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What is a Bankruptcy Loan?

[ 0 ] October 6, 2008 |

Bankruptcy should not be any reason why a loan cannot be arranged if the person who is bankrupt has enough equity in the property they own. These are good loans to arrange as they can help people out of financial difficulties whilst offering beneficial rates of interest as well. Some basic requirements will need to be met to have the home equity loan approved but the bankruptcy will not get in the way.

Fortunately, bankruptcy home equity loans are special loans for bankruptcies with property and cannot be given to anyone who is not bankrupt. Whilst the terms are good, they are not as good as a standard home equity loan but that is understandable however, they are also easier to obtain otherwise a bankrupt person would not meet the criteria needed.

As with regular equity loans, these loans are based on the remaining value of a property that is not securing a loan already and the equity is the difference between the market value of a property and the balance of the debts that the property is being guaranteeing. For example: a 100,000 dollar house with a mortgage balance of 50,000 dollars has another 50,000 of home equity free and that amount can be used to secure a home equity loan that almost always and especially on this case, won't feature the total amount but a percentage which can be as high as 85 percent.

Even though the home equity loan is being made to someone who is bankrupt, they will receive good terms for the loan because it is secured on the property which also means that a larger amount of money is available. The terms for repayments are very flexible; this is to ensure that the person does not have a problem making monthly repayments.

Fortunately, as there is collateral in the home, many of the normal checks do not happen as the loan is considered safe. Instead, a single credit pull will be made and the credit requirements for approval are lessened compared to regular sources of financing. Once the credit verification has been completed, only a couple of step remain; the first of which is the careful analysis of the property's deeds.

The last and final check is to ensure the person having the home equity loan can actually afford the repayments and his job is secure and regular.vTo do this, the borrower will need to provide proof of income and that the monthly payment on the loan is not greater than 40 percent of his (or her) monthly income. If the amount for the monthly repayments is above the forty percent, the amount borrowed may be reduced until it falls within the limits set so financial hardship will not affect the borrower.

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Category: Loans

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