Every week, Personal Finance Writer Harriet Johnson Brackey answers your questions about handling the economic downturn. Submit your questions in the form at the right.

I know I’m in trouble with my mortgage. What can I do to protect myself from foreclosure?

First, “prioritize your bills,” says Mary Hurlburt of the Consumer Credit Counseling Service of South Florida. “Your mortgage is more important that your cable, more important than options on your telephone, more important than eating out. You cannot maintain your lifestyle if your mortgage is in jeopardy.”

Next, call you lender and discuss your options. You might be able to refinance or get your loan modified if you’re behind on the payments or negotiate a forbearance agreement, in which lenders could suspend payments for a month or two.

If you have an adjustable rate mortgage, you may qualify for a new loan at today’s low fixed rates. But you have to qualify. If you find out that your credit score would prevent you from qualifying, work on increasing it.

“Lenders are willing to help people but you do have to be tenacious,” said Jessica Cecere, president of the Consumer Credit Counseling Service of Palm Beach County/Treasure Coast. “It’s not one call, it’s several.”

If your lender cannot or will not work with you, get a federal housing counselor involved.
The number is 1-888-995-4673.

Those counselors, too, are dealing with a tidal wave of housing troubles, so, again, be persistent.

Harriet Johnson Brackey can be reached at hjbrackey@SunSentinel.com or 954-356-4614.

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Advice for renters whose homes are in foreclosure: Every Wednesday, personal finance writer Harriet Johnson brackey answers your questions about coping in this economic downturn. Submit your question in the form at the right.

Is there a program for renters of homes that are going into foreclosure that would enable the renter to stay?

You can stay, but in foreclosure, the question is, do you want to?

The landlord hasn’t been paying the mortgage and probably won’t be fixing anything that breaks. You have between eight and 12 months from the first foreclosure notice to when the house or condo is sold at a foreclosure auction, says attorney Karl Klein of The Klein Law Group in Miami. When it is sold, your lease terminates and you will probably be evicted, because the new owner will want to empty it out and try to sell it.

Your options are few. Freddie Mac has a program to rent foreclosed homes to tenants on a month-to-month basis. And some, not many, landlords are offering “cash for keys,” to get you to move out quickly so they can put the home on the market.

Worried that your financially stressed landlord won’t give you back your security deposit and last month’s rent?

Write a letter to the landlord saying that he has “broken the lease” by interrupting “your quiet and peaceful enjoyment of the premises,” says Broward attorney Charles L. Simon, who specializes in landlord-tenant law.

Tell him to apply your last month’s rent to your next monthly payment. Then apply your security deposit to the following month.

After those two months, you will resume paying your normal rent for as long as you stay.

(Bank that money. You can use it for your next deposit)

Do not stop paying your rent altogether – even if you don’t trust your landlord..

The landlord still has the right to evict you, as long as he controls the property.

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Submit your question to Personal Finance Writer Harriet Johnson Brackey in the form at the right. Every Wednesday, you can read some of the questions and answers.

Are food stamps taxable?

No.

What about unemployment benefits?

For 2009 only – so this does not apply to the tax return you need to file by April 15 for 2008 – you can exclude from your income up to $2,400 of unemployment benefits, says Bob D.
Scharin, senior tax analyst with the tax and accounting business of Thomson Reuters.

What about cancelled debts?

If it’s credit card debt, that cancelled debt is usually taxable income.
But, there's an exception if you are in bankruptcy or if your are considered insolvent. Scharin says the IRS defines insolvent as your assets are less than your liabilities.

What if I sold my home in a short sale?
Your lender will probably send you a 1099 form, which reports income from a real estate transaction. But you many not have to add that to your taxable income.

Scharin explained that the cancelled mortgage debt is not income to you if:

It was for your primary mortgage on your principal residence.
If the debt was cancelled between 2007 and the end of 2012
If it’s not over $2 million.

Under recent tax law changes, if you meet those provisions, you don’t have to pay tax on a mortgage that is forgiven. You should be sure to keep good records in case you ever are questions about this. The IRS also gets a copy of that 1099 form.

