Many people have heard of debt consolidation but few people really understand what it is.  Simply put, debt consolidation is the pulling together of all of your debts into a single debt meaning that you only have to make one monthly repayment to pay back all of your debts.

Provided you do it right debt consolidation can reduce your monthly outgoings significantly making your debt far easier to manage.  In many cases it also reduces the overall amount that you are paying out.  This means that you are pay back debt in a way that allows you to continue to afford your day to day household bills.

Finding the Right Kind of Debt Consolidation For You

Taking the time to find the right kind of debt consolidation is very important.  There are firms out there that promise you the earth for the most part these firms do not deliver on that promise.  They charge high fees and come up with agreements that look attractive initially, but leave you getting into more debt.

Genuine debt consolidation should not allow you to get into any further debt whilst you are paying back what you owe.  Be very suspicious of any firm that does not explain this to you.

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Much has been made of the 2% base rate included in the guidelines for the Obama Administration’s “Making Home Affordable” plan. It’s been well documented that the plan is off to a very slow start with current estimates of approximately 50,000 loan modifications in process. Less talked about, at least so far, is that the 2% headline interest rate of the plan may be unavailable to most homeowners seeking loan modifications that follow the plan’s guidelines.

As the saying goes, “The devil is always in the details” and Making Home Affordable has a detail which goes by the name of the “Net Present Value” test. Many of the mortgages which were originated during the boom in real estate, including those considered to be toxic, were sold to investors on Wall Street, from pension funds, and insurance companies (like AIG). These investors didn’t have the infrastructure or experience to collect payments, prepare statements, etc. so they left the handling of those matters to loan servicers like Saxon Mortgage (now a part of JP Morgan Chase). These servicers interface with the homeowner on all matters, including home loan modifications. For that work, they receive a small percentage off of each of the homeowner’s monthly mortgage checks as their fee.

An unintended consequence of the meltdown in real estate prices and skyrocketing default rates is there is now a conflict of interest between servicers and the investors that employ them. The foundation of that conflict is this; with monthly mortgage payments functioning as the lifeline of the servicers, their priority is to keep those payments going. To that end, granting loan modifications, even with drastic cuts in interest rates, is a much better outcome for the servicer than not receiving payments at all and/or having the home go into foreclosure. Aggressive loan modifications which benefit the servicers often hurt the investors by forcing markdowns on value of loans in their portfolio, hence, the conflict of interest.

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Having experienced this conflict prior to the unveiling of Making Home Affordable, investor groups insisted that the net present value test be added to the plan to protect their interests. A net present value (NPV) calculation works this way:

1) Determine the proposed monthly mortgage payment for the life of the modified loan
2) Calculate the total return in dollars over the life of the loan – monthly payment x 12 months x 30 years = total return
3) Estimate the value of what the foreclosed home would sell for at auction
4) The highest number between the total return and the estimated selling price at foreclosure determines what action will be taken.
Motivated to keep properties generating monthly payments and out of foreclosure, servicers will negotiate the highest interest rate possible, within the constraints of the plan and what the homeowner can afford, to generate higher fees and to make sure that the net present value test comes out on the side of loan modification. With higher fees and the net present value test driving the negotiations in a loan modification, granting 2% interest rates becomes a very low priority and in some cases a deal killer for the servicers.  
Congress, hearing the cries from their constituencies, has backed the efforts of the mortgage servicers by passing the “Safe Harbor Law” in May. The law protects servicers from lawsuits filed by investors claiming that the servicers are acting in their own best interests in loan modifications, at the expense of the aggrieved investors. It also gives servicers more autonomy in their structuring their home loan modifications.   
The net present value test can present formidable challenges to the loan modification process due to many factors that are constantly changing. In New York City, for example, overall property values have remained relatively high but income levels have dropped. Limited by Making Home Affordable guidelines, mortgage payments cannot exceed 31% of the homeowner’s monthly income. The cap on payments can result in a net present value outcome that favors foreclosure on a property. Industry watchers have expressed concerns that the relative resilience in real estate values in the city could actually work against homeowners.

At the opposite end of the spectrum are cities such as Las Vegas and Detroit where property values have dropped as a much as 80%. These are areas where the net present value tests favor loan modifications but homeowners are walking away, forcing the properties back to the investors.

The next issue for investors wishing to foreclose is whether they can actually sell properties at auction. In California, approximately 17,000 out of 111,000 foreclosed properties went up for sale at the most recent auctions. Of the 17,000 properties, banks took back 85% of the properties when bids averaged only 59% of the outstanding loan balances. The lack of foreclosure sales across the country has led to a massive backlog of foreclosed properties that are either being kept off the market, put up repeatedly at auction, or for sale to private parties.

With unfavorable outcomes on either side of the net present value test, it’s apparent that investors are deciding not to decide on either action. The advantage of leaving properties in limbo is that they don’t have to be marked to market until action is taken, a necessary concession from Congress granted to investor groups in March. That way they can carry the properties in their portfolios at values that don’t trigger capital requirements. If it all sounds like a house of cards, well, at least it’s house.

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times used to affect the debtor harshly as the creditors used legal and physical methods to get back their credits. But as time changed, new bankruptcy laws evolved as well as older ones were amended to make the laws more permanent and beneficial for both the debtors and creditors.

If you are facing a financial crisis then you should get the help of a bankruptcy lawyer that can help you understand the complexities of chapter 7 and chapter 13 and other procedures related to it.

Chapter 7 bankruptcy: otherwise known as liquidation is most common and is proposed for the discharging of the unsecured debts such as medical bills, credit card debt, and unsecured personal loans. These types of bankruptcy can be completed within a period of months. It gives trustees, the ability to pay creditors by liquidating the non-exempt assets, although due to problem of absence of non-exempt assets among people who are filing the chapter 7 bankruptcy, the trustees are able to keep their property and can easily eliminate the debts which are unsecured.

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The qualification for being eligible to file a chapter 7 bankruptcy is the debtor must be an individual, a corporation, a partnership or any other business entity. The first thing that will be done to check your eligibility is that your average income for 6 months earlier to the filling date and comparing it with the median earnings of the state in which you reside if your average income is below that median income then you are eligible to apply.

 
One another important eligibility criteria is to be able to discharge your non-exempt debts you should have unsecured debts such as consumer debts, medical bills, or payday loans.

There are certain conditions that make you ineligible and you should take care about these:

1. If you have enough disposable income to repay your debts , after cutting the allowed expenses and important debt payments for repaying small portion of the unsecured debts on a five-year repayment phase 2. If you have already attained a chapter 7 bankruptcy earlier within a time period of the last eight years prior to the time of filing.

The chapter 7 bankruptcy works on the concept that any of the secured assets a petitioner has will be handed over to an estate which is a legal that becomes the temporary owner of all secured assets and the creditor has no right to liquidate these assets until the case is over.