The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 makes it more expensive and complicated to file for bankruptcy. According to the U.S. Trustee Program website, here are some of the new requirements you must meet to file for bankruptcy:
o Your income is now subjected to a two-part means test to determine whether you can file for chapter 7 bankruptcy or if you must file under chapter 13.
o Before you can file for bankruptcy, you must complete consumer credit counseling through an agency approved by the United States Trustee's office.
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o Random audits and targeted audits to determine whether a chapter 7 debtor's bankruptcy documents are accurate. If they're not the attorney could be subject to heavy fines.
o Before your debts are discharged, you must attend personal financial management classes at your cost. Only after you submit proof to the court that you fulfilled this requirement can you get a bankruptcy discharge wiping out your debts.
These are only a few of many requirements added by the new laws. If that's not enough, a chapter 7 bankruptcy remains on your credit reports for 10 years. A chapter 13 remains for 7 years AFTER you've completed the repayment plan of generally 3 to 7 years, which means a chapter 13 bankruptcy could potentially remain on your credit reports even longer than a chapter 7.
Instead of going through this expense and hassle, not to mention the residual damage to your credit scores, why not get a bad credit home equity loan? Bad credit debt consolidation loans can help you keep your house by paying your past due debt, paying off collections and judgments, and not just preserving credit scores but actually raising them by lowering your debt ratio.
Even with the rates being higher than for those with good credit, bad credit home equity loan rates are still lower than the 18%+ rates of credit cards and way better than the nearly 30% rates you'd pay if you've missed a payment on only ONE of your credit cards or if you've gone over your credit limit. This is called a universal default rate, a provision more and more creditors are implementing. This year, 45% of banks surveyed by Consumer Affairs (CA) said they have universal default policies - a slight increase from last year's survey.
Refinancing debt with a home equity loan will save you the stigma of trying to get a home equity loan after a bankruptcy which is typically worse than getting a bad credit loan. Getting a home equity loan now can set you up for lower rates for years to come after establishing a positive payment history with your loan and not re-incurring debts. This typically takes about 2 years, which is a lot less than the 10+ years it would take for a bankruptcy to come of your credit reports.
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