CAUTION!   Finance companies are pushing hard for your decision to use your real estate as collateral for debt consolidation loans.   They are offering loans of up to 1 1/4 above the value of your house.  Be very careful.  You may put yourself into a position where you may loose your real estate.  These loans are considered as mortgages on your real estate and if, for any reason, you get behind, the creditor would have the right to foreclose on that mortgage.  In many cases, also, you may have no or not have enough equity in the real estate to even be able to sell it.  If you are near retirement, you may end up having a house whose payments you cannot afford since  your income will usually decline upon retirements.   Don't lock yourself into a trap you may not be able to escape from, even if you file bankruptcy.

Some companies are even offering loans where all you pay on your mortgage is the interest for a set period of time (20 years) and then pay a balloon payment of the principal after such period.   You end up never paying down the mortgage over that period.   You are still in debt after 20 years. And they still have your house in case you can not pay the mortgage.

Some others, not finance companies, are offering a quick fix to foreclosures.   They ask for a large fee and offer to make the foreclosure go away.    Their story is that they will slow the foreclosure down to give you time to get a new mortgage to replace to one that is in foreclosure.   The odds are slim to nothing that you will be able to refinance your mortgage.

A variation of this is: they offer you a mortgage on your house so you can stop the foreclosure.   This variation is only offered if you have some significant equity in your home.   You have replaced one creditor with an other and when you again get behind on their mortgage, they foreclose and get that equity.

Some companies advertise that there is a "big secret program that creditors don't want you to know about.   They claim that your credit card debts can be paid off in two or three years at payments half as large as you are paying now.   Sound good so far?

I did what a certain ex president (Clinton) said we were allowed to do: I lied through my teeth to two companies I called.

I told them that I owed $30,000.00 in credit card debt and asked how they might help me.   They proceeded to tell me to STOP paying those debts and, instead of paying the creditors I was to pay that company $418.00 per month to the company I called for the next three years.   During that period of time I will have paid them approximately $15,000.00.   Out of those payments they would take their fee; one charged approximately $2,700.00 and the other wanted $3,400.00.   With the balance of the money in their possession they would start settling claims.

When a creditor has not been paid for a long time - two or three years - they start thinking that "a half a loaf is better than no loaf" and will accept a lump sum payment much smaller than the balance owed in complete settlement of the claim.   It is not uncommon for them to accept a lump sum payment of $4,000.00 in complete settlement of a $10,000.00 obligation.

Under normal circumstances, very few have the money to pay such compromised sums.   These companies, with your co-operation, create the situation and the means to do just that.    You now have the money to compromise a major portion of your debts for "pennies on the dollar" in a "matter of two or three years".   Of course, the money is in the control of someone other than you.   Sounds good?

They do not tell you three very important things: 

(1) the creditor will report you to the credit bureau and ruin you credit for about four to five years (two to three in the program and another two or three to re-establish your credit); 

(2) the creditor WILL SUE YOU.  When someone is sued the first thing they look to is another attorney to protect them from Garnisheements, Attachments and the putting of liens on real estate.   That attorney may recommend bankruptcy as a solution to this problem.   Since you are with this company and are in it to the tune of several thousand dollars, you call them up for help.   What you may hear is: "don't worry.  We know a good attorney in your city who can help you file bankruptcy."    

This sound like a pretty expensive way to do what you, perhaps, should have done from the beginning.

(3) When a creditor forgives a debt,  he will normally issue a Form 1099C to the IRS in the amount of the forgiven debt.   This means that you could potentially be liable for taxes on such forgiven debt.   Forgiven debt is potentially taxable.   Having a debt discharged in bankruptcy is not a taxable event: but a forgiveness of debt is.  

So, if this scheme works you have paid half the amount you owe to the company and the creditors and an additional amount to the IRS.

COMMENTARY: HOME IS WHERE THE MORTGAGE FRAUD IS

Once a nuisance to a handful of lenders, mortgage fraud has blossomed into one of the fastest-growing white-collar crimes in the country, putting homeowners on the hook for overpriced houses and pushing up interest rates for all home loans, the Wall Street Journal reported Sunday. In some cases, scammers buy dilapidated houses, get fake appraisals to inflate the value and sell the homes for far more than they're worth, industry experts say. Conversely, fraudsters find novice real estate investors and convince them to sell their good name and credit record. In return, scammers promise to arrange a loan on an investment property, find tenants, make mortgage payments and sell the property for huge profits once it appreciates. For borrowers, the effects can be devastating, including losing a home through foreclosure once it's revealed the house is worth far less than the mortgage loan. This usually happens when the borrower goes to refinance or sell and a true appraisal is done. Lenders will often work with unwitting fraud victims to try to keep their credit from being ruined, but many borrowers simply don't want to be on the hook for more money than their homes are worth. Many just walk away, damaging their credit. Some wind up filing for bankruptcy. "They'll hit four or five properties in one small area, the properties will get foreclosed upon and then boarded up," said Tim Doyle, senior director of government affairs at the Mortgage Bankers Association. "That affects other people's property values."  From the Wall Street Journal.