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Bankruptcy or debt consolidation—which path should I take? This is often the question that people overloaded with debts ask themselves. Financial problems can be caused by any debilitating disease, unemployment, failure in business, divorce, poor financial choices or reckless spending. Before you decide on whether to go for debt consolidation or bankruptcy, it is imperative to study and understand both sides to be able to make an informed choice.

What is Debt Consolidation?

Debt consolidation refers to the process of combining multiple smaller loans into a single larger one. The premise of this is to make the loan more manageable by having a longer repayment period and lower monthly payment. The advantage of this option is that it allows the debtor to recover from his financial struggles with payments that are more feasible. This way, he will be able to avoid late penalty fees and improve his credit rating. It is important to remember, however, that debt consolidation is not always the best solution. For one, it is difficult nowadays to find low interest rates for debt consolidation loans. If you do not get rates lower than what you are currently paying for, consolidating your debts will be impractical. Aside from that, extending the payment term to a longer period will mean shelling out more money in the long run.

What is Bankruptcy?

Bankruptcy, on the other hand, is the legal declaration of one’s inability to meet debt obligations. Two types of bankruptcies most commonly used by individuals are Chapter 7 and Chapter 13. Chapter 7 is ideal for complicated debts involving mixed-ownership assets, high value debts, and multiple mortgages. This type can wipe your slate clean without requiring you pay for any of your debts. Chapter 13, meanwhile, combines your debts into a single one that you need to repay for a period of 3 to 5 years. If you fail to make the repayment, the court will order for the immediate liquidation of your assets. The cons of bankruptcy include tainted credit rating, higher interest rates for future loans, high insurance premiums, and difficulty in renting properties.

Which Route is Better?

Both alternatives can give you a chance to alleviate your current financial woes. In some situations, debt consolidation is the better choice while in other cases, your best bet would be to file for bankruptcy. It is also possible that neither can resolve your problem and you should look for other ways. It all depends on your situation and the specific type of debts that you are involved in. In any case, it is smart to consult a competent lawyer who specializes in debt relief options for you to be able to make the right decision.

A foreclosure consultant is someone who will help you keep your house from being foreclosed. There are some people who will tell you that they were able to do this all by themselves, without the help of a foreclosure consultant. But, unless you know all of the details of a foreclosure, a foreclosure consultant’s help should be sought. Here’s why.

Complex Procedures

One of the basic duties of a foreclosure consultant is to prevent a foreclosure sale. You can bargain for this with your bank or the institution that is threatening to sell your property, and in some cases it will work. But even after you have bargained for a postponement on the foreclosure, chances are you will need to reinstate the balance in your mortgage. To do this, you need the help of a foreclosure consultant. The foreclosure consultant will also get you a waiver to keep your house from an accelerated mortgage, and will help you get advanced loans to help you pay off your mortgage. Unless you are the type of person who can do all of these things, you should probably seek some professional help from a consultant.

Safety First

A threat of a foreclosure is serious and there are many people who try to use this to scam others who are very vulnerable and who are trying to get all the help that they can. As much as possible, however, you should check the credentials of the foreclosure consultant that you are planning on hiring. There are actually a number of scammers who pretend to be consultants, but who will only offer you bogus loans. Make sure that you avoid these by looking for the past history of the consultants who are applying to help you. Check with their references, and try calling other clients that they have helped in the past, to determine the effectivity of the service that the foreclosure consultant has rendered.

Legal Help

You should also know that there is a difference between a foreclosure consultant and a foreclosure attorney. A foreclosure consultant will usually have connections with foreclosure attorneys, but not all foreclosure attorneys will know any consultants. Although there will be plenty of legal documents that need to be processed while trying to postpone or delay a foreclosure, remember that the foreclosure attorney will not necessarily help you with the actual processing of papers and will limit his services to the legal aspect of a foreclosure. If you want the foreclosure to go as smoothly as possible, be sure to hire a consultant first. If you already know the process for working out a foreclosure, it may be best for you to simply find a foreclosure attorney and then work out the bargaining for the foreclosure by yourself.

A foreclosure is not easy, and it can be very frustrating at times. By hiring a foreclosure consultant, you should be able to make the entire process much easier and quicker. In the end, it is wholly up to you whether you want to hire a foreclosure consultant or not.

Homeowners on the verge of foreclosure often forget that loan modification is one way of getting out of the jam. Contrary to what other people think, there are lenders who prefer to be paid the amount instead of kicking you out of your home. A loan modification is simply going to the lender and asking them to help you make the payments on the loan.

