How to Prevent Bankruptcy with a Private Refinance or Equity Takeout

Debt is a reality for more and more of us with each passing year. Costs for education keep rising, as well as costs for other necessities, while incomes remain stagnant for many people. In situations like that, debt can spiral out of control, and bankruptcy might emerge as the only viable option for you. However, bankruptcy is a major step that is irreversible and has long-term ramifications for your ability to access credit of any kind in the future, especially your chances of securing a mortgage down the road.

Bankruptcy occurs when you no longer have the cash flow to service your debt – let alone pay it off. Filing for bankruptcy involves submitting a case to a bankruptcy court with the hope that a judge will declare you insolvent, which takes the heat off momentarily but brings long-term problems that you should know if you are seriously considering this step.

First of all, bankruptcy stays on your credit report for as long as seven years. Not all debts can be eliminated even with bankruptcy – and there are significant fees just to file the case. If you hire an attorney to help you, then the costs go up even more.

Is there a way to solve the problem without declaring bankruptcy?

There are several – you can start by dumping your extra expenses. Cancel your gym membership, your Netflix, your Hulu, your Prime Video memberships. Eat at home instead of heading to restaurants. You’ll be amazed at how quickly the saved dollars will add up. What about a yard sale? If you clear out the things you have not used in a long time, such as brand-name sunglasses, purses or sneakers, as well as collectibles and furniture, you can bring in some money as well. You could consider taking on a second job to make ends meet. Rent out a room in your house, or use Airbnb to bring paid guests in when you have the flexibility to do so.

However, these steps are not enough for everyone. If you have been paying your mortgage for several years now, it is likely that you have some equity built up – enough, perhaps, to qualify for a private refinance of your mortgage. Refinancing allows you to access that equity at a lower interest rate than what you would get from starting another credit card account.

If your credit has started to take some pings from other nonpayment issues or from elevating revolving amounts in your consumer debt accounts, then you may have a tougher time getting a bank or credit union to handle your refinance. However, we at Amansad Financial have access to a network of individuals and entities looking to invest money privately in the real estate market, by providing funds to help people in your situation refinance their mortgages and access their equity.

Private mortgages are designed to last just a year or two but often involve just the interest payments. The idea is that you use this time period with smaller payments to access the equity you have and eliminate some of your other debts and line up traditional financing once the private loan term comes to an end. For the short term, though, having access to your home’s equity can make the difference between some fiscal pain over the short term and the crushing long-term impact of bankruptcy.

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