|
Bankruptcy is, to some degree, like the illusion of the palm tree and pond in the desert. Find the money to pay an attorney, file for bankruptcy and with the thump of a gavel the court makes your debt disappear. You can keep your house, if you have one; your car, if you have one of those; what’s left to dispose of besides the furniture you bought on credit? Besides, “Everybody says it’s a snap to get a credit card and be a credible borrower again in just a couple of years…”
It is neither that attractive nor that simple. There are two basic bankruptcy options. One of them dissolves your debt obligations entirely (excepting those mortgage and car payments) and the other puts your financial matters in the hands of a bankruptcy court referee. If the court determines that your income does not justify complete bankruptcy, you will be directed to pay a portion of what is owed to each of your creditors. Or rather, the referee will be directed to do so and you will be ordered to turn your paycheck over to that referee every month. And despite what “everybody says,” bankruptcy stays with you for a long time. Don’t plan on buying a car, leasing a car or making any major purchases without cash.
Counseling, Debt Negotiation and Arbitration
Among the alternatives to bankruptcy is debt negotiation. You can try this on your own, but the best way to handle it is to hire a professional debt negotiator and open discussions with your creditors. The goal is to get a reduction in the amount owed and a payment schedule that you can meet.
Creditors are going to look on you as one step away from bankruptcy and will in most cases be amenable to getting something rather than nothing. Since you’re the debtor that could fade away, you do have a decent negotiating position. It’s best to let an ethical professional handle it for you, as they usually “know the enemy.” They’ve negotiated with the major credit providers many, many times and know what their various thresholds are.
Credit counselors will also work with your creditors to help you develop a debt management plan. These professionals also help with the development of a realistic personal budget, something that most of us with credit problems can’t do.
If you’re having problems with your mortgage lender, talk with them. They do not want to see you in default and will probably be willing to work with you on a temporarily reduced payment schedule.
Debt Consolidation Loans
Many people who are homeowners took advantage of the low interest rates over the last four years to take out home equity loans and pay off short term debt. That’s the ideal solution, as the interest on this “second mortgage” will be tax deductible. It’s wise not to borrow more than the debt you wish to retire. Home equity loans are usually much shorter term than mortgages and often have balloon payments at the end. Those can be time bombs; the refinancing carousel won’t be going around forever.
Unsecured debt consolidation loans should also be subject to close scrutiny. Many have high fees and some have adjustable rates, like a true mortgage. You’ll have to assume that your new spending discipline will be maintained and decide with your calculator whether the loan plus the fees plus the interest gains you anything over your short term credit costs.
Mortgage Lenders Plus.com is an advertiser supported mortgage directory. Get second mortgage - mortgage refinance content delivered straight to your desktop daily.
|
|
|
|
