Posted on May 3, 2010.
Are You Off the Hook for your loan if your bank fails to measure up? As the banking sector continued to hemorrhage in 2008, 25 U.S. banks have failed. Among them, Washington Mutual and IndyMac, the first bank failures and the third largest in the history of the United States, respectively, but there were also dozens of smaller regional banks across the country.
According to the American Bankers Association, 98% of 8,500 banks in the country are considered well capitalized, which makes the possibility of a bank to fail very unlikely. However, bank failures increased significantly in 2008 and is likely to continue in 2009 under current economic stresses.
Most U.S. banks are insured by the Federal Deposit Insurance Corporation (FDIC) in the case of a bank failure, bank deposits of an individual up to $ 250,000 in individual institutions are protected by FDIC. (The coverage limit, which Congress increased last year because of the banking crisis, remain in force until at least December 31, 2009, but he may return to $ 100,000 if Congress takes no further action. )
But what happens to your mortgage, car loan or credit cards if the bank that lent you the money leaving the company? Could their loss is your gain?
Unfortunately, you are still on the hook for any debts you have incurred. If your bank fails, you must be very careful how you manage your loan repayments in the months that followed.
Here's what to do:
1. Continue to make your monthly payments on time, as usual. Do not fool yourself into thinking that the uprising of a bank failure is an excuse to skip payments. This will only hurt your credit, such as late payments will be reported to credit bureaus, if you miss payments on credit card accounts, late payments may also increase your interest rate.
In the case of a bankrupt bank, the FDIC will take over the bank until it finds a larger bank loan to buy the assets of the bank failed. Because your loan is a legal contract, neither the FDIC nor a bank buys the bank can not change the terms of your loan, and you, as borrower, are still bound by the terms of repayment the loan as originally agreed
The terms of credit card account, however, are not fixed like a house or a car loan. If another bank buys the accounts of a bank does not have a credit card, the new bank is not obliged to honor the interest rate or other terms of the original account as expenses annual addition limit fees or late fees. Yet it is in the interest of the new bank not to reshuffle the deck, because making radical changes could trigger an exodus of customers from the old bank credit card reject the new terms in mass
In short, most credit card holders do not notice any changes in how they can use their card, but if you could be considered as a limit of credit risk by the bank takeover, it is possible that are they going to change the terms that you account or close it. Cardholders of credit with a high score have less to fear.
financial planner and author Suzie Orman advised to keep copies of canceled checks and loan payments for at least six months following the resumption of your bank to avoid potential problems if your payments are not recorded during the transition. (If this happens, then you will see your credit report to ensure the bank takeover has not reported your late payments or overdue.)
If you are already overdue mortgage payments, there is a chance that the bank foreclosure proceedings will be temporarily suspended, giving you a chance to negotiate an agreement on payments that help you stay in your home.
2. Read your mail and all correspondence relating to break the bank. It is important to be aware of any changes to which you write your check and you send them, but continue to write your checks and MA.
