Having the home repossessed can be a horrible experience because it may leave a person homeless. After a suitable living arrangement is found, thoughts turn to additional financial troubles lurking in the future. Voluntary or mandatory repossession of the home can cause mortgage shortfall debts to arise when the home is sold at a price that does not cover the mortgage loan balance. Since these debts are usually relatively large, they can put the former homeowner into a financial tailspin.
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Since the property that served as security for the mortgage loan is no longer possessed by the individual, this debt is not considered secure. As unsecured debt, it can be handled in the same manner as overdrafts, payday loans, store card, and credit card debt. This means the mortgage shortfall can be included in a debt management plan and repaid over an arranged period.
If a mortgage shortfall is the only debt that an individual has, coming to an agreement directly with the previous mortgage lender is usually a better approach. However, many former homeowners who have other debts include these and their mortgage shortfall debt in debt management plans. There is no guarantee that the former mortgage lender will accept the repayment offer issued as part of the debt management plan but proposing one may be advisable.
The lender may reject the proposal if it thinks the repayment offer is more or less than what the debtor can afford or if there are more favourable ways to secure or repay the debt. For example, if the debtor owns other assets or properties that could be sold to repay debts sooner, the creditor may request this. However, many lenders are willing to accept reasonable and feasible repayment offers made as part of debt management plans.
One Size Doesn’t Fit All.
Whether a debt management plan is the best way to repay mortgage shortfall debt is based on the individual. Some people are able to repay this debt quickly and affordably as part of the plan. Others, particularly those with very large shortfalls, may find that the amount of time required to repay the debt fully through a debt management plan is too long and is therefore unappealing to them. These individuals may instead pursue formal insolvency procedures like a Debt Relief Order, Individual Voluntary Arrangement, or bankruptcy.
An experienced debt management advisor can help individuals with mortgage shortfall debt determine which option is the most suitable. This expert will request information about the mortgage shortfall and other debts and review the available alternatives, using language that is clear and simple. Debtors should never be afraid to ask questions because it is ultimately they who will decide how to handle their debts.
There is no reason to let debt resulting from a mortgage shortfall become a huge problem when debt management plans and other solutions are available. Former homeowners should learn how to affordably clear this debt so they can move in with their lives. In several years, they may be able to qualify for another mortgage to purchase a new home.