Debt Consolidation Loan or Bankruptcy?

Some homeowners may still be filing for bankruptcy even though they have plenty of equity in a home – this equity can easily be leveraged to help them consolidate their debt.

Some homeowners might not be aware that new laws passed in 2005 have made it much more costly and grueling to file for bankruptcy. These laws, called The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, have new requirements you’ll need to meet before you can file for bankruptcy.

You must finish consumer counseling sessions provided by an agency which is approved by the U.S. Trustee’s Office. These credit counseling sessions will teach you how to manage a budget as well as future debts.

There are random audits to see if your bankruptcy documents are correct. If they aren’t accurate, the attorney will be fined heavily. This ultimately translates to higher costs to you.

Your debts won’t be fully cleared until you go to financial management classes at your own expense. After these classes have been completed, you’ll need to submit your proof of completion to the courts. Once proof has been submitted your debts will be discharged.

These new requirements are just the tip of the iceberg – there’s plenty of others not mentioned here. Also remember that bankruptcy will stick on your credit for years – future lenders are going to be less inclined to lend to you. Even worse, if they do lend to you they will have reason to charge you heightened interest rates for any loans you do manage to receive.

Getting a debt consolidation loan can be your best alternative to filing for bankruptcy, especially since these new bankruptcy prevention laws have made it even more difficult for you to do so.

Don’t worry if you have bad credit – your home equity still has a lot of bargaining power. The interest rate you are offered for your home equity loan, even with your bad credit, may surprise you. Your rates will be much lower than 19%+ interest rate credit cards.

Consolidating and refinancing your bad debts with a debt consolidation loan will also save you the trouble of trying to get a loan after bankruptcy. If you applied for and received a debt consolidation loan after bankruptcy, your rates would likely be much higher than if you did it before bankruptcy.

Receiving a debt consolidation loan right now will also help you get lower interest rates in the future. This is because you’ll be able to establish a good payment history with your debt consolidation loan, while paying off all your debts. Normally this process takes about 24 months – but this is much better than the 10 years it would take for you to get the bankruptcy tarnish wiped clean from your credit report.

As you can see getting your debts consolidated with your home equity is the way to go. Your home equity has a lot of inherent value, and it’s your right to be able to use this value for whatever you please. If you have plenty of debts, make sure you use this value for the right thing, and don’t put on any more debt.