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Stopped paying mortgage, should I keep paying my credit cards?

Discussion in 'The Lounge - Anything goes here!' started by crazyeyes, Mar 19, 2012.

  1. crazyeyes

    crazyeyes LoanSafe Member

    I've stopped paying my mortgage so my credit score is down to about 600.

    I owe about $25,000 on credit cards which I would like to pay down with the money I'm saving by having no mortgage. Seems like the right thing to do but is it smart?

    My lawyer said I should just claim bankruptcy and get it over with.

    However I might end up working something out with the bank, although that is less likely since we are so far underwater on two homes.

    I hate to ruin my credit more than I have to and I like having credit cards.
    Last edited: Mar 19, 2012
  2. justanotherwalker

    justanotherwalker LoanSafe Member

    Crazyeyes,
    Thank you for asking this question!!
    I am wondering the same thing and look forward to responses. I'm 3 months into walking away and have about $40,000 cc debt. I don't think I would qualify for BK and I like the connivence of cc's (obviously too much!). I'm wondering if since my credit is going to be ruined for 5-7 years anyway, maybe I should just stop paying cc and see if I can settle for less. The risk being, they won't settle and then I've added interest and fees.
    Again, looking forward to words of wisdom from peeps that know more than I do.....
  3. OverandDone

    OverandDone LoanSafe Member

    Just FYI that some of your credit cards may cancel your cards or reduce your limits to balances owed if they happen to run your credit during the foreclosure. We had 2 cards with zero balances cancel the cards completely and 2 cards drop limits to balances owed.
  4. Preparingfordefault

    Preparingfordefault LoanSafe Member

    This question has been a heavy weight on my mind.

    There are folks on this board that settled their credit cards for anywhere from 10-50 percent of what they owed and this has actually helped their credit scores even though the cards were closed (these people still have some cards open, but who knows if those companies will catch on and close their accounts down the road). I am envious of their success settlements and not having the heavy payments anymore.

    There are also folks on this board that don't care about their credit score at all anymore. I'm somewhere in the middle... in 40's, now with a crap score for not paying mortgage but I'm not old enough to never need or want credit again in my life. I want to buy another home and will undoubtedly want/need another car. Today those options aren't possible but with a strategic plan eventually they can be. The question is what is the smartest LONG TERM route to follow... for those that want to rebuild their credit in the quickest fashion without bk.

    My challenge is the unknown.... YES, I can stop paying the cards and settle I KNOW that, and it's tempting, very tempting.... but... What if I switch jobs and the new employer runs a credit report... I can reasonably explain the mortgage default even if it were to cost me a job offer, I am comfortable with the how's and why's and can blame screwed up banks unwilling to work with me on underwater house. What I can't explain is why I just chose to stop paying credit cards if I go that route when I make what most consider good money.

    Initially I was told by a prestigious bk attorney that I shouldn't go bk but should immediately start a strategic walk on my mortgage on my very underwater home. At THAT point he said pay ALL credit cards on time and much more than the minimum... his term was keep them fat & happy, the continued payments will help credit score improve and you'll be able to qualify for a new mortgage at market rates in 2-3 years. Save money to move while simultaneously paying off the cc debt. So that's what I've been doing.

    However the effect of the late mortgae is starting to take it's toll... on my credit limits

    3 out of 6 cards already had me at default rates at roughly 27 percent on roughly a combined 50k debt (they had me there before I stopped paying mortgage even though I NEVER paid a credit card late in my life, they decided my high debt ratios were a risk...

    SO what I did was started making very large payments to all cards including my lower normal interest cards (10 percent and 14 percent). My thought process based on research was the lower debt to limit across ALL cards would have the best overall probability of credit score recovery from my hit on the mortgage default and initially high credit available scores. WELL that all made sense to me and based on my attorney and research seemed the smartest route for long term recovery of credit score.

    Fast forward 8 mos late on mortgage and successfully paying off about 6k in cc debt to citi (they had one card on a default rate of 29.99) which helping my overall available credit score recover... they came in and lowered both limits to $100 over balances thereby killing my progress (it was a ****er punch that I knew was possible but hurt like hell the day I opened the letters). I then called them and explained that I had the cards and had never been late in 30 years, I went so far as to say give me back my higher limit and freeze my card so I can't use it until it's paid off (I am not charging anything and haven't in many, many months). I ultimately escalated to a supervisor who by the end of the call would not re-instate my higher lines but DID change my higher default rate card to another card with a 14 percent fee. What I don't know for sure is if by having received a new card if this now takes me off the high risk watch alert or if they will continue to drop the limit as I pay the balance off. I really thought there had to be a catch but in receiving the new card in the mail with the same account number I didn't see any. I didn't close my account - they kept the same account number on a new citi dividends rewards card.

    Now fast forward to 10 months.. bofa credit cards finally caught up with the fact that I am not paying my bofa mortgage. 2 cards that have been at default rates for 4 years and had NEVER been paid late, so clearly I have paid them a fortune in fees). I had successfully paid off about 10k of debt on these cards in the last 11 mos but they came in last month and dropped the limits to $100 over balances. I called them to try to get a reduced rate and was told not only would I have no shot but to expect them to ride me down to zero and then close the accounts UNLESS I fixed my bofa mortgage issue and began paying regularly. They came right out and said that bofa is linking all my accounts.

    This added a who new dimension to my thought process... why should I continue to pay at default rates of nearly 30 percent which WILL take me a long time to pay off when the only positive is to not show late payments on my credit report only to be closed which will ultimately cause another hit to my credit when that happens.

