Bankruptcy

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Building Credit

I hear it all the time in my practice. People say they want to “build their credit.” Every time I hear this phrase I cringe. It’s held up like a badge of honor, building credit or having good credit. “I want excellent credit!”

Yet really, what does this mean? Building credit means creating debt for oneself and paying it back, not all at once, but in bits and pieces, so some secret algorithms can spit out a high number that allows one to become even more in debt.  This is insane.

Seriously. Building credit is building the ability to be in debt. This is what many Americans strive for. I want a good credit score! Why? So that I can borrow money and be in debt. Having a good credit score means having the ability to be in debt. Is this something one should really strive for?

Here’s a concept: how about building the ability to be debt free? Rather than constantly worrying about paying the debt that good credit score bought, how about saving money so that you don’t have to be in debt?

Many of my clients after bankruptcy will ask about building that score back up. I ask, “Do you really want to build the ability to be in debt again?” Most look at me like the thought has never crossed their minds. Many then get a little Aha! look in their eyes and consider the possibilities of not worrying about their credit score and not being in debt.

If everyone who is actually able to pay their creditors took the money they spend on paying debt and put that money in the bank, they would have the money necessary to pay for an emergency if one arises. The “emergency” excuse I hear the most often from people wanting to get another credit card. What if I need money for an emergency?

My answer to that question is that if you are in an “emergency” that requires money, then using a credit card is going to make that emergency bigger and the amount of money necessary larger as well. If you pay a loan shark to borrow money (and make no mistake, credit cards are legalized loan sharks), then you’re going to end up owing and paying a lot more for that emergency than if you used your own money. How? Because you’ll pay interest on the money needed for that emergency. If you didn’t have the money to pay for the emergency in the first place, you’re going to have to make payments on that credit card (or loan). You’ll pay interest on the payments. This means that a percentage of your payment will pay back the loan, but the rest will line the pockets of the bank. You borrow $2000, you end up paying much more than that. If instead you use your own money from your own savings, you’ll just be putting your payments back in your own account and all of the money will be yours for future “emergencies.”

Further, often “emergencies” are expenditures that should be planned for, such as car repairs or a new furnace. If you set aside money each month to pay for these periodic expenditures as they arise, they won’t be an emergency and you won’t have to pay a loan shark to deal with them.

Of course I realize that many, many Americans do not make enough money to even pay minimum dues on credit cards or loans, so they certainly won’t have enough to set any aside. There are many struggling with this scenario and there are no easy or pithy answers. These are the people that the serious loan shark lenders prey upon, payday loan lenders and places like Springleaf Financial. The only way out of this situation is to bring in more money (not easy) or lessen expenditures (also not easy). This situation is not one I am going to solve in a blog post, but I’m not going to pretend it doesn’t exist.

Yet these people near the bottom economically are not usually the ones who are begging me to tell them how to increase their credit scores. No. The beggars are the ones who have enough discretionary income to want a good credit score. They are the ones who want to have the ability to be in debt. Having a good credit score means you can be in debt, and really, this is not something to be proud of.

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Why Hire a Bankruptcy Attorney

Filing bankruptcy can be one of the most difficult choices a person makes. Often you have been struggling to meet your financial obligations. Something happens and the house of cards comes tumbling down, leaving you faced with a proposition that seems like failure. It is difficult and frustrating. You go to see an attorney and realize that even though you have no money to pay your bills, the attorney wants over a thousand dollars or more to represent you.

You discover there may be an alternative. You could pay someone much less to prepare your petition for you. You think Why not? Your case isn’t complicated, at least you don’t think it is. You pay a few hundred dollars and file your case. You may be okay. More likely, after things go very wrong you will realize that you should have hired an attorney.

Bankruptcy is more complicated than it appears on the surface. People who have seen or attended a bankruptcy hearing testify that the meetings are often over quickly. What is not apparent from the meeting is that most of the complicated work is done before the meeting takes place. The hearing should go smoothly if everything was done right ahead of time.

Having sat through countless hearings while representing debtors in the bankruptcy cases, I can assure you that bankruptcy is often more complicated than it looks, especially since the changes that took place in the bankruptcy laws in 2005.

Bankruptcy is more than what bills you owe. People often do not realize that all of their belongings are assets that may or may not be exempt. Other intangible things such as claims, insurance policies, and retirement accounts could also be assets. You may fail to disclose an item that could have been protected, only to lose it because of the lack of disclosure. The actions taken in the years and months leading up to bankruptcy can have consequences, and can cause unintended ramifications for friends and family members.

Every consumer bankruptcy case is assigned to a trustee. That person is responsible for ensuring the interests of your creditors are protected. When you hire a bankruptcy attorney, this person is there to represent you. Your attorney can help you to determine which debts you can discharge or pay off. Your attorney will help you protect assets that are not exempt, and will help you to do so legally.  Your attorney will make sure you list every asset and that every asset that can be is protected. Your attorney will help you ensure that bankruptcy is what it is intended to be:  a fresh start.

When you pay an attorney, you are paying that person to ensure you file everything you are supposed to file, turn over all the paperwork you are required to turn over, help you maximize your assets and minimize your losses, and to represent you against your creditors. In short, you are paying for the best fresh start you can muster.

What can a petition preparer do? Legally, all a petition preparer can do is fill in the blanks on your bankruptcy documents. If you choose to pay someone hundreds of dollars for this service you are, in effect, paying hundreds of dollars for data entry service.

If a petition preparer does more than enter information into your petition, that person is breaking the law. Both federal bankruptcy laws and state rules governing the practice of law forbid anyone except a licensed attorney from giving you advice.

Why? To protect you, the consumer. If an attorney messes up your case, there are protections in place to help you. Attorneys in Oregon,Washington, and many other states are required to carry malpractice insurance. They can also be sanctioned by their bars for failure to adhere to a basic code of conduct. There are no systems in place to help you if a document preparer messes up your petition or gives you erroneous advice. You may be able to file a complaint claiming they practiced law without a license, and while the person may face fines or sanctions, you will not get anything to cover your losses.

Hiring an attorney to represent you during your bankruptcy can be expensive. After suffering through financial difficulties and falling behind on your financial obligations, handing over a large sum of money to an attorney can seem like a real hardship. But bankruptcy is not an area to shortchange yourself.  Filing bankruptcy is your opportunity to make a fresh start. Make it the best start it can be by hiring a good attorney to represent, protect, and advise you. Think of it as your first investment in a new financial future.

I am a bankruptcy attorney. I help consumers file for chapter 7 and chapter 13 bankruptcy in Oregon and SW Washington.