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If any debts are not being paid - such as the mortgage - it will not be much better if some debts are being paid. In other words, your son's credit rating will not be significantly better is he is paying the credit cards but not paying the mortgage.
I think this is what you wanted to know. If not, please let me know.
HI - THANK YOU FOR YOUR RESPONSE. THEN THE BEST COURSE OF ACTION IS TO NOT PAY ANY UNSECURED DEBT UNTIL A LATER DATE? I DON'T THINK THEY CAN FILE CHAPTER 13 AS LOANS FROM FAMILY MEMBERS MAY HAVE TO BE PUT IN THE MIX. I DON'T BELIEVE ANY ARE RECORDED, HOWEVER PAYMENTS TO THE FAMILY MEMBERS ARE CLEARLY SHOWN ON THEIR BANK STATEMENTS OVER THE YEARS ...
MY SON FEELS THAT THE RECOVERY TIME AND LIKLIHOOD OF LENDERS TAKING INTO CONSIDERATION WHEN EXTENDING CREDIT IN THE FUTURE WILL BE WEIGHED AGAINST THE FACT THAT NO OTHER OBLIGATIONS WERE FORFEITED ASIDE FROM THE MORTGAGE. HE ISN'T SO CONCERNED ABOUT THE SCORE BEING LOW BUT RATHER HE IS CONCERNED ABOUT THE HISTORY ONCE IT COMES BACK UP. THE MORTGAGE ONCE GONE AND SETTLED FOR LESS WILL IMMEDIATELY ALLOW FOR THEIR CREDIT TO BEGIN RECOVERY. HE FEELS THAT IF THE CARD PAYMENTS ARE MISSED THEY WILL NOT. I AM THINKING THAT HE SHOULD NOT PAY THE CARDS NOW, AND NEGOTIATE WITH THE CREDITORS ON A LOW SETTLEMENT AMOUNT NOW - BEFORE THE SHORT SALE OR FORECLOSURE. OR IS HE CORRECT IN PAYING THE CARDS MONTHLY SO AS TO ALLOW RECOVERY TO START RIGHT AWAY? I WOULD THINK THIS COULD BE A REAL ISSUE WITH REGARD TO THE SHORT SALE / FORECLOSURE. WHAT DO YOU THINK?
He is wasting his money by continuing to pay the credit cards if his goal is to negotiate with them. Credit card companies will not negotiate unless the debtor is at least one or 2 months in default.
He will not have to worry about having paid family members if he waits one year after having paid them, as the look-back period for family-member creditors is one year.
Thank you. He is continuing to pay the family members without exception now. These loans must be paid as their payments are supporting equity loans that their family members took out on their behalf. Don't know if you needed to know that. A lawyer he consulted with said those regular payments may very well need to be included in a Chapter 13 if he ever went that route, which he doesn't want to do. He wants to continue to pay his credit cards etc. just not his mortgage or taxes. Their divorce is amicable and they want each other to have the best possible shot at credit recovery as soon as possible. Do you see any problems with continuing to pay the cards and not the mortgage or prop taxes? Do you see the benefit my son is talking about in continuing to not miss any payments on the cards?
1) I don't see any legal problems with paying the credit cards but not the mortgage or property taxes - except of course the house will eventually foreclose if these are not being paid.
2) If he is current on all credit cards but not paying the mortgage (property taxes do not register on one's credit report), there will a slightly higher credit score than if he were not paying the credit cards either.
1) THE HOUSE COULD ALSO SHORT SELL AND NOT FORECLOSE RIGHT?
2) NOT AS CONCERNED ABOUT THE SCORE, AS THE POSSIBILITY OF THE CREDIT CARD COMPANIES ALLOWING FOR MORE IMMEDIATE CREDIT RECOVERY TO BEGIN ON THEIR END SINCE NO PAYMENTS WERE MISSED. DOES THAT SOUND ACCURATE?
1) Yes - it is also possible for the house to short sell.
2) What is meant by credit recovery - if not an improvement in one's credit score?
2.) My son (who runs credit as an automotive sales consultant) was thinking that immediate credit recovery begins right after a short sale if there are no delinquencies with the cards. he is thinking that the "repair" process to their individual credits will begin right away. Basically he is thinking 3 or 4 years, as opposed to 6 or 7 to get the scores back up if he keeps the cards current. Would that be correct?
1. To be sure I understand correctly, he is correct in assuming that the credit scores are likely to improve in half the time after a short sale / foreclosure if he continues to keep his cards current?
2. Also, there is no real danger of the bank or court saying "well how can you make these large credit card payments, and payments to your families and not pay your mortgage or property taxes? "
1) Yes - because the best way to improve one's credit score after a major credit score setback is to use and timely pay credit obligations going forward. One's credit score will slowly improve after a foreclosure if there is no further negative activity - but if there is also positive activity in addition to no negative activity, the score will improve twice as fast.
2) The bank cannot question this, because a debtor has the right to pay whichever creditors he wants to pay. Only the Bankruptcy court can reverse "preferences" - which are payments to family members made the year before filing. If no Bankruptcy is filed, this cannot happen.
MAYBE I DIDNT PHRASE CORRECTLY AND I THANK YOU IN ADVANCE FOR YOUR PATIENCE WHILE I GET CLARITY. IN REFERENCE TO THE ABOVE, I WAS ALSO TOLD THAT OFTEN WHEN THE BANK IS DECIDING ON WHETHER TO ALLOW FOR A SHORT SALE THEY MAY TAKE INTO CAREFUL CONSIDERATION THE FACT THAT THEY WERE PAYING OTHER BIG CHUNKS OF DEBT AND NONE OF THEIR MORTGAGE OR PROP TAXES. THIS MAY IMPLY THAT MY SON HAS MORE MONEY THAN THEY ARE LETTING ON TO. COULDNT THIS REALLY IMPACT THEIR DECISION AS TO WHETHER APPROVE SHORT SALE OR TO FORECLOSE? AND, ISN'T FORECLOSURE MUCH WORSE THAN SHORT SALE IN TERMS OF CREDIT REPAIR?
1) When deciding whether to allow a short sale, a lender will look for whether or not the debtor can afford to pay the mortgage. This is usually determined by a required income and expense analysis.
2) If the amount of money being sent to the credit card companies would be enough to pay the mortgage instead, it is possible a lender would not allow a short sale, with the expectation that the debtor will - if necessary - pay the mortgage instead. However, it is not possible to know in advance whether the lender will view the credit card payments as unnecessary expenses, as all lenders use different criteria to decide whether or not to allow a short sale, and the same lenders will use different criteria with different debtors, and when a debtor's short sale offer is not accepted, the lenders do not give an indication of how much of their decision was based on the debtor's income/expense analysis, and how much of their decision was based on the amount a potential buyer offered for a short sale.
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