Anything else about the tax code that can help in these tough times?

Scharin says if you’ve had a big drop in your income, you should look over your return one more time. You may now be able to squeeze in some deductions or tax credits that either you couldn’t take when your income was higher or you were only partially eligible to take. “You could be missing out on things like the child tax credit or an education credit,” Scharin said.

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Every week, The Sun Sentinel answers your questions about how to survive this economic downturn. Submit your question in the box at the right.

We have been asking for a loan modification for our mortgage. We’re 60 days behind on the payments. My lender says it can’t be done. Is that true?

You’re right. You’re wrong. Sound familiar? Anyone trying to fix a mortgage these days has to feel confused.

Even though, as I have reported, major lenders – Bank of America, Wells Fargo, and others -- say they’re working under the new Department of Treasury program to modify mortgages to make them more affordable, readers and consumer advocates are telling me that few people are getting approved.

To be fair, the Treasury program only began this month, Bank of America spokeswoman Juman Bauwens pointed out.

So if you applied last month, it was harder to get through the process.

The rules on what lenders will do are changing all the time, says attorney Jeffrey Tromberg of the Florida Debt Relief Center in Fort Lauderdale. A lender might refuse to talk until you’re behind on your payments while another might not talk to you because of that.

If you want to give this a try, Tromberg, who is also Florida chair of the National Association of Consumer Bankruptcy Attorneys, says you should write a “hardship letter.” Explain how you got into financial trouble, what you’ve done to address your problems (sold the second card, cut your grocery bill, for example) and how you plan to get out of this situation.

Also, go to the lender with all your financial paperwork in order, says Bank of America’s Bauwens – loan information, proof of your income and a list of your debts and expenses.

Watch out for a few things.

Tromberg notes that Florida legislators last year banned anyone from taking an upfront fee for arranging a loan modification --- except for attorneys. The Florida Bar recently warned attorneys about partnering with foreclosure “consultants” or other non-lawyers whose goal is to skirt that law.

And, be clear about what you’re getting in to. Not all loan modifications result in lower monthly payments. Sometimes, new fees or the payments you missed are rolled back into the loan, making your principal larger than before or your loan term longer.

Because few loans are being made and many aren’t lowering the payments for troubled borrowers, Tromberg says, “I am not seeing a lot of loan modifications succeed.”

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The Sun Sentinel answers your questions about survivng the economi downturn every Wednesday in Your Money. Use the box at the right to submit your questions.

We have a 10-year mortgage with Citibank and the payments are killing us. Does the government have some sort of modification program where we can lengthen the mortgage and lower the monthly payments?

There is now. The Making Home Affordable program launched March 4 actually gives lenders an incentive to modify loans, bring the interest rate down to as low as 2 percent and to extend the term of the loan for as long as 40 years.

A lender who cuts the monthly payment to 31 percent of the borrower’s gross monthly income potentially can also receive a payment from the Treasury Department to offset that reduction.
The program works for borrowers who are at risk or falling behind on their mortgages as well as those who are up to 60 days delinquent. The guidelines cover mortgages owned by Fannie Mae and Freddie Mac as well as those lenders that are receiving federal bailout money. It applies to loans amounts up to $729,750.

And, it can help lenders refinance loans that are underwater, or slightly higher than the value of the home. So check with your lender.

At least one, Fifth Third Mortgage Company, said it would automatically review more than 200,000 mortgages to see who might be eligible.

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The Sun Sentinel answers your questions about the downturn every Wednesday in Your Money. Submit your questions in the form at the right.

Will my certificate of deposit at Wachovia be honored by Wells Fargo?

Wells Fargo completed its acquisition of Wachovia last Dec. 31.

Kathy Harrison, a spokesperson for Wells Fargo-Wachovia said terms on CDs from Wachovia will remain the same until the CDs mature. That’s good news, because a few months ago, Wachovia was offering some attractive rates.

