Second Mortgage for Refinancing Debt

Paying Off Debt with Second Mortgage Versus Filing for a Bankruptcy

Are you drowning in debt? Have you considered filing for bankruptcy? Filing for bankruptcy has changed a lot since the new laws have been in effect. Here are some of new requirements you must meet before filing:

• All debtors must go through consumer credit counseling and additional counseling on budgeting and debt management before they can file for bankruptcy.
• You used to be able to choose which chapter under which you could file. Under the new law, an income means test determines whether you can file under Chapter 7 or Chapter 13. Some filers with higher incomes are prohibited from using Chapter 7.
• The new bankruptcy laws impose new, stricter requirements on lawyers, so it is tougher to find an attorney to represent you in a bankruptcy case.

So, what are your options? You can go through a credit counseling and debt consolidation program, but those don't actually lower your debt. The debts are instead just combined, and you just make one payment each month. However, that payment can be more than what you used to pay when you were paying the debts individually. Debt elimination programs will eliminate the debts, but you will be taxed at the end of the year for the forgiven amounts. For example, if you owe $15,000 on a credit card and have it settled for $5,000, you will be taxed for the $10,000 that was eliminated.

If you own your home, you might consider a cash-out or debt consolidation home equity loan (second mortgage). Some loan programs don't even require equity or appraisal, which will save you money. The cash out can pay off collections and judgments, as well as high-interest credit card, personal loans and tax liens. Remember, tax liens are generally not dischargeable by bankruptcy under the current laws. And, interest on your 2nd mortgage may be fully tax deductible depending upon your situation.

Compounding universal default rates of up to 30% and skyrocketing late fees can make your debt situation even worse to the point where you may end up foreclosing and losing your house. Get the second mortgage before your house goes into foreclosure. Then, cut up all but one of your credit cards. But, don't close the accounts or your credit history will appear younger than it actually is.

According to myFICO.com, your credit report lists what types of credit you use, the length of time your accounts have been open and whether you've paid your bills on time. The length of time your accounts have been open is your credit history. And, your credit history makes up 15% of your FICO credit scores.