How can you use Mortgage debt consolidation as an alternative to bankruptcy in Florida?

Before considering bankruptcy there are several options you might want to check out. The availability and usefulness of these options will depend on your employment (or source of income) situation and the type of assets you have. These other options involve consolidating your payments through a credit counseling service or consolidating all your debt through a debt consolidation mortgage, which is normally second mortgage against your home.

There really are two types of debt consolidation loans, one that is secured by equity in your home and one that is not. In Florida, an exemption limit applies to any equity you have in the property. Equity is the difference between the value of the property and what is owed on the property. For example, a car valued at $5000 with a loan of $4500 has an equity value of only $500.

With a debt consolidation loan that is not secured by your home a company simply loans you money to pay off your debt. You make one monthly payment to the local Florida consolidation company of your choice and they take care of the debt with your creditors.

You may also be able to lower your cost of credit and improve your financial circumstances by consolidating your debt through a second mortgage or a home equity line of credit. Think carefully before taking this on. These loans require your home as collateral. If you can’t make the payments-or if the payments are late-you could lose your home.

According to Florida Home exemption, if the property is secured by (second) mortgage and you are current on the payments, the equity is covered by your exemptions. Now if you decide to keep making the payments on the mortgage or loan, you generally can keep this property through the bankruptcy. If all the equity is not covered by your exemptions, then the trustee may decide to liquidate this asset and distribute the assets. Generally, in this case, you would be entitled to the value of your exemption in the asset as a cash payment.

This option is especially important to consider if you have more equity in your home (through which you can get the second mortgage) than you are allowed to protect with your Florida home exemption. If you do not have sufficient or no equity in your home for it to be protected with your Florida home exemption you will either have to surrender you home under a Chapter 7 bankruptcy or, if you want to keep your home, create a payment plan under a Chapter 13 bankruptcy. So if you are considering a Chapter 13 bankruptcy to keep your home you might want to first pursue the mortgage debt consolidation option.


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