So what are the advantages of getting a loan modification?

1. Keeping your Home

By asking for a loan modification, you get to talk with your lender on how to ensure that you keep paying the mortgage. You’ve worked hard to get that house and if you have been foreclosed, then it may mean that you didn’t try hard enough.

2. Lower Amounts

The future is always uncertain. Thus you may have been able to make the payments before but find it hard to do so now. There is a lot of reason why this happens. You may have lost your job or a medical emergency just happened where you have to put out a sizeable amount of money. By modifying your home, you can either have part of the principal deferred or the interest rate of the loan lowered. In some cases, you may even have your principal lowered.

3. Minimum Qualifications

Because of the Home Affordable Modification Program, most lenders have lowered the requirements needed to acquire a loan modification. This is to make sure that the payments become affordable to everyone. Some of the items that lenders require include, among other, information on your income, income tax documents, credit history, and payment history. The lender may also want to know what you will be unable to make the current payments.

4. Special Considerations

Homeowners are afraid to ask lenders to modify their loans because of reasons like poor credit history or late payments. The truth is lenders will want to know why you are in such a situation. Late payments sometimes translate to the borrower having financial problems. Further, having a poor credit history is not enough to stop you from having to modify your loan.

5. Extending the Time

Although modifying a loan takes a somewhat long time, the foreclosure on your home may be suspended as long as you keep to their policies. Thus while you are still negotiating with your lender, you still get to stay at your house. By this time, you may be able to find other ways to make your payments. Keep in mind though that if you want to get a good response, then you should also do your part. Keep tabs on your application so that if there are any other requirements, you will be able to submit them immediately.

6. Bankruptcy as an Option

If negotiations will your lender breaks down, then you can opt to file for Chapter 13 bankruptcy to restructure your debts and make payments easier. Under a bankruptcy, it will now be up to the court to decide if you really need a loan modification. Filing for bankruptcy though must be treated as something that is to be done when all other avenues have been explored.

When faced with a foreclosure, remember to do everything you can to retain your house. Not doing anything will most likely give your lender the automatic right to get your house.

For homeowners who struggle to cope with the mortgage payments, getting a loan modification through bankruptcy is one way to help you financially. A lot of financial counsellors will tell you that filing for bankruptcy is a last resort. They are right. However when the odds seem to be stacked up against you, you may feel as if you have no choice but to do so. Don’t worry. There are some advantages of filing for bankruptcy to modify your loan.

Chapter 13 Bankruptcy

People who have trouble with their meager finances usually have two types of bankruptcy to choose form. One is Chapter 7 while the other is Chapter 13. The problem with a chapter 7 bankruptcy is that your assets will be liquidated so that your creditors will be paid. You don’t want that. A chapter 13 bankruptcy on the other hand, will allow you to restructure your debts so that the payments will be more manageable.

Why Choose Bankruptcy?

Filing for bankruptcy seems to be a strange way of paying your debts but it is very legal. So why file for chapter 13 bankruptcy?

1. New Provisions

The House has just approved a bill that will authorize bankruptcy judges to lower the mortgage payments so that it will be easier for homeowners having trouble with their finances. Your mortgage can be lowered either through reducing the amount of the principal or lowering the interest rate.

2. Reducing DTI

DTI or debt-to-income ratio is that part of your income that is used to pay for your mortgages. One of the provisions of the bill is that the government will try to lower your DTI to 31%. Suppose your DTI is 45%. What happens is that the lender will be asked to lower it to 38%. The government wil then split the 7% cost thus ensuring that your DTI is at 31%.

3. Providing Alternatives

One of the problems of using bankruptcy to pay for your mortgage is that in the long run, mortgage rates tend to go up. Thus before filing for bankruptcy, you can inform your lender that you have problem making the payments and plan to file for bankruptcy. Your lender then has 30 days to help you find a solution to the problem. If no agreement is reached by that time, you can still choose to file for bankruptcy and have your loan modified.

4. Questionable Loans

Let us assume that you managed to obtain the loan even without the proper paperwork. You can still file for bankruptcy. What the court will ask you though is that you give a good-faith statement that relates on how you plan to repay the loan that you want modified.

5. Lender Participation

Unlike other programs, if a lender agrees to modify their loan, then they have their federal insurance increased to %250,000 from $100,000. Thus even if providing you with alternatives is voluntary, the lender know that doing so is still advantageous to them.

