Bankruptcy vs debt consolidation, which one is right for your current debt problems?

Filing for bankruptcy will not always discharge your from all your debts. Now that the New Bankruptcy Law has taken effect, filing for bankruptcy is ever more difficult and complicated. Today, your bankruptcy attorney cannot advice you about which type of bankruptcy you should file. Even if you want to acquire a Chapter 7 bankruptcy and be released from all your debts, it will not be so easy.

Under the new bankruptcy law, the bankruptcy court judge will be the one to decide whether you can file for a Chapter 7 Bankruptcy and get discharged from your debts. First you have to go through a “means test” which calculates your income, your monthly expenses and your financial capability as a borrower. If you passed the test, that’s the only time you can file for a Chapter 7 Bankruptcy. If you fail, the judge will require you to file for a Chapter 13 bankruptcy.

Getting Out Through Home Equity
A Chapter 13 bankruptcy will put you in a repayment plan, which means you still have to pay off your debts. However, through bankruptcy, your debts will be reduced and your creditors will be giving you a much lower interest. Under the bankruptcy provision, creditors can only impose up to 10% of interest rate to their debtors. Furthermore, the New Bankruptcy Law has made all repayment plans to be a mandatory five-year term. This gives you a better chance at getting out of your debts more easily.

If you filed for a Chapter 13 Bankruptcy, there is a way to make things even better for you. By using your home equity to repay your outstanding debts, you have the option to pay off your debts either in part or full payment. Acquiring for a home equity loan will also give you more time to pay off your debts. Inquire from your attorney about this option so that he can personally make the necessary preparations if you do decide to get a home equity loan. It is also interesting to note that a mortgage loan is a great way to rebuild your credit.

No Need to File for Bankruptcy
It is also worth asking if there really is a need for you to file for bankruptcy. Given the fact that the New Bankruptcy Reform Act has made the procedures more strict and more complicated, you might want to consider other options rather than filing for bankruptcy.

Since the Bankruptcy Law will require you to undergo credit counseling with an accredited agency six months before filing, the credit counseling agency can help you find a more appropriate solution to your debt problem. Here is where a home equity loan again comes as an option.

A home equity loan lets you borrow the money you need based upon the value of your home property. By paying your creditors with your home equity, you don’t even have to file for bankruptcy. Again, it will give you more time to make repayments and it will save your credit report from the record of bankruptcy.

However, before you do apply for a home equity loan, find a lending company who will be willing to give you better rates. Keep in mind that a home equity loan uses your home as a security so be aware about your payment obligations.

About the Author:

Liz Roberts is a freelance writer and loan consultant. The website BadCreditResources.com offers resources that specialize in providing bad credit loans and credit cards for bad credit.

Liz Roberts | Bankruptcy Basics

The possibility of bankruptcy is very real. If you think this could never happen to you, think again. In fact millions of Americans have already filed bankruptcy at one point in their lives and most of them never expected that possibility either.

The truth is, everyone can be at risk of bankruptcy even those who have lots of money in the bank. Take a look at the following most common reasons why people end up filing for bankruptcy:

Unfortunate Circumstances
Even rich people are affected by unexpected events that are beyond control. There may suddenly be an illness in one of the member’s of the family and their finances can slowly decline in just a matter of months or even weeks.

Natural disasters like hurricane, earthquake, and other accidents can happen at the most unexpected times. The change in the economy or the loss of job are all major events in life that can have a huge impact on a family’s financial status.

Shortsightedness
Knowing that the unexpected events can strike at any time, it is only fitting to do the necessary preparations. Do you set aside some of your money in preparation for such emergencies? Or do you spend every penny of your monthly income, confident that you’ll have enough salary the next month?

Do you have a savings fund you can rely on in case you got laid off from work or in case you got sick and unable to work for some months? Financial experts recommend having fund in your savings account which is enough to last your whole family for at least six months. This buys you some time if drastic changes in your lifestyle needs to be done.

Wrong Decisions
The looming possibility of divorce, gambling, reckless spending, self-destructive behavior, the lack of attention with the debts owed-all of these actions, sooner or later can lead to bankruptcy.

