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Avoiding Bankruptcy: What Every Consumer Should Know

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RISMEDIA, Nov. 9, 2007-With U.S. bankruptcy filings up more than 40% this year, Americans 62 years old and older should realize they may be able to avoid bankruptcy by applying for a reverse mortgage loan.

Many people filing for bankruptcy have experienced a major health crisis or have suffered a life-changing event, such as job loss or divorce. Properly utilizing the equity in a home can give people age 62 or older the funds needed to pay their bills during one of these difficult periods and avoid bankruptcy.

“People should consider their options carefully before securing a reverse mortgage,” said Doug Erickson, director of partner relations for Consumer Credit Counseling Service (CCCS) of Greater Atlanta. “In addition to obtaining reverse mortgage counseling from an independent and accredited counseling agency, a good financial advisor can help people weigh all of the information before deciding how best to proceed.”

A reverse mortgage is a loan that allows a homeowner to convert the equity in their home into tax-free income without having to sell the home, give up the title, or take on a new or additional monthly payment. Instead of making payments to a lender each month, the lender makes payments to the homeowner.

For some seniors, a reverse mortgage may be a better option than a home equity loan. However, some reverse mortgage loans have interest rates that are higher than regular fixed-rate mortgage loans, and lenders may charge points and other fees. A certified reverse mortgage counselor can help you evaluate those options.

You must be 62 years of age or older to be eligible for a reverse mortgage. You should also have a significant amount of equity in your home and the home must be in reasonably good condition. Although income and credit history are not considered in securing a reverse mortgage, CCCS believes it is critical for homeowners to review both items. Reverse mortgage clients need to develop effective budgeting skills to meet periodic expenses, such as property taxes and homeowners insurance.

CCCS of Greater Atlanta is among a select group of agencies approved to provide budget and credit counseling for bankruptcy filers nationwide by the U.S. Justice Department’s Executive Office for United States Trustees. The nonprofit agency provides counseling to approximately 21% of all Americans that file for bankruptcy.

Early warning signs of serious financial problems can include late or missed payments for more than one month, credit cards that are maxed out, and making only minimum payments on credit cards and other unsecured debts.

“While bankruptcy may be the only choice for many consumers, there are viable alternatives for some people,” said Erickson. “The decision to file for bankruptcy is definitely an opportunity to get a new start, but it also has long-term implications and consumers need to clearly understand them.”

Before filing for bankruptcy, CCCS recommends considering the following alternatives:

- Communicate with creditors. Contact your creditors to talk about options, such as reducing interest rates or setting up a payment plan that you can stick to. Don’t wait until you can’t make your payments to contact your creditors-do it at the first sign of trouble.
- Reduce expenses. Carefully review your budget and look for places to reduce or eliminate expenses. Skipping your morning coffee, bringing your lunch to work, carpooling, and eliminating all the extras on your cable bill can add up quickly to reduce your debt.
- Increase income. Consider taking a second job to increase the amount of money you have to pay down debt.
- Seek help. A certified credit counselor can help you review your financial situation and provide you with all the information you need to make the best decision for you and your family.

For more information, visit http://www.cccsinc.org or http://www.cccsenespanol.org.

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