Filing bankruptcy isn't something anyone wants to do. For that reason,people look for alternative solutions to their problem. Although tsome of them I actively discuss with people, they are rarely the way to go. Others can, in fact, make matters worse!
Home Equity Loan
A debt consolidation loan that leverages the equity in your home can be a good solution. It pays off all of the debt, replacing it with one monthly payment, at a lower interest rate, that is paid off at some fixed date in the future.
However, with the bad real estate market out there, and so many people "upside down" on their homes, this may well not be an option. Even if it is, you are now trading an unsecured debt that you could have wiped out in a bankruptcy for a secured debt on your home that you will have to pay upon sale or refinance down the road.
Using Pension Money to Pay Debt
Many clients come to me with pension loans or outright empty investment accounts because they were trying to forestall an inevitable bankruptcy.
This is an option that should only be taken with the advice of a financial professional, as it can sacrifice your future in order to save your present. This is for several reasons:
- Pension loans, even if you pay them back in full, can rob you of significant financial growth needed for retirement. If the money is not in the fund, it can't grow.
- The tax consequences of an outright disbursal from a pension or IRA can not only create a new debt that might make the solution less attractive, but that debt may well be non-dischargeable in an eventual bankruptcy filing.
- In taking a disbursal of funds from a retirement account you are, in effect, sacrificing your future financial well-being in order to try and save your current predicament.
- You are most often paying creditors with money ordinarily beyond their reach in bankruptcy.
So What Do I Do?
Before taking these steps, you should consult with a bankruptcy attorney to see if that is your best option. If you live in southern New Jersey, please feel free to call me at 856-432-4113 or contact me through this site for a free consultation in my Woodbury office to discuss your case.
If you are looking for more information about bankruptcy, then download my free book,Top Questions People Ask About Filing Bankruptcy in New Jersey.