California Debt Consolidation as an Alternative to Bankruptcy
The decision to file for bankruptcy, notwithstanding the chapter it is filed under, is a significant step which requires considerable thought process before coming to a conclusion and taking action. As such, filing for bankruptcy should be considered only as a last resort, rather than the quickest solution in dealing with debts. With the help of a bankruptcy attorney, one could be guided to seek alternative ways of dealing with debts before filing for bankruptcy.
The availability of bankruptcy alternatives depends mainly on your employment and the assets that you have. Consolidation companies would most likely look at these factors when contacted regarding late repayment.
One of the most common alternatives to bankruptcy in California is debt consolidation. Debt consolidation involves the procurement of a new loan to finance the payoff of several others under your name.
California creditors often offer debt consolidation through two types of loan plans.
The first type of consolidation loan plan that the creditors would always offer is one that is not secured by your home. In such an instance, the company will simply loan you money to pay off the debts. All you need thus is to make one monthly payment to the consolidation company, and they will handle your creditors from there.
With the second option, the company will offer a consolidation plan involving home equity security. With this plan, you would need to take a second mortgage or a home equity line of credit with your home as the collateral to lower your credit costs and improve financial circumstances.
The problem with a debt consolidation plan that involves home equity is the risk of losing the property in case your current financial situation fails to improve. Many California debtors seeking debt consolidation through this plan have lost their properties after falling back on their payments to the consolidation company.
The situation is even worse when one is considering Chapter 7 bankruptcy as the alternative due to the ease of losing your home as a result of limited-equity exemptions. However, the option would suit you if you are considering a Chapter 13 bankruptcy as it allows you to restructure your debts when you have more equity than would be protected under Chapter 7.