes to sell your house and they don’t expect to recoup the entire cost of doing so.

They would rather work something out instead of foreclosing on you.

• Contact a housing counseling agency. If you prefer, you can call one of various HUD-approved counseling agencies. Call 800/569-4287 for information, or look online (http://www.hud.gov/offices/hsg/sfh/hcc/hccprof14.cfm). It’s a long link. Copy it or type it into your browser, then bookmark the site.

• Pay the important bills. You know you’ve got to have food, so budget enough for groceries. Keep the house wired — I’m not talking about cable. Keep the water and electricity coming in and then pay the mortgage. Regardless of how much the credit card collectors, auto financiers and other creditors call and pester you, the house is the priority bill to pay.

• Research a “loan workout” solution. Depending on your situation, the lender may be willing to steer you to a loan workout. There are several options. You might be able to suspend payments and tack them on the end of the loan if you’re enduring a temporary setback. Perhaps you can modify your mortgage or even sell the property to satisfy the debt. Ask your lender.

• Seek out disaster relief or military options. You may qualify for special treatment if your property was damaged by a natural disaster or if you have been called up for active military duty or if your inability to pay stems from a national tragedy such as September 11.

• Visit www.HUD.gov for more information. To get to the Avoiding Foreclosure section, go to the site and click on the link to Foreclosure on the left navigation bar.

Facing a financial downfall is one of the most embarrassing and debilitating things to happen to a household. Nevertheless, take control of your destiny. Work the system. Don’t let the system work you.

M. Anthony Carr has written about real estate for more than 15 years. Contact him by e-mail (manthonycarr@erols.com).

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