Debt Consolidation Loans

In Murrieta and Temecula there are great places to obtain debt consolidation loans.  In many cases a debt consolidation loan is a fantastic financial tool for restructuring your debt and making life easier and finances manageable.  Particularly when your debts are for the types of obligations that are not revolving or renewing. 

If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need.  A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes.  You can reduce a car payment, both by cutting the interest rates and extending the term of the loan and paying it off ahead of the credit cards.  You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too.  Your credit cards and medical bills and gambling markers get paid whatever is left over. 

Example: if you owed $15000 on a car, $15000 in back child support and $30,000 to credit cards, and if your budget only allowed a payment of $700.  You’d setup a 60 month plan for $700/mo.  Normally you’d have to pay probably $1500 to $2000 per month on that debt depending on interest rates and terms.  Of the $700/mo that you would pay for the 60 month plan, your credit cards would get approximately only $200/mo.  Less in fact because the bankruptcy trustee would take his fees out of that $200 and also the car would have a small interest rate applied but not compounded.

Recent Taxes

While sufficiently old enough income taxes can be discharged in a bankruptcy, more recent income taxes cannot be.  Income taxes that date back only one, two or three years cannot be discharged in bankruptcy.  This is true in California for the Federal and State income taxes as well as California Sales Taxes.  If the debt is sufficently high you may want to consider waiting out the time required and then filing a bankruptcy when they are ripe enough to do a bankruptcy. 

However, if the debt would be manageable if you just had a low interest rate and a fixed payment for 36 or 48 or 60 months, then a debt consolidation loan might be right for you.  Keep in mind that the interest that the IRS charges is 10% but on top of that, stiff penalties are added whenever the debt has a remaining balance.  If you set up a minimum payment plan directly with the IRS, you’re having more than a 20% interest rate and unpaid interest and penalties are capitalized back into the loan.  Worse is that if you end up owing money next year your payment plan will be cancelled and the full balance on both years will be immediately required by the IRS.

A Debt Consolidation Loan may be exactly what you need in this situation.  As a quick side note there is a special bankruptcy rule which states that if you obtain a loan to pay a tax and then try to discharge the new loan in a bankrutpcy, you must follow the same bankruptcy rules as though it were still a tax in order to discharge it.

Student Loans and Back Child Support 

Neither of these is dischargeable in bankruptcy.  However, neither Student loans nor Child Support have that same rule as the income taxes.  If you obtain a consolidation loan to pay off student loans or child support, and you later find yourself unable to pay off the new loan, there is no bankruptcy rule forcing you to follow the student loan bankruptcy rules nor the child support rules for the consolidation loan.  So, they get discharged.

There are plenty of student loan debt consolidation programs and some have 20 year payment plans, or extended plans and some have income contingent plans.  However my favorite is to just get a normal consolidation loan.  It does better things for your credit files and credit scores and if you fall on hard times afterwards, you can discharge it in a bankruptcy. 

Open Credit Cards with Zero Balances

By far the worst thing you can do is to consolidate credit cards with a new loan or line of credit.  Examples I’ve seen come into the office include but are not limited to the following, a couple has $60,000 in debt consolidation loans and another $60,000 in revolving credit on 10 different credit cards.  Ike, the husband had gambled up $60,000 in credit cards so his wife, Inez went to the bank and got a consolidation loan and paid them off.  However, it left 10 credit cards open with zero balances.  

That’s like handing an open bottle of Rum to an alcoholic pirate; no impulse control and he gambled them all up again.  

In Murrieta and Temecula, if your debts are primarily credit cards consider filing chapter 7 bankruptcy or if you make too much money, file a chapter 13Imagine how much happier Inez would be if she’d talked him into filing a bankruptcy instead of running up the 10 credit cards over again.  How many arguments about money could have been avoided?  How many arguments did they have about the low income, the missed vacations, missed investments, missed retirement savings? If those credit cards had been closed permanently, they might have stayed married. 

I’ve seen a spouse get a consolidation loan, and then call all the credit card companies and close the accounts.  It didn’t work.  The other spouse just called all the credit card companies the next day and asked for the cards to be opened back up again.  And the credit card companies did it.

If you’re considering a debt consolidation loan, a chapter 13 bankruptcy may be just what you need.  A chapter 13 bankruptcy allows you to consolidate your debts and separate them into classes.  You can reduce a car payment, both by cutting the interest rates and extending the term of the loan, and you pay it off ahead of the credit cards.  You can include child support and income taxes and give them a higher priority in the payment plan so that they get paid off completely and ahead of the credit cards too.  Your credit cards and medical bills and gambling markers and whatnot get paid whatever is left over. 

All the cards are closed and no one is going to call back and reopen them either.  Call me now and lets get you started doing something about your debts.  Take action and fix your finances.  951-200-3613.

About David Nelson

I love to get people out of trouble and out of debt. In Temecula and Murrieta Call 951-200-3613 for a consultation. Connect with me on Google Plus. Bankruptcy Attorney David Nelson on Google+
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