When those CDs expire, Greg McBride, senior financial analyst at Bankrate.com, says those who hold them will come face-to-face with much lower rates. After the Federal Reserve cut its target federal funds interest rate to close to zero in December, CD rates plummeted. A six-month CD now averages a 1.64 percent return, down from 3.2 percent six months ago in September.

Your best strategy now: Be glad that inflation is next to zero, because even a CD paying little keeps you ahead of rising prices.

Don’t lock up your money for very long, McBride advises. Because while five-year CDs are paying just under 3 percent now, inflation could come roaring back at a higher rate over the long term.

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Send in your questions about making it through this recession. Submit them at the right and watch for the answers on Wednesdays.

The stimulus legislation set up a sales tax deduction for car purchases. Will Floridians get to take that as well as the deduction for state sales taxes?

Congressional leaders may have thought about piggybacking one tax break on top of another. But that’s not what happened.

If you purchase a passenger car or light truck, between Feb. 17, 2009, and Jan. 1, 2010, the new law allows you to tack the amount of the sale tax you pay - within certain limits - onto your standard deduction. That’s for people who don’t take itemized deductions.

But many Floridians do take itemized deductions. One reason is that we have the choice of writing off state sales taxes as an itemized deduction. In other states, unlike Florida, where there is a state income tax, taxpayers there can take state income tax as an itemized deduction.

In the year you buy a vehicle, however, you already are eligible for an extra-large sales tax deduction. That’s because Floridians can use an IRS estimate of what taxpayers spend in sales taxes, and add on actual sales taxes paid on certain major purchases, such as a car or a boat.

You don’t get to do that and take the new deduction, says William Massey, senior tax analyst at the tax and accounting business of Thomson Reuters. You either take the sales tax as an “above the line” add-on to your standard deduction or you take it as an itemized deduction for sales taxes.

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The Sun Sentinel answers your questions about the downturn every Wednesday. To submit your questions, use the form at the right.

How has the first-time homebuyers tax credit changed with the economic stimulus law?

Under the old law, first-time buyers could get a tax credit up to $7,500 for a home purchased between April 9, 2008, and July 1, 2009. You’d take the credit on your 2008 return. You must pay this credit amount back over 15 years, starting two years after the purchase.

Under the stimulus law, the old law stands. But now, the credit limit is raised to $8,000 and it applies to homes purchased between Jan. 1, 2009, and Nov. 30, 2009. This would not have to be repaid unless you sell the home within three years of the purchase.

The new rules don’t apply to purchases in 2008. So last year’s buyers will have to repay
The confusing part: If you buy in the first half of 2009 but were planning to take the credit on your 2008 return under the old law, you would not get the extra $500 credit.

And although some think they should have been informed about this before they set a date to buy a house last year, the law wasn’t in place until the end of 2008. So all who bought houses April 8, 2008 or earlier are simply not eligible for this credit.

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I’ve been laid off. What should I do about my 401(k) plan?

Your retirement is the one part of your financial picture that you can put off making decisions about right away.

That’s because many employers will allow you to leave a 401(k) account at your former workplace, if it’s above a minimum amount.

Your other options include rolling the money over to your next employer’s 401(k) plan or transferring it to an Individual Retirement Account.

The IRA’s a great choice if you can find one with low fees and plenty of diversified investment options.

You’ll have to set up the new account, then return to your old employer and fill out the paperwork to release the money. This isn’t as easy as an IRA-to-IRA rollover. But a direct transfer – without the money going through your hands – is the best way to make sure your transfer doesn’t run the risk of looking like a withdrawal to the IRS. That could cost you plenty in taxes and possible penalties.

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The Sun Sentinel answers your questions about surviving during the recession. Please use the form at the right to submit yours.

How Do I Qualify for the Earned Income Tax Credit?

Like a lot of people, the possibility that you can get a refund for the Earned Income Tax Credit of as much as $4,824 is worth exploring.

It’s a tax credit that puts billions into the hands of those who work but earn little.

To get the Earned Income Tax Credit, you start the whole process by first having earned income, which, to my surprise, is somewhat confusing to people. This means you worked and got a paycheck, so those living off their investments or pensions or retirement benefits don’t qualilfy.

