Home Equity Can Help You Resume Life after Bankruptcy

By Gina Pogol
Mortgage Credit Problems Columnist

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First, the good news. Your bankruptcy has been discharged, and your monthly obligations are lower. While bankruptcy protection doesn't necessarily relieve you of all your monthly obligations, you probably wouldn't have filed if it didn't significantly improve your financial picture. You should be better equipped to manage your normal debt load.

Now, the bad news.

You still need cash and your credit is trashed. Filing for bankruptcy doesn't mean that life stops. You may find that you need money for education, a wedding, medical bills, or home improvement--but now you have a bankruptcy under your belt and no one wants to lend you money.

It's hard to blame creditors for being leery of offering financing to an applicant who has already demonstrated a willingness to write off debt--regardless of the reason. And some experts estimate that one in ten bankruptcies involving real estate financing is not the borrower's first. Creditors don't want to come out on the losing end of a future bankruptcy.

Next, the good news--maybe.

Lenders probably won't grant you an unsecured loan, but you might still be able to find the cash you need. If you own your home and were allowed to retain your equity when your debts were discharged, a loan secured by your house may be the most feasible and affordable way to raise cash.

If your need is great and immediate, and you know that you can make your payments, look into qualifying for a home equity loan after discharging your bankruptcy. Consider carefully the implications before committing to a loan--you will be securing it with your house, and failing to make the payments could cost you the only asset you have left.

Cashing in on Your Home Equity.

First, get an idea of what your home is worth by checking out recent sales in your neighborhood or using an online residential property value estimator. The lender will need to know the amount of available equity, and will want a copy of your bankruptcy documents and credit report. Check online or locally for post-bankruptcy home equity mortgages, compare rates and terms and find a deal you can live with.

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