Unable to honor my payments

Many people would like to simply hand the keys to their house or car back to their secured creditors. But is it possible?

Yes, but unfortunately, not without consequences. In fact, if you making your mortgage or car payments, your creditor then have two options:

  1. They can repossess the property in order to become the owner; you are then cleared of your debt (what is called a “payment transfer”).
  2. They can force the sale of the property in question; you then remain responsible for the loss that they may incur (“sale under judicial order”).

As you might expect, 9 times out of 10, the creditor will choose the second option. And the forced sale of a good is rarely done at the best possible price, which means that the loss is often quite significant.

The effects on your credit report

In either case, know that your credit report will be greatly affected. Indeed, the voluntary handing-over of a house or car automatically generates the worst rating possible, which is R-9. If the bank was to repossess the house (or car) and your debt were erased, you would derive at least certain benefits. But when, additionally, you have to bear the burden of an important loss, handing over the keys to the house (or car) is not the solution that fixes all problems.

Cover all possible options with a professional

So, what to do when we are no longer able to make the mortgage payments? The first step is to complete an overall analysis of your financial situation. Quite often, we concentrate on the biggest issue and don’t notice the importance of all the other ones that affect us. As a matter of fact, even if many small debts, taken individually, are not problematic, we must take them into account when attempting to determine the best possible solution.

If the mortgage payment truly is the only problem affecting your personal finances, sometimes a franc discussion with the mortgage holder may allow you to come to an agreement in order to give you time to sell your property. Not surprisingly, the sale price is higher if the owner sells their house than in the case of repossession; you therefore limit your losses. However, this option is not always possible.

As you may conclude, there is no miracle solution when our house or car causes us headaches. But a complete financial analysis and a good discussion with your mortgage holder can help you avoid costly mistakes.

Do not hesitate to send us your questions at infos@jeanfortin.com.