And you have to have a Social Security number. This, too, trips up some noncitizens who file their returns with a Taxpayer Identification Number. If you don’t have a valid SSN, you can’t claim this tax credit.

You don’t have to have children to get it.

But you do have to have modest income.

The limits for your adjusted gross income are:
$41,646 if you are married and filing jointly and have two or more qualifying children.
$36,995 fo marrieds filing jointly who have one qualifying child
$15,880 for marrieds filing jointly who don’t have children.

There are plenty of other requirements, but these are the basics.
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The Sun Sentinel answers your questions about the downturn every Wednesday in Your Money. Use the box at the right to send in yours.

I have $10,000 in a certificate of deposit at a local bank. If the bank fails, is the interest earned insured by the Federal Deposit Insurance Corp. or just the principal?

Your money — whether it is principal or interest — is insured up to $250,000 per depositor. The FDIC covers any interest earned through the date that a bank fails.

Very often, when a bank fails, its assets are picked up by another bank, which then either cashes out savers or agrees to continue the CD until the date it matures.

The institution would let you know. On brokered CDs, the same insurance limit — $250,000 per depositor per bank — applies. One word on uninsured deposits: The FDIC tries to pay something on them.

So far, in the failure of IndyMac Bank, depositors have received 50 percent of the $541 million in uninsured deposits. The FDIC is in the process of selling IndyMac to an investor group and potentially, there may be even more funds available to repay the uninsured deposits.

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Recession giving you problems? The Sun Sentinel will find answers to your questions about personal finance. Use the box at the right.

Would it be worth it to go back to school to get a bachelor's degree or just stick it out in the job market until a position opens up in your field?

You can do both.

And here's why you should: Unemployment is what economists call a lagging indicator. The economy will turn around and start thriving one day. But unemployment tends to keep rising even after recessions end.

So you want to safeguard your current position and polish your skills for the next job at the same time.

Your competitors for that job may already be enrolled.

"Historically, when economic times are challenging, students go back and acquire a new credential," Don Graham, chief executive of the Washington Post Co., said in December. The Post owns Kaplan University, which has 44,000 students studying online. Probably plenty of those people are working.

Graduate schools, too, report a spike in applications.

Follow your instincts on this one. It'll be a sort of work-study program to keep you employed.

Would it be worth it to go back to school to get a bachelor's degree or just stick it out in the job market until a position opens up in your field?

You can do both.

And here's why you should: Unemployment is what economists call a lagging indicator. The economy will turn around and start thriving one day. But unemployment tends to keep rising even after recessions end.

So you want to safeguard your current position and polish your skills for the next job at the same time.

Your competitors for that job may already be enrolled.

"Historically, when economic times are challenging, students go back and acquire a new credential," Don Graham, chief executive of the Washington Post Co., said in December. The Post owns Kaplan University, which has 44,000 students studying online. Probably plenty of those people are working.

Graduate schools, too, report a spike in applications.

Follow your instincts on this one. It'll be a sort of work-study program to keep you employed.

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Here are several of the questions you sent in last week -- and a long answer. The new tax credit was a very popular subject. And, you can still send in a question. Just use the form to the right.

You mentioned the $7,500 tax credit for first-time home buyers. Does that apply to purchases last year or this year?

This is our first time buying a home in Florida. Would we get that credit? We own a home in North Carolina.

First, let’s be truthful.

The First Time Home Buyer Credit which became law last year is not only for first-time home buyers and it’s not really just a credit.

“Credit is a misnomer,” says Gil Charney, principal tax researcher at the Tax Institute at H&R Block. “Because you do have to pay it back.”

Here’s how it works, according to Charney and information from the IRS:

-The credit is for up to $7,500 or 10 percent of the purchase price.

-You take it on Form 5405.

-It’s a federal income tax credit. So it applies to homes bought anywhere in the nation.

-It is refundable. This means, if you buy a home and take this credit, you may be getting a big refund down the road.

-“First Time” does not mean never. If you have owned a home within three years before your date of purchase, then you don’t qualify. But if it’s been longer than that, you do.

