When Debt Consolidation to Avoid Bankruptcy Works
Each person presents a special financial circumstance that may, or may not benefit from more traditional restructuring techniques. Using debt consolidation to avoid bankruptcy tends to work best in the early stages of financial challenges, and requires a substantial and continuing cash flow to reduce debts. Additionally, one of the most important factors which determines success relates to the homestead exemption. By using exempt home equity as collateral, the effect is to convert exempt property into cash with an underlying security interest that cannot be charged-off through the courts. Far too many people merely delay filing by tapping their home equity, and in the end, unnecessarily lose a substantial part of their home value when eventually filing Chapter 7.
Planning options
As a first consideration, determine what property is exempt and the extent of property that is subject to surrender. Then, always try to use non-exempt property as collateral first, so that the diminution of the exempt estate remains minimal. By preserving the estate in this manner, the benefits of both commercial lenders and options by provided by the code can be preserved.
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