Earlier this year, the five major banks reached a settlement with the federal government and most of the state attorneys general that could help some homeowners who face significant housing debt. The banks agreed to pay $25 billion to settle a lawsuit charging them with mortgage fraud.
The goal of the settlement is to focus on homeowners who are currently struggling to meet their mortgages. Eligible homeowners will be able to modify their loans with the banks while those that lost their homes during the mortgage crisis may receive up to $2,000 of the settlement. According to officials involved in the program, over a million households may receive some form of relief.
Yet, the settlement only applies to loans that are “on the books” of the five major banks involved in the settlement: Ally Financial, Bank of America, Citigroup, JP Mortgage Chase and Wells Fargo. Across the U.S., more than 11 million homeowners have underwater mortgages (they owe more than their houses are worth) and six million homeowners are currently facing foreclosure or are significantly behind on their mortgage payments. The majority of those homeowners will not see any relief through this program.
What, then, should you do if your home is underwater and the Big Five mortgage settlement does not apply to you?
Consider Chapter 13 bankruptcy.
Chapter 13 bankruptcy can be a step forward for individuals who are behind on their housing payments and facing home foreclosure. It not only stops home foreclosure but also lets you create a plan to pay back your lender over a 3- to 5-year period. After you have completed the 3- or 5- year Chapter 13 plan, you will have caught up on much of your mortgage balance and you will be able to discharge many of your remaining debts.
Whether or not you believe you are a part of the Big Five mortgage settlement, it is important to speak with a lawyer about your options, including Chapter 13 bankruptcy.
Source: The Bottom Line, MSNBC, “Mortgage Settlement Leaves Most Homeowners to Fend for Themselves,” John W. Schoen, Feb. 9, 2012.