When considering bankruptcy, you may encounter unique and creative ways to protect your assets and prevent declaring bankruptcy. Sometimes these methods work and in other cases they delay the need to declare bankruptcy. Cash-out refinancing preventing bankruptcy is one strategy. It is a one of these methods that could give you access to seemingly cheap funds to help your debt situation. However, it could be a costly mistake as well.
Cash-out Refinance Preventing Bankruptcy
A cash-out refinance is a loan you can take out that exceeds the value of your mortgage. A cash-out refinance pays off your existing first mortgage and allows you to take the remaining cash. Because you are borrowing against your home’s equity you should certainly consult your financial planner before going forward with a cash-out refinance. If you are looking for a way to circumnavigate bankruptcy, you should also consult your bankruptcy attorney to discuss your situation first.
When done correctly a refinancing can save a massive amount of money, however, if you refinance without paying attention to costs and fees, you could lose money and in turn, worsen your financial situation. When you do a cash-out refinance you will be charged a fee which can eat into the amount of cash you get back. A cash-out refinance, in addition to the fees, will most likely offer a different interest rate and a longer or shorter period to pay off your loan. With this in mind, always make sure you know how much a refinance will cost you up front and do a thorough calculation on your total savings based on your new payment amortization schedule.
There are a number of alternatives to cash-out refining such as a Home Equity Line of Credit, or second mortgages that you should take under consideration before proceeding with a cash-out refinancing. Additionally, taking on new debt before a bankruptcy may affect it in several ways like delaying your filing or eliminate the ability to have the new loan included in the bankruptcy discharge. Make sure to speak with your financial planning team and bankruptcy lawyer in Houston TX before moving forward with any actions that could affect your personal and financial future.