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The Ins And Outs Of Home Equity Loans, Debt Consolidation, And Bankruptcy

Debt Consolidation is an attractive option if you cant control your budget, but still have a reasonable income coming in. The problem is that you are getting symptomatic relief. A real cure involves making a year long comparison of what your daily, monthly and yearly expenses are, versus what income you have coming in.

Can you cut your expenses? Can you increase your income? Debt Consolidation is usually the last option a person can take before filing for bankruptcy. Bankruptcy stays on your credit record for 10 years, and can make it difficult to get home mortgage financing, loans, credit cards, etc. Bankruptcy can be either Chapter 13 where you also have to make a payment plan, and so on. You can keep assets such as your house, and car if you have a payment plan.

The other, worse option is Chapter 7 bankruptcy, which is straight total bankruptcy. Under the new bankruptcy law that went into effect in October 2005, this is quite harsh, and it may not be possible under Chapter 7 to keep your house or much else besides your car and furniture. The goal of Debt Consolidation is to get lower interest rates, make higher debt payments, and get out of the hole, usually within about four years. According a Credit Counselor, the majority of people who get a home equity loan to pay off high interest credit cards end up with the same debt burden within a couple of years. So, unless you are willing to stop taking new debt, cut your budget, or make new income, youre in trouble. The next stop is the bankruptcy court.

This is still probably preferable to getting out of town and trying to start all over, possible with an assumed name. There was a huge wave of bankruptcies before October 17th, 2005, when the new harsher bankruptcy law went into effect. Now after a large decline, bankruptcies are picking up again. Business for credit counseling and debt consolidation is definitely going to pick up, because people considering bankruptcy must go for credit counseling first, to see if they have a non-bankruptcy option. So particularly going into Chapter 13 bankruptcy is not going to necessarily yield consumers any advantage over debt consolidation. You may want to get forgiveness of your loans. Instead, you end up failing a means test, in credit counseling classes, and with a payment plan.