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The Money Doctor: Losing the home

Q Our house is now worth less than what we owe.

While the mortgage was not a problem, it became one when in the space of four months, we both lost our jobs. We have two children under eight, we are on social welfare and hand-outs. The pressure from our creditors is too much and is causing bad health for both of us. Have you a magic formula for our desperate situation? Mary, Athlone

A I really sympathise with you and can say you are not alone. There are thousands of borrowers in similar positions. In these situations, it is back to Maslow's Hierarchy of Needs -- food, shelter and clothing are the basics and what you also need is time and your dignity. Your children come first.

Obviously, if the lender has given you multiple extensions -- interest-only 'holiday' periods where you pay nothing or make reduced payments -- there comes a time when decisions have to be made. I am sure you both have genuinely sought employment in your area and family and friends have rallied round to help you in any way they can. The key obviously is employment, income is your number-one asset and with it, you can budget and plan all financial aspects of your life. Reinventing yourself, changing career direction, re-education, even moving to where there may be greater employment options are all part of the life mix in these circumstances.

The lender would prefer you to stay and eventually meet your commitments, in particular their loan.

Even if they obtain repossession, the eventual loss on the sale of your property will likely be even more than the bad debt provision they have currently made in their books.

If you can give them any hope for the future -- a new business, job, profession -- they are more likely to let you keep your family home in the hope that eventually they will be paid. Part of that hope is to continue paying something -- anything -- on a regular basis so that at least they and a court can see you are trying your best. Sincere good wishes.

Car finance

Q I left the finance of my second-hand car purchase up to the garage where I am buying. They came back and said I was refused. Where do I go now? Jimmy, Ranelagh

A New lending guidelines are being introduced making it even more difficult for consumer loans.

Generally, you should have no more than 35pc of your net disposable income (your after tax take-home pay) on financial commitments including home loans, car loans, personal loans, etc.

The garage would have gone to a credit institution which would have accessed your credit history with the Irish Credit Bureau (ICB). It is here that all loans are registered and any missed payment stays on record for five years while judgments stay for life.

You can check your credit history: send a cheque or postal order for €6 to ICB, Newstead, Clonskeagh, Dublin 14 with your name, addresses and date of birth.

Your first port of call should be your bank. They will be able to work out if you are eligible to borrow and arrange accordingly.

Your local credit union should be your next port of call. They generally are more flexible than high-street banks but are experiencing greater pressures both from regulatory powers and bad debt fears.

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