Investing in a business without doing extensive research or ensuring the legality of the business can also lead to sudden bankruptcy. These can all have been prevented if we only choose to make the right decisions. We have control over these things and if these actions are avoided, the risk of bankruptcy is greatly lessened.

Clearly, there is something people can do to avoid filing for bankruptcy. The first thing would be the awareness that bankruptcy is real and that nobody is exempted from this possibility. The government has introduced the New Bankruptcy Law in October of 2005 and according to this law, any one who wishes to file for bankruptcy must first seek credit counseling from a government approved agency at least six months before filing his bankruptcy application.

Latest statistics show that there has been a drop in bankruptcy cases from 100,000 each month in the past years, to only 30,000 cases per month in 2006. This dramatic drop can be due to the new rules and restrictions that have been included since the Bankruptcy Abuse Prevention and Consumer Protection Act took effect.

About the Author:

Liz Roberts is a freelance writer and loan consultant. The website BadCreditResources.com offers resources that specialize in providing bad credit loans and credit cards for bad credit.

Liz Roberts | Bankruptcy Basics

A record of bankruptcy or foreclosure can greatly damage a person’s credit history. Both on your credit report for seven years deeming you as a high-risk borrower for all creditors. Although some lenders do offer sub-prime loans, these come with higher interest rates and charges and a more difficult process of approval. What can you do if you need to obtain a home loan after foreclosure or bankruptcy?

Do not rush into buying a home immediately after bankruptcy. The first appropriate action would be to obtain a copy of your credit report from the three major credit bureaus (Equifax, TransUnion or Experian). Check if there are any mistakes on your report especially on the accounts filed under bankruptcy or has been foreclosed. If you find any incorrect detail, notify the major credit bureaus right away.

Rebuilding Your Credit
Opening new accounts should be you next step. By rebuilding your credit before applying for a mortgage loan, you can avail of better rates from your lenders. However, do not submit too many applications to different creditors. Choose the accounts you would like to apply for very careful. If these applications are rejected by the lenders you applied for, it can also pull down your credit score.

It’s best to start with lenders that are more lenient on their policies. You can get a credit card, a department store card, or a gas credit card to start rebuilding your credit. Remember that the only way to improve your credit history is to pay off your debts religiously.

As much as possible, you need to achieve a credit score above 600 to prepare you for your next mortgage. If you can push your credit score above 600, you can easily qualify for a mortgage loan with 100% refinancing. This means, you don’t need to give a down payment.

Saving for a Down Payment
Don’t forget to save for a down payment of at least 20% or more while you’re rebuilding your credit. In case you get a credit score of 600 and below, you will be required to put down at least 20% on your mortgage loan.

If you don’t have enough to put down on your loan, you can avail of assistance programs like Neighborhood Gold or the Nehemiah program. These special programs help consumers who are in need of down payment for their mortgage loan.

You can also seek financial assistance for your relatives. If you borrowed your down payment from your relatives, this would need to be disclosed with your lender.

Buying Home After Foreclosure
Now that you’re ready to obtain a mortgage loan, remember the lessons you learned in your past mortgage. Choose your lender very carefully. Always compare different lenders before settling on one. Don’t forget to ask for a copy of a Good Faith Estimate of Costs from your lender days before the closing. This copy should clearly contain all the exact costs you will be paying on your closing together with the agreed interest rate.

Have a lawyer to represent you during the closing to make sure that the contract you will be signing is legal and fair. After closing the deal, be aware of your obligations as the borrower and see to it that this time, you will be finishing this loan and get full ownership of your home soon.

About the Author:

Liz Roberts is a freelance writer and loan consultant. The website BadCreditResources.com offers resources that specialize in providing bad credit loans and credit cards for bad credit.

Liz Roberts | After Bankruptcy

For many average Americans, especially in the current economic climate, paying the bills has become increasingly difficult. Unforeseen events like layoffs, cutbacks, and job losses can create stress and worry, especially to those on a tight budget. Many people have had to make serious spending cuts in order to make ends meet at the end of the month.

