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Would It Be Better To Use a Home Equity Loan to Pay Off Credit Cards or Go Bankrupt? – Carolyn

“Dear Steve,

With only $30,000 left on current equity loan and $29,000 in credit card debt – what would be better – cash out with new equity loan (which I can do) or file for bankruptcy? With bankruptcy – I’m afraid that a I would not be able to help my disabled daughter and end up worse off if my current situation changes for the worse, like sickness or the loss of extra income from sharing room out of house.


Dear Carolyn,

Whew, that question is not a straightforward as it appears. Both solutions have their pros and cons.

If you use your home equity line you could pay off all the debt right now, but you’d increase the monthly loan payment against your house and if you were unable to make that new higher combined house payment, you could lose your home. That would probably not be in your daughters best interest either.

If you go bankrupt, you would not be able to get new credit right away but you could keep your house and repay the debt in a debt repayment plan based upon what you can afford to pay. This would be a Chapter 13 bankruptcy.

I would suggest that rather than guess how bankruptcy might impact you, that you call a couple of local bankruptcy attorneys and find one that you’d like to go see. Make an appointment for a free bankruptcy consultation and to go in and talk about bankruptcy. Don’t go to file bankruptcy, go to get all the facts and answers as it pertains to your situation.

Once you have the facts, then you will be much better prepared to make an educated and informed decision based on the facts, and not assumptions or emotion.

Does that plan make sense?

Let me know what you decide to do.


You are not alone. I'm here to help. There is no need to suffer in silence. We can get through this. Tomorrow can be better than today. Don't give up.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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