Bankruptcy Equity Home Loan Guide

How your home equity can help you get out of bankruptcy

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Following bankruptcy, it may be difficult to obtain a loan. Credit unions and banks are likely to shun away those who wish to pursue an unsecured loan or a further line of credit. Needless to say, it’s not in the best interest of these companies to put themselves at risk. So whether you have a large expense that just can’t be avoided, or you’re looking to begin rebuilding your credit, it may be in your best interest to apply for a bankruptcy equity home loan in such a situation. This allows the lender to be able to give you a loan, without being at any real risk. You are able to get the money you need – however, if you cannot repay the loan, the lender will take ownership of your home.

So when is the best time to apply for a bankruptcy equity home loan? It’s possible for you to apply for a loan as soon as your bankruptcy has closed, although if you can build your credit just a little beforehand, you’ll end up with lower interest rates on the loan. Interest still applies to a home equity loan, though it does in a smaller way than any other loan – and of course it is still based on your credit rating. So if it’s possible to build back some credit score beforehand, by all means do so.

A home equity loan may be a good loan option even if you’re not faced with bankruptcy per se. This type of a loan is more cost efficient in the long run, as opposed to refinancing your mortgage, going for a consumer loan or furthering your line of credit.  Refinancing a mortgage can not only include closing costs (which can add up to thousands), but also carries higher interest rates depending on how bad your credit is. Consumer loans and furthering credit will cost you even greater interest, as well as any other additional fees or charges agreed upon by you and the lender.  So if the idea of a home equity loan is to pay overdue bills or consolidate debt, this method will end up costing you less over time, and therefore you will be able to get clear out of debt at a much faster pace.  Another plus side to a home equity loan is that you can typically take as much time as needed in order to pay it off.

I’ve decided a home equity loan is right for me, where do I begin?

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This is probably not a huge concern if you’re dealing with a reputable company, especially those who you’ve established a quality relationship with in the past (but the Bankruptcy Equity Home Loan Guide is just looking out for you!). You need to be aware of shady lenders (for example one who has the inability to put things in writing or a high pressured sales pitch) – these types are likely trying to cheat you out of your most valuable asset – your home.

You can save yourself thousands of dollars (at least) by simply shopping around to find the best offer. While keeping track of all your quotes, manage your credit rating and make sure all your credit reports are accurate. If you think you’ve found the best deal, don’t stop there. Ask various friends and family members if they can recommend a lender to you. Also check online and pay attention to advertisements in regards to home equity loans, you never know where you might find a better deal. Comparison shopping is key here if you want to save yourself money, I cannot stress that enough.

Once you’ve gone to a number of loaners, it’s time to start choosing which offer is best. Compare the interest rates, monthly payments, and the overall terms of the agreement. If the most desirable offer is not apparent at this point, side with the more reputable and/or familar company.

Before you take action and sign an agreement, consider if a home equity loan is truly your best option or not. This is a big endeavour, so taking some additional thought and considering all of your loan options doesn’t hurt. Also, plan your budget ahead of time, making sure the loan will give you the leverage you need in rebuilding credit, consolidating debt, seeking further education, etc versus the potential burden of taking another loan in the first place. Managing your money and setting your priorities on paper will help your peace of mind as there’s a lesser chance of any financial ’surprises’ down the road.

Consider insurance as an option to be able to cover your loan payments in case something unexpected happens. It’s better advised to try and set up a monthly payment plan instead of all up front, for better debt consolidation purposes.

All this added up can be a lot of work and you may also wish to seek the help of a professional (such as a bankruptcy lawyer) to help you through this complicated procedure.

Remember to pay back your home equity loan on time as they may be able to charge you additional fees (collection fees, attourney fees and appraisal fees to name a few) that may be included in the fine print of your original agreement. You can’t delcare your home equity loan in bankruptcy, unless of course you surrender your home.

Reasons for filing (or not filing) bankruptcy

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Filing bankruptcy can be an effective way to plan for a prosperous, worry-free retirement. Many people have little savings in their retirement plan, or have debts that they can never realistically repay.

Let’s say you have a total credit card debt of $20,000 at an interest rate of 16%. The minimum payment of this debt is 2.5% per annum. If you so chose to pay the minimum payment in order to clear your debt, you’re looking at approximately 38 years to bring this debt balance back to zero. The interest generated over this 38 year span will equal approximately $30,000, more than the original amount owned in the first place, and totals $50,000 in the money you actually pay back. Most of us simply don’t have that many working years remaining, and those that do probably don’t want to spend 38 years clearing their debt.

If instead you were able to put the same amount of money into a retirement plan each year, you will end up having significantly more in the end. Mathematically, if you invested the same amount it took to pay off your debt ($50,000) into an RSP that generated 6% interest, you would end up with about $315,000 to put towards retirement after 38 years.

Of course filing bankruptcy should be considered only if your debt is too overwhelming. Bankruptcy will ruin your credit, and make other aspects of your life more difficult. You may find it impossible to hold onto credit cards (even bank accounts), apply for a loan, rent a car, or in some cases even get a job. Bankruptcy can be avoided by keeping a strict budget based on your earnings. Credit cousiling is available to you if you are having problems working through your debt or finding your budget unmanagable.

Here are some things to consider whether or not to file for bankruptcy:

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