However, despite everything you can do, sometimes there just isn’t enough money when the paycheck comes in. Sometimes this can lead to a late credit card or bill payment. When that happens, it is easier for things to spiral out of control. As interest piles up, debt becomes greater and greater. Soon it may become almost impossible to pay off the accumulating debt.

However, people with excessive debt need not despair. For people in these types of situations, there are options and solutions for becoming debt free. One of these is debt counseling. Many companies offer the services of experienced financial specialists who can help people with excessive debt get their lives back into control. This may include a debt management plan or debt consolidation.

A debt management plan or DMP is involves the debt counseling and management company working with your creditors. By negotiating with your creditors, a debt counselor may be able to work out a repayment plan that is more realistic. This may include reduced payments and interest rates for you, the client. Usually the creditor will close the customer’s accounts and restrict the account from future access. One benefit of a debt management plan is that your debt counselor might be able to negotiate with your creditor for reduced interest rates, as mentioned before. This can save you several years of payments. Someone with a defaulted credit card account may be paying interest rates as high as 30%. At that rate, it could take as many as twenty years to pay off a large amount of debt.

Another benefit of debt counseling is debt consolidation. Very often a person with excessive debt has multiple sources of debt, such as multiple credit cards and loans. Often the combined monthly total of this debt is more than the monthly income of the debtor. This is one of the most crippling aspects of excessive debts. One of the benefits of a debt counselor is that they may be able, through negotiations with various creditors, to consolidate all of your monthly payments into one payment. Often, this payment is lower than the combined sum of the former payments.

By using these tools, a debt counselor can help a person with excessive debt get out of debt in a much shorter period of time. Finding a trustworthy debt counseling company can help bring your life back into financial order and freedom.

About the Author:

DebtGuru (http://www.debtguru.com/) is the Internet domain for American Credit Foundation, an IRS 501 non-profit consumer credit counseling organization and offers debt consolidation help. Art Gib is a freelance writer.

Art Gib | Debt Consolidation

One thing that nearly everyone seems to have an opinion on, is whether or not debt consolidation is a wise or unwise move. At the end of the day, however, the only opinion that matters is the one coming from the person who is considering the consolidation strategy.

Sometimes, the hardest thing to do is making the right decision or forming a good opinion.

People who are looking for a potential debt consolidation strategy should consider these five key points before agreeing to sign on the dotted line.

1. What impact will this debt consolidation strategy have on my finances; is the very first point that you should consider when presented with a debt consolidation option. If you are not sure how to measure the impact, begin by measuring how it affects your cash flow-does it improve or reduce the cash flow. After measuring your cash flow, then look at whether or not the overall interest rate you are paying is apt to be improved, sometimes cash flow can be improved only by paying a higher interest rate.

2. The next key point for consideration is how much will pursuing this debt consolidation strategy cost; sometimes debt consolidation can cost more than the strategy is worth. It is quite true if collateral is involved, like automobiles, real estate or other assets of value. There could be penalties when breaking out of existing credit arrangements before they mature, such as mortgages and auto leases, so when consolidating, consider the impact of such costs and how long it will take to recoup them.

3. Is it possible that debt consolidation will have an adverse effect on my credit standing?. Depending on the creditor in question, may be better to maintain existing debt instead of rolling it into a debt consolidation loan with a high risk lender, because not all credit is equal.

4. Many lenders will impose certain conditions when it comes to obtaining credit of any type and some of these conditions may have to be met before the advance is made. For example, you might need to surrender and close credit cards before a consolidation loan is funded and other conditions may be required to maintain the credit. Make positively sure you understand the conditions of such a loan before signing for a debt consolidation loan.

5. Can loan consolidation fix an underlying problem with my finances; to ensure that you can fix any problem and make sure you will not encounter the same problem again, you have to understand the root of the problem.

Some other unmet need may be the driving force of your spending habits, if your credit card debt is continually being racked up year after year. What is driving people to spend more than they earn needs to be understood and understanding this about yourself is really important if you want to enjoy long-term financial success.

Everyone has their own opinion on debt consolidation strategies, but when debtors are confused, they have to look closely at facts and figures that are not driven by emotion.

Visit TFGI.com for great debt consolidation and also a great quote for your consolidation loan

Contributed Content | Debt Consolidation