Bankruptcy, Consolidation and Home Equity Loans: The Myths

The American public has been brainwashed into believing there are only three acceptable ways to eliminate or discharge their unsecured debts. Hire an attorney and file for bankruptcy. Find a non-profit outfit that will consolidate their payments into one low monthly payment. Take out a home equity loan and pay off all those high interest credit cards. This is simply not true. There are other alternatives. Safe, legal, alternatives. Many times, these alternatives serve a debtor's interest better than bankruptcy, consolidation, or home equity loans.

Florence, KY (PRWEB) February 17, 2005 -- Before you choose bankruptcy there are some facts you need to consider. When you petition the bankruptcy court you are putting your financial future in the hands of a judge. A judge who turns over the negotiations to a bankruptcy trustee" who's solution is usually accepted by the judge and who, by the way, works for the creditors, not you. In addition, you are putting all your debts and all your assets on the table. You can't pick and choose what debts and which assets are to be considered.

I received an email a few months ago from a very distraught lady who had chosen bankruptcy. The trustee had advised, and the judge had agreed, to have her sell her home and use the proceeds to pay off her creditors. Something she was told by her attorney would not happen. But, the law is or has been changed to make it harder to simply discharge your debts. They now want to force you into a payment program or complete liquidation of assets.

If you watch any TV you have seen a few thousand ads for debt consolidation. We will consolidate all your debts into one easy monthly payment. No more harassment from your creditors." But what's the bottom line? I have heard from at least one person that hasn't been to happy with the results of his debt consolidation." He went through the whole process and made his payments as required for a year. At the end of the year he owed more than when he started. How could that happen?

Consider. You have an agreement with the debt consolidation company, not your creditors. The debt consolidation company has the agreement with the creditors. The debt consolidation company gets the creditors to agree to a reduced payment and in exchange they agree to pay the debt consolidation company a fee and not to harass you. This doesn't mean the bank is reducing the interest rate on the debt, waiving the underpayment fees, or waiving the late payment fees, etc. What it does mean for the bank, they now have a performing asset that they don't need to write off. The debt consolidation company and the banks are happy, at your expense.

The dumbest idea I think being promoted today is a home equity loan to payoff unsecured debt. Why would any reasonably intelligent person put the equity of their home up as collateral for unsecured debt? It's a great idea for the mortgage companies and credit card banks; but, is it really in the best interest of the home owner?

The alternatives? There are many. Most, if not all, use the fact that the banks don't really lend money. At least not to you. This is not some wild off the wall fantasy. It is a simple fact stated by the various federal reserve banks in their publications. The most often quoted is from the Federal Reserve Bank of Chicago in its publication called Modern Money Mechanics:

Of course, they do not really pay out loans from the money they receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the borrowers' transaction accounts." at page 6.

This explains how banks like Discover, who accept no deposits, are able to lend" $billions on credit cards. Technically, your application funds your credit card transaction account.

One of the great benefits of alternative debt elimination is your ability to pick and choose which debts to eliminate. You can do this without putting your home or any other assets at risk.

Like all things financial, you should do your due diligence before using any alternative method. The most important thing to look for? Will the people behind the process stay with you even if everything goes wrong? Will they stick with you and give you all the information and support you need should one of your accounts end up in court? Something no one can guarantee against, no matter which of the above processes they offer.

Bottom line: If you can beat them in court you can beat them any where.

HowToGetRidOf.com is an online alternative method of debt elimination. During the past three years we have successfully helped people eliminate in excess of $10 Million in debt. For further information please contact Jim Bullock at jb@howtogetridof.com.

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