Bankruptcy Mistakes & Alternatives
MOST COMMON MISTAKES PEOPLE MAKE WHEN TRYING TO AVOID BANKRUPTCY
A. Obtaining a Home Equity Loan
When people become over-burdened with too much credit card debt, one of the biggest mistakes they will make is to try to consolidate this debt with a home equity loan or 2nd mortgage against their home. This is typically done in an effort to avoid filing for bankruptcy. A bankruptcy lawyer will quickly inform you, however, that this practice can cause more harm than good. The interest rate on many of these loans is much higher than on the first mortgage.
In many cases the person that pursues this avenue only temporarily fixes their financial problems. Unfortunately many people that consolidate their credit card debts in the form of a home equity loan fail to change the bad financial habits that led them to obtaining the loan and ultimately run up their credit card debts once again.
In an effort to avoid filing for bankruptcy a second, third or even fourth mortgage has been obtained against the home and the credit cards continue to be used. At this point the person then seeks the advice of a lawyer for bankruptcy. It is then that the person discovers that in bankruptcy, the equity in a persons home is often protected from creditors. The only problem is that the person no longer has any equity left in their home because they have used it all up to pay credit cards. Worse yet, in many cases, the person can not afford to make the monthly payments on the multiple mortgages and now must let the home be foreclosed since they can no longer afford it. In such a case, if a person had taken advantage of a free bankruptcy consultation with a lawyer before getting the home equity loan/2nd mortgage, then they might not have put themselves in a position that would later cause them to lose their home. Jankins Law Firm offers free bankruptcy consultations in the hopes that people will consult with a bankruptcy lawyer as opposed to making this common mistake.
B. Borrowing Against a Retirement Plan
Another alternative that many people utilize when they are over-burdened with credit card debt is to borrow the money they have accumulated in their 401K or other retirement plan. A retirement plan is another type of property that is ordinarily protected in a bankruptcy proceeding. It is generally a mistake to borrow from a retirement plan to pay off debts. Although the repayment to the retirement includes some rate of interest, that rate is usually low. Had the money been left in the retirement plan it would have been able to grow at a rate of two, three or even four times the rate in which the loan was being repaid.
With the growing concern of the condition of our social security system, it is important now more than ever to sufficiently provide for ones own retirement. The lost earnings that a person would experience from borrowing from their retirement to pay credit card debt will never be recouped. For that reason alone, the retirement plan should never be used to pay off other debts. A lawyer for bankruptcy can provide alternatives to individuals who are over-burdened with debt.
ALTERNATIVES TO FILING BANKRUPTCY
An option that some people may wish to pursue before consulting with a bankruptcy lawyer about filing either a Chapter 7 or 13 bankruptcy is to attempt to pay their debts with the assistance of a non profit debt consolidation company or credit counseling agency. It is very important to be cautious about the credit counseling agency you work with. It is not advisable to use companies that are outside of Iowa if you live in this state. It is always a good idea to check out the company first, before entrusting them with your money.
One very reputable agency that is located in Iowa is Consumer Credit of Des Moines. This nonprofit agency will negotiate with your credit card companies to lower the interest rates and to try and set up a feasible payment plan. Consumer Credit of Des Moines can be a good alternative if you are not ready to consult with a lawyer for bankruptcy. To find out more information about what this agency has to offer, you can either call them or click on the link to their website.
Consumer Credit of Des Moines
(515) 287-6428
www.consumercredit-dm.com