A New Day Ahead

Once you get your loan modified, whether through bankruptcy or the lender’s alternative, it is important to make sure that you make the payments on time. Stick to a budget and prioritize your expenses. This way, everybody wins.

A VA home loan is a type of loan designed for veterans that provided active duty service during World War II and subsequent periods since. This loan can be used to buy, build, or repair and restore a home. VA home loans have several advantages. In most cases, no down payment is required. One may negotiate interest rates with the lender and one does not have to pay for monthly insurance premium. The loan can also be an assumable mortgage. Moreover, the borrower has the right to prepay the loan without being subjected to penalty. Below, you will find a list of requirements that one needs to have to qualify for a VA home loan.

Eligibility

To be eligible for this loan, one must be a veteran who gave active duty service (with honorable discharge) during the World War II, the Korean conflict, or the Vietnam era for at least 90 days. Veterans who provided service during peacetime should have rendered at least 180 days of service. Reservists and National Guard Members who served from August 2, 1990 onwards and have at least 90 days of service may also be eligible. To prove one’s eligibility, one should obtain aCertificate of Eligibility (COE), a document used to prove one’s service and eligibility for this loan. To get this certificate, one must accomplish and submit VA Form 26-1880.

Certificate of Reasonable Value

The Certificate of Reasonable Value (CRV) is a document that indicates the property to be purchased by the veteran based on the estimate of an appraiser. This is necessary because the loan cannot exceed the amount on the CRV. A veteran can obtain this document by submitting VA Form 26-1805 also known as the Request for Determination of Reasonable Value through mail to the Loan Guaranty Division. One may also call up the VA office to request for an appraiser.

Application

The process of applying for VA loan is practically the same as applying for other types of loan. First, one would fill up an application form which has the same format as those used by conventional loans. Then the lender will assess the income, assets, credit report and liabilities of the applicant. If the applicant is an eligible veteran who has an eligible purpose for the loan, if the loan covers the CRV, and if the veteran has good credit rating and stable income, getting approval for the application is not difficult. In fact, only 10% of applications for VA loans are submitted to the VA office for approval. The rest are approved right away by the lender through VA’s automatic procedure.

Costs

There are several fees associated with VA loans. A basic funding of 2% of the loan should be paid by non-exempt veterans. If the veteran pays a down payment of 5 to 9 percent, this fee will be reduced to 1.5% while a 10% down payment will lower it to 1.25%. The borrower will also need to pay for closing costs, which vary from one lender to another.

In non-recourse loans, the lender cannot go after the other assets of the borrower in case the value of the security falls short of the principal amount owed. Obviously, this type of loan is favorable to borrowers while the exact opposite called recourse loans are preferred by lenders. Because of its nature, refinancing this type of loan entails a process different from a recourse loan. Here are some practical tips should you decide to refinance a non-recourse loan:

Understand Refinancing

Refinancing refers to the process of getting a new loan to pay the original loan. The idea is to take on a second loan that has a lower interest rate so that you will owe less than you originally did. If you are not able to secure a second loan with an interest rate at least 2 percentage points lower than that of your first loan, refinancing would not make any sense. Also, this method would entail seeking a loan from a different lender since lenders generally do not refinance their own loans.

Determine How Much to Refinance

The next step would be to calculate the amount that you should refinance. Most probably, you have already given partial payments for your non-recourse loan. That means you should only refinance the part of the loan that has not yet been paid. Some people choose to refinance the entire amount of the loan even if they have already made partial payments. But do this only if you are in dire need of extra money. Remember that it is not smart to borrow more than what you need.

Transfer Collateral

Technically, the first lender will partially own the security that you used for that loan. You can recover that collateral by completing the payment for the principal amount of the loan. Talk to the first lender and have him agree to allow you to pay off the loan completely so that the security will be released. This way, you can use that property as collateral for your new loan or even for down payment. You need to do this step immediately so that the collateral will be ready in time when you take out the new loan.

Find a Non-recourse Loan

Make it your goal to find a new non-recourse loan. If possible, stay away from recourse loan that allows your lender to run after your other assets if the security is not able to pay off the loan. A non-recourse loan is the less risky option for you. Also, when finding a second loan, see to it that you get one with an interest rate that is at least 2 points lower than the original one. For example, if your first loan has a 7% interest rate, find one with 5% or lower. Search the market high and low and compare rates carefully to get favorable results. Do not forget to include other fees and costs associated with the loan. Even if a loan promises a low interest rate but it bombards you with exorbitant fees, you will not be able to alleviate your financial problems.