Refinancing to Avoid Bankruptcy

One glance at a news website, or even to your local newspaper, and you will see that the nation is currently in the grips of a true housing crisis.  Foreclosures are at an all time high and in some areas of the nations, bankruptcies are also setting records.  Many consumers that are faced with foreclosure have two options to save their house:  file bankruptcy and reaffirm on the mortgage or refinance to a better loan product.

Sub-prime adjustable rate mortgages (ARMs) are the source of the majority of problems that these homeowners face.  These consumers were trying to take part in the American dream of homeownership in a time of economic prosperity.  Some bought in to teaser rates or interest only loans thinking that their income position would improve by the time the mortgage adjusted.  Unfortunately, this was not the case.

The decision to either refinance a loan to a fixed lower-rate loan or file for bankruptcy and reaffirm on the mortgage is a personal one.  It is important to thoroughly research both options prior to making this decision.  If a consumer is concerned about foreclosure, it is likely that they already have mortgage slow pays on their credit bureau report.  If this is the case, then the option to refinance might not be available to them.  Typically consumers in this situation are only able to refinance with their current mortgage company.  Depending on which company this is, the chances could be slim to none that this refinance will be approved.

If a consumer has an excess of additional debt, then perhaps filing bankruptcy to avoid a foreclosure is a valid option.  If the mortgage payment could be easily made if the consumer’s additional debts were discharged, then this may be a viable option.  It is important to note that refinancing after a bankruptcy is going to be extremely difficult and may not be possible for two or more years.  If the mortgage is set to adjust again in that period, the consumer should ensure that their income can cover the higher loan payment.