The major advantage of Wage Earner Plan, besides not being recorded permanently on your credit record, is that you get to keep all your assets, exempt and non-exempt alike (assuming you still have any left!). This is quite important, if, for example, you have a good paid-up car, or expensive household furnishings or a boat or other valuable assets that you want to keep. Under Chapter XIII, you can get your current debts "stretched out" to three years, which may well result in lower total monthly payments than you are currently paying, and as long as you pay off your debts in accordance with agreement files with Court, month by month, no creditor will be able to sue you to try to seize any other of your assets, and force their public sale at disadvantageous prices.

Even if they have begin to sue you, once you file for relief under Bankruptcy Act, either under Chapter XIII or under Chapter XI, straight voluntary bankruptcy, they can't touch you! They are immediately restricted to getting from you only what referee or trustee will give them and that only after court proceedings have been completed. Often, if creditor threatens to sue you, most effective thing you can do to stop him (besides paying debt!) is to tell him frankly that, if he sues you, you have no other recourse than to declare bankruptcy. This will often make your creditor willing to negotiate debt, and you may be able to satisfy him by paying debt back, but over a longer period of time (with smaller monthly payments) than you originally contracted for. Creditors know well that if you file bankruptcy, chance of their getting payment in full on their overdue account is very low, so it is in their interest to try to ease your credit burden at least for a while.

Make Yourself "Judgment-Proof"

If a creditor goes ahead and sues you, and gets a judgment against you, he can then get a court order directing sheriff to seize your personal property, sell it and pay creditor amount of your debt. However, if you have no valuable assets, there is nothing for sheriff to seize, and you are what is generally called "judgment proof", or in other words, can't be made to pay debt. Because they know this is likely to happen, street-smart debtors often hide their possessions, or move them out-of-state, before sheriff (or marshal) arrives. This is, of course, illegal. The creditor's next move is to try to "garnishee your wages, which he does by getting a court order directing your employer to set aside part of your wages or salary every pay period and turn amount over to him. However, he can only do this if he knows, or can find out, where you work. But even if your wages are garnisheed, there are limits on what a creditor can take! Laws vary from State to State. In some states wages cannot be garnisheed at all while in others only small amounts are exempt from garnishment.

If you have no job, and no visible assets, or you live in a State where your wages cannot be garnisheed, your creditors actually have very few ways of ever collecting on that judgment!

Harassment and Other Creditor Tools

Before your situation gets bad enough to need bankruptcy relief, and before your creditors actually sue you, they will try to make you pay up using informal techniques, rather than formal court orders, as this is far less expensive and time-consuming. First among these informal attempts may be turning their bills over to a collection agency which may then begin harassment, by calling you often and at odd hours by telephone, by trying to talk to your employer about your debts, and/or by threatening you with legal actions, etc. Many of these techniques that they use are illegal! Yes, a creditor or agency can write you letters, call once a day seeking payment, try to bring legal action against you, but he is forbidden by law to harass you or invade your privacy, or use deceptive means to get you to pay your bills. He may not use foul and abusive language over telephone, tell anyone beside you reason for his phone call, insist on payment for a product or service that you claim to have a legitimate grievance about, nor issue false threats (such as saying that he is going to drag you into court to collect $35, when in fact his agency's policy is not to file suit on accounts of less than $100, because of high legal costs involved). He may not inconvenience you (by calling you at work when you are not easily able to receive calls), or invade your privacy (telling your employer or your neighbor that he is trying to collect a debt from you).

There are books that provide detailed additional information on personal bankruptcy, and include sample letters with which you can try to arrange "stretch-outs" on your own with your creditors before bankruptcy is necessary. Some include sample bankruptcy forms filled out that you can use as a model. Since accurate filing of all your debts and assets is so important, it's a good idea to follow their detailed instructions closely, with or without a lawyer, so that once you get your creditors off you back, they stay off!

When Faster is better

If you've just seen your dream house, and three other couples are also trying to buy it, you may want to get fastest possible mortgage. But don't rush! You can make a bid for house even if all you have is down payment, for then you have generally 60 to 90 days before closing date in which to come up with rest. (If you can't get a mortgage anywhere, you still get your down payment back, so you have nothing to lose!)

Most people get their mortgages from banks, which we'll tell you about too, but don't overlook another, faster possibility-the real estate broker himself! Brokers often have friendly bankers or other mortgage lenders lined up just waiting for them to find buyers of properties brokers are selling. It's easier for a broker to close a sale if he can help you, potential borrower, get mortgage you need. So he'll help you.

Aside from broker-arranged mortgages, "conventional" mortgages, (i.e., not backed by Government: are usually fastest kind to get. These are available from both commercial and savings banks and from savings and loan associations. Try savings and loan associations first-savings institutions usually require lower down payments than commercial banks, for example, 20% down at an S&L, compared with 25%-40% down at a commercial bank. The rule of thumb for amount of money that banks will lend toward a mortgage is usually capital amount that would result in monthly payments which will not exceed about 25-30% of your before-tax income. If you're trying to buy a house that's too expensive for you, bank will know that, by using their rule of thumb for what they will think you can afford: one month's housing costs (principal, interest, real estate taxes, and insurance) should not be more than one week's salary (after you deduct any other debt payments from your weekly salary figure). Know what figures look like before you walk in asking for a mortgage-if you look like you know what you're doing, bankers will be much more cooperative, and maybe stretch their requirements, especially if they know you as a person who has been a responsible borrower of theirs before!

Further "points" about mortgages

Sellers sometimes help out potential housebuyers, even when mortgage is financed by a bank. This can occur in two ways, first, if mortgage lender (bank, S&L, other) adds "points" to cost of mortgage. Technically, these points are percentage points that lender charges seller, to make interest rate higher. (Most States have usury laws, which make it illegal for mortgage and other interest rates to go above a certain level, like 81/2%. If interest rates in unregulated areas are higher, bank is going to get that higher rate one way or another!). So lender deducts, for example, five points or five percent from amount he is really willing to lend to borrower. Either seller has to take a lower price for his property than he expected, or buyer has to pay 5% more than he expected. Depending on how anxious seller is to sell, and how many buyers there are for his property, he may take lower price (pay points himself) or split cost with person who wants to buy his house, or else insist that buyer pay points all by himself.

In numbers, points work like this: 5 points charged on a $20,000 mortgage means that lender is not really going to lend $20,000, but only 95% or $19,000. Since seller wants $20,000 (in addition to down payment) as his price, buyer must pay extra $1,000, which is about same as adding an extra 1/2% to rate of interest he is paying.

More help from seller!

Sometimes sellers are anxious to sell their houses, but find it difficult to do so-either banks aren't making many mortgages at that time, or seller's price is too high, or neighborhood is "transitional" and potential buyers are reluctant to invest. So seller may offer a mortgage of his own to a buyer! This can be either a first or a second mortgage, (the second is in addition to and subordinate to first that you got from bank) especially if bank won't lend you what you need. If your dream house costs $40,000, with a $10,000 down payment, but bank will only lend you $20,000 to put with your ready $5,000 cash, don't despair. The seller might be willing to give you a so-called "Purchase Money" mortgage (money with which to purchase his house) for missing $15,000, to be paid back to him over next ten years in monthly installments. (Sellers sometimes like to do this as a way of getting an annuity, or annual income, for themselves or to reduce taxes they would have to pay if they received all cash in one year.) Real estate brokers won't always tell you about this angle, so you may have to do footwork yourself, following up ads that list owner or principal, not broker. But it could pay off!