Walkaway Consequences
Please consider: Snow Job: Strategic Defaults in an Era of Negative Equity
As more than a million people filing bankruptcy every year learn, life continues even after their credit scores are trashed. They can still buy cars on credit. They still have credit cards (secured) and debit cards. They can still rent apartments and houses.
Bankruptcy is a nuclear strike on a consumer’s credit score. Filing alone delivers a 355-365 point hit (out of top scores of around 800) and outright disqualification from obtaining any extension of credit from many lenders. The black mark follows the borrower for 10 years.
Short sales can trigger drops of 100-130 points; strategic defaults bring slightly heavier penalties, 100-150 points. The negative mark attaches to a credit record for seven years (but diminishes over time).
However, it’s possible to get a government loan only 3 years after foreclosure.
Ironically, late mortgage payments can have a bigger impact than outright default. FICO scores can easily plunge 200 points merely through nonpayment of a mortgage for a period of 60 to 90 days—something that lenders generally require of borrowers seeking loan modifications.
Credit recovery takes place remarkably quickly. Faced with the choice of foregoing credit card payments and incurring stress-related expenses stemming from high debt levels, the temporary black eye could be well worth it. Walkaways also join the crowd: Credit scores have been dropping steadily throughout the recession, especially for those with higher ratings.
Although for some people bankruptcy may be the best option, for most people facing mortgage problems, there is no reason to file bankruptcy. If you isolate the foreclosure and keep everything else good on your credit, you will be on your way to financial recovery much quicker than one would expect. Typically after 2 years things will start looking a lot better… credit score wise. If you are considering bankruptcy, you may wanna re-think it and make sure that your problem doesn’t only revolve around the underwater mortgage. You may be able to stay free in your home for 12 months and pay off all your other unsecured debt. You definitely don’t need to nuke a problem that may only need a sniper.
