Getting to such financial dire straits that you even have to consider bankruptcy is bad enough. Undergoing to process of filing for bankruptcy can also be stressful, given the affect on your long term credit and the shame associated. But what about declaring bankruptcy twice? Is it just twice as bad or is it entirely impossible?

Bankruptcy is a fresh start in financial terms. Your slate is wiped clean and you get to start again. It will, however, affect your long term credit prospects.

What is often the case when people come to file for bankruptcy is that they have developed poor spending habits, have been living outside of their means and been particularly reckless with credit cards and so on. As a society, we have a tendency to abuse credit.

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Homeowners stuck with an unaffordable home loan may be eligible for a new mortgage featuring a low 2% interest rate.  Obama’s loan modification plan is available for borrowers facing financial hardship and at risk of losing their home.  Under this program, your home loan could be revised so that your monthly payment is reduced to an affordable amount.  The goal is to keep families in their homes, stop foreclosures and allow the economy to recover.

The plan is called Home Affordable Modification Program-or HAMP.  This home retention plan is paid for by the federal government-your tax dollars-so do not hesitate to take advantage of this helping hand.  Over 5 million homeowners are expected to benefit under this $75 billion government program.  Here’s the basics of the plan:

1. All homeowners who ask for consideration must be reviewed for eligibility-even if they have been turned down previously
2. Borrowers must show evidence of a financial hardship or the imminent risk of default
3. Lenders must follow a standard formula to determine if a borrower meets the federal qualification guidelines-reducing the interest rate to as low as 2%
4. Homeowners who meet the basic guidelines will be asked to submit a loan modification application, including a financial statement and proof of income

The banks are motivated to modify as many loans as possible for a couple of reasons.  The lenders will be paid by the Treasury Department for each loan they modify using the standard federal terms.  Also, President Obama has strongly encouraged all banks to reach out to homeowners to offer this plan-whether they are behind on their payments or not.  If a financial hardship exists, then a homeowner is encouraged to begin the application process.

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