    I WISH I could default on the 2 bofa cards KNOWING they will ultimately close the accounts anyway and settle for much less without having my other cards affected but it just feels like it will be a domino effect with all cards. I don't want to use these credit cards (ever again), I just want to improve my score so one day when I NEED a car loan or want to purchase another home I'll have a shot.
    Last edited: Apr 21, 2012
  5. crazyeyes

    crazyeyes LoanSafe Member

    Dear Preparingfordefault, thanks for your response. I'm curious how much you owe TOTAL on your credit cards and why you are at DEFAULT rates? I never heard of credit card companies raising people to default rates because they were late on their mortgage so I assume you missed a credit payment or two. I'm surprised the BK attorney told you to strategic default and keep paying your credit cards. Usually they tell you to stop paying and claim bankruptcy. I do agree with you having just a mortgage default may look better to employers and possibly help to repair your credit sooner if you pay down your cards. I owe $25,000 on my cards and I'm paying twice the minimum. I'm afraid if I pay them off too soon my bank will be more enticed to file a deficiency judgement since they will be first in line. Or if I pay them off I will regret it because a deficiency judgement could force me into bankruptcy and I will have wasted $25,000. I don't think settling your credit cards will hurt your credit more than it already has, however, banks will want to see a lot of information which they can use to go after you if they don't agree to reduce your debt. For $25,000 I'm going to just keep paying and not try a workout. You most likely have to be out of work and have very little money in your bank. Not paying your credit cards is tantamount to foreclosure and you almost certainly will have a deficiency judgement which could lead to a garnishment or they can put liens on your property and take your tax returns. Either pay them down or claim bankruptcy. That's my two cents.
    Last edited: Apr 21, 2012
  6. Preparingfordefault

    Preparingfordefault LoanSafe Member

    Hi Crazyeyes,

    Long story short, back in late 2008 when the financial crisis hit based on the credit rules at that time many banks put people deemed at high risk at default rates. At that time I probably owed around 50k with a total of 120k credit available. The problem was that 50k was on only 2 or 3 cards and they were near the max so the banks had the right to put folks at default rates even if never late. They rushed to do this because the credit card rules were changing and would prevent them from many practices so ALOT of people ended up in the same boat. It IS possible that a payment got to them a 'day' after the due day which may have triggered it but never 30 days late and that may have been the loophole that caused the first to go to default rate follow by the others. I have never been 30 days late.

    While the rules have since changed - the major crappy part was they don't have to lower the default rates even if you pay on time IF you have other creditors that you are late on (now I have the mortgage late). They started at 29.99 default apr back in 08, and said with 12 months of no lates my APR would be reduced. By law they had to reduce the rate BUT the part the new credit card rules left out is they didn't say how much they had to reduce the rate SO the banks reduced them by .5 percent or 1 percent each year (a total joke and an insult - the banks taking advantage everywhere they can). Therefore I have remained in the high 20's apr getting screwed for 4 years AND have kept paying on-time.

    My plan was to move in 2008 when all he** broke loose and my home which was valued at 700k fell to 400k, I was stuck in a mortgage I couldn't afford and tried unsuccessfully to sell it... 4 years later I was in nearly 100k cc debt NOT by overspending just by life expenses because for 4 years I tried to keep paying everything no matter how much I earned the 600k mortgage and exhorbinant cc payments ate every dime plus more every month- it got to the point I could only pay the minimums.

    To answer your question- I was told that I wouldn't qualify for bk because I made too much which is why the attorney told me to do the strategic walk.

    Question for you- what did you mean by:
    I'm afraid if I pay them off too soon my bank will be more enticed to file a deficiency judgement since they will be first in line.
  7. crazyeyes

    crazyeyes LoanSafe Member

    I see your situation a lot more clearly now. We are very much in the same boat. Borrowing money to pay back borrowed money, doubling down...bad idea in retrospect.

    In response to your question: I live in Florida which is a judicial foreclosure state. Banks have five years to file a deficiency judgement for their loss or they can write off the loss. The less other debt I have the more likely they are to file a deficiency judgement in my opinion. If I pay off my credit cards the banks might see me as a ripe candidate for collection.
    Last edited: Apr 23, 2012
  8. LosingEverythingWA

    LosingEverythingWA BofA Short Complete, 2nd forces BK

    If I had to do it all over again, I would do it TOTALLY different.

    In our current climate with no laws to protect consumers in this housing crisis, there's NO WAY to save your credit if you have a lot of debt. A lot of debt means you have no way to pay it all off in a year or less.

    I did a short sale, it took forever and I got sued by the 2nd anyhow. I should have just stopped paying everything and sat in that stupid house for 3 years for free, saved up all my money and went bankrupt.

    The means test for bankruptcy considers total amount of debt vs income, not just income per household. The total loss on the house had it foreclosed would have automatically allowed me to go bankrupt. My income is high for my area.

    If I hadn't been out of work on disability due to pregnancy complications, I would not have been able to go bankrupt when I was sued by the 2nd Mortgage. My BK attorney said I was lucky, if I waited much longer I couldn't use that reduced income for the means test and that I should have just let it foreclose. She sees it over and over, most of us who have a lot of debt end up in her office anyhow. It's a snow ball effect. And when it's all done you'll feel like you were beat up, tossed over a cliff and hit by a bus, over and over again.

    I forgot to add, make sure you talk to a BANKRUPTCY attorney to find out if you will pass the means test. Any other attorney may not be savvy with the complicated process and just use a chart for income per household. Talk to the right people and review all your options before going forward.
    Last edited: May 14, 2012

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