-It applies to purchases between April 9, 2008 and through June 30, 2009.

-If your are building a house, you have to occupy it by June 30 to qualify.

-Vacation homes and rental property do not qualify. It has to be your principal residence.

-It must be repaid.

-The government will be tracking this over the years. To repay the credit, you gradually add one-fifteenth of the credit amount to your tax liability over 15 years, starting two years after you first take the credit... If you took a $7,500 credit in 2008, you would begin adding $500 a year to the amount of tax you owe starting in 2010.

-If you sell the house and move before 15 years have passed, you have to pay back the remainder of the credit on your taxes for the year in which it was no longer your residence.

-If you transfer the home to your spouse as part of a divorce, your spouse has to repay it.

-People with high incomes won’t get this credit. The credit begins to phase out for singles at $75,000 and for married couples filing jointly at $150,000. There is no credit for singles whose adjusted gross income is more than $95,000 and marrieds, above $170,000.

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To submit a question, use the box on the right. I'll try to answer as many as possible here and every Wednesday in the newspaper in Your Money. 

I’m told my brokerage account is insured by SIPC. What is that and what protections does it offer?
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The Securities Investor Protection Corp., as many unfortunate investors have found out, does not insure you against losses in the market. There’s no insurance against fraud, either.
Only when a brokerage firm closes due to bankruptcy or other “financial difficulties” does SIPC step in to try to recover missing stocks, bonds or cash. It covers up to $500,000 in securities and $100,000 in cash.

Some brokerages have purchased private insurance for more than the SIPC limits, so check with your broker.

But if your brokerage does go under, be aware that SIPC doesn’t work as swiftly as the Federal Deposit Insurance Corp. And it doesn’t cover everything. Commodity futures and currencies, for example, are not covered.

Although it was started by Congress, SIPC is not a federal agency, and it is not a regulator. It is funded by its members, who are broker-dealers. For more info, go to www.sipc.org.

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Every day this week, the Sun Sentinel will answer your questions. To submit a question, use the box on the right. After that, we will publish tips every Wednesday in Your Money.

I just got a job in another city. I need to sell my house — quickly. What can I do?

In this depressed housing market, with so many homes for sale, you have to be creative. Real estate agent David Dweck with Re/Max Professionals in Coconut Creek suggests listing it rent-to-own.

The concept is an old one, in which buyers work their way into homeownership. The way he structures the deal: You set a price to sell your house at some point in the future. The renter pays you a non-refundable, upfront sum for the right to buy it at that price.

The renter moves in, and handles all the maintenance of the home just like an owner would. At the end of the contract, the renter either goes through with the purchase or walks away.

"People who rent-to-own maybe had a foreclosure, and they're rebuilding their credit," he said. "They can kick the tires before they buy it."

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Every day this week, the Sun Sentinel will answer your questions. After that, we will publish tips every Wednesday in Your Money. To ask a question, fill in the box on the right or call 954-356-4628.

I lost my job and can't pay my credit card bill. What are the chances my credit card company will give me a break?

There's a risk in asking for one. In normal times, the best thing to do would be to call and ask for the "remediation department" to try to work out a plan. But these aren't normal times. Emily Peters of Credit.com says she's hearing that strategy is backfiring.

Companies are reducing customers' credit limits or even closing accounts because of a call from the customer about trouble.

Companies aren't lenient and, in many cases, due to the credit crisis, "They are much less capable of working with you," she said.

You can't keep your situation secret forever, but you might delay any negative consequences by staying mum.

To avoid trouble, try your best to at least make the minimum payment — or as much of it as you can.

— Harriet Johnson Brackey

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Every day this week, the Sun Sentinel will answer your questions. After that, we will publish tips every Wednesday in Your Money.

I have a payment plan for back taxes with the IRS, but I can no longer afford to keep up with it. What do you recommend?

It's a good time to try to work out a better deal if you have a payment plan with the Internal Revenue Service. IRS Commissioner Doug Shulman last week announced that the agency is giving its employees increased flexibility when dealing with taxpayers facing financial hardships.

