How to Move Secure Debt to Unsecure to File Bankruptcy
In general, there are two types of debt: secured and unsecured. Secured debt is an asset--a home, a car or a bank account--held as collateral. Unsecured debt is the opposite of secured debt, there is no asset, collateral or security of any kind. The most common secured debts are mortgages and car loans. The most common unsecured debts are credit cards. If you are considering bankruptcy, you can move secured debt into unsecured accounts to try and retain your assets. But the process can be challenging.
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Things You'll Need
- Secured debt statements
- Credit report
- Income documents (W-2s, pay stubs)
Instructions
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Pull your credit report before seeking financing. Visit Annual Credit Report to access a free copy. You should also pay for your FICO score. This three-digit number represents your creditworthiness on a credit spectrum. Scores over 720 are considered excellent; and those below 600 poor. The stronger your credit, the more unsecured credit you can obtain.
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Add up all of your secured debt. If your goal is to retain your home, you will have a tough uphill battle. Most mortgage loans are secured with the house in the event of a default, attempting to switch it over to unsecured is highly unlikely. Auto loans, though, could be, if the lender is willing to give up the collateral.
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Research lenders based on your credit score. If you have high scores and good payment histories, you should apply for unsecured lines of credit at your local banks and credit unions. These institutions often have the most competitive rates. However, if you have some poor payment histories or defaults, you'll need to research finance companies too (such as Wells Fargo Financial or CitiFinancial).
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Apply for a number of different loans. The more assets you can obtain through unsecured debt, the more assets you could perhaps retain after filing for bankruptcy. Compare all loan offers, paying particular attention to fees and rates. If the costs are substantial, you might consider simply letting go of the assets rather than burying yourself in unsecured debts.
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Use the newly opened unsecured accounts to pay off secured loans. It's possible to spread these expenses over several unsecured accounts. For example, if you have a car loan for $25,000 and three credit cards with $10,000 limits, you can spread the debt over the three cards.
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Wait at least six months before filing for bankruptcy. The courts generally do not like to see large transfers of debts right before a bankruptcy filing. This will improve your chances of getting your bankruptcy approved and retaining your assets.
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References
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