In certain cases, IRS employees can suspend collections, lower the monthly payment or allow you to skip a payment, sometimes without documentation.

The agency said it would work with those who had recently lost a job, are facing devastating illness, have significant medical bills or are relying solely on Social Security.

Start by calling the phone number listed on your monthly payment notice.

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Every day this week, the Sun Sentinel will answer your questions about getting through the economic downturn. After that, we will publish tips every Wednesday in Your Money.
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Can I get a tax benefit out of a virtually worthless stock that I own?
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It won’t be easy.
The rule essentially is that the value of your stock or your bond has to go to zero in order to be written off.
“In the IRS’ view, if you can still sell it for two cents per share, that’s not worthless,” said Mark Luscombe, principal tax analyst at CCH, a Wolters Kluwers business.
Two ways to prove a security’s worthlessness: A bankruptcy case closes and common shareholders get nothing. Or, you ask a broker to sell it and there’s no market for the stock or bond.
If you can get that kind of proof, you could take a capital loss. Capital losses can be used to offset capital gain income. And if you don’t have any of that, you can use up to $3,000 in capital losses in any one year to offset ordinary income.

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Is now a good time to buy a house? I'm worried about what would happen if I get laid off.

Lots of people are taking a look at buying now that prices have fallen iin South Florida. Let's get specific, because that will help you decide.

Start by figuring out what the potential mortgage payment will be on a new loan -- not just the principal and interest. Realize that your property tax bill will go up along with your homeowners insurance premium when you buy a more expensive home. Both of those will add a substantial amount to your monthly expenses
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Now, do a "worst case" scenario to see what you could afford if you or your spouse lost a job.

Next, consider your cash situation. You may have enough to make a down payment, but what about emergencies? Remember that owning a home means fixing something very often. And the more the house costs, the bigger the repair bills.

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Is now a good time to buy a bigger house? I’m worried about what would happen if I get laid off.?

Lots of people are taking a look at buying now that prices have fallen in South Florida. Let’s get specific, because that will help you decide.

Start by figuring out what the potential mortgage payment will be on a new loan — not just the principal and interest. Realize that your property tax bill will go up along with your homeowners insurance premium when you buy a more expensive home. Both of those will add a substantial amount to your monthly expenses.

Now, do a “worst case” scenario to see what you could afford if you or your spouse lost a job.
Next, consider your cash situation. You may have enough to make a down payment, but what about emergencies? Remember that owning a home means fixing something very often. And the more the house costs, the bigger the repair bills.

Note to first-time buyers: You can take an extra $7,500 federal tax credit if you buy by June 30.

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Worried about your job, money and future? We’re here to help. Every day this week, the Sun Sentinel will answer your questions about surviving the economic downturn. Thereafter, look for the tips and suggestions in the Your Money section every Wednesday.

Is there any way I can get some more cash out of my paycheck?
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You can check to see whether you’re giving too much to the government in taxes withheld.
The average refund last year was more than $2,300. If that was your refund, and you //were//get paid every other week, you could have added //about// $88 to each check if your withholding had matched your tax bill.

To figure the correct withholding amount, start with an estimate of your federal tax bill this year. (You can use the amount you paid in taxes last year, but be careful. You can run into penalties for underpayment.)

Then, divide your tax bill by the number of times you get paid each year. That shows you how much money you should have taken out of each check.

The money taken out is known as “allowances.” They vary in amount by your filing status - single or married - and by your gross income.

The easiest way to find out how much each allowance is worth is to ask your employer or human resources department. Or //see//go to www.irs.gov and enter “Withholding Calculator” in the search box.

There’s also IRS Publication 919, “How Do I Adjust My Tax Withholding?” But it’s a bit more complicated. To see a copy, //see//go to IRS.gov and select Forms and Publications. Once you have an idea, ask your employer for a W4 form.

You fill out a W-4 W4 when you get hired. But you can file a new W-4 W4 at any time, to change your withholding amount and perhaps put more cash into your check.

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