Bankruptcy & CCAP

Many people avoid filing for bankruptcy based on the fear that if they do, everyone will find out about it.  Many of them believe that if they file bankruptcy, it will be listed on Wisconsin’s Circuit Court Access (aka CCAP).  This is not the case because CCAP is a portal for state court cases.  Bankruptcy is a matter of federal law.
There is an analogous website to CCAP that does show bankruptcy cases.  This is known as PACER.  Unlike CCAP, which is free and open to the public, PACER requires registration and a paid account, and is primarily used only by legal and financial professionals.
Recently, I had a client call in because she was disappointed to discover that it was not listed on CCAP.  Presumably she was hoping to access information about her bankruptcy case quickly and easily.
So, whether you want it listed on CCAP or are petrified that it will be – the answer is the same.  Federal bankruptcy cases do not show up as cases on CCAP.

Video Blog – Misconceptions About Chapter 13 Bankruptcy

Most people believe that filing Chapter 13 Bankruptcy means that they have to pay back all of their debt. Not only is that not true, but in many cases, people may do better in Chapter 13 than they would have in Chapter 7. Don’t rule out a potentially valuable tool based on a myth. Get the facts before you decide.

Don’t Fear Chapter 13 Bankruptcy; In Fact, It May Be the Better Option

In the past, I’ve written about how people refuse to consider bankruptcy as a tool to help them get out of financial trouble based on rumors and myths that are – frankly – untrue.
For example, many people are afraid to file for bankruptcy because they have heard from someone else that they will lose their house, their car, or their tax refund.  And while it certainly is true that some people lose those things in bankruptcy, the circumstances required for that to happen are actually pretty rare.  Furthermore, those circumstances are almost always identifiable in advance.  Meaning, a competent attorney can tell you if you’re at risk of losing any of these things at the initial consultation, before you pay the attorney a single penny.  And if that wasn’t enough – even if those circumstances do exist, they are avoidable given proper strategy.
So, if you’re struggling financially, it doesn’t hurt to consult with an attorney to get the facts about bankruptcy so you can make an informed decision.  Don’t disregard the option until you know exactly how it will affect you.
Today, however, I want to delve into the mysterious world of Chapter 13.  Even if someone has accepted that bankruptcy is something that they need to do, many people are deathly afraid of Chapter 13.  They hear “3-5 year repayment plan” and they assume that means that they have to pay all of their debt back, and if they’re filing for bankruptcy, why on earth would they want to file Chapter 13?
Like many myths and rumors, there is some basis in reality.  For instance, yes, Chapter 13 does involve making payments on debts, and yes, the plans usually last from 3-5 years.  But very few people end up paying back all of their debt.  In fact, some people end up faring better in Chapter 13 than they would have in Chapter 7.
How?  Well, let’s consider a typical Chapter 7 case.  Family of four (mom, dad, son, and daughter) have a combined household income of $60,000.  They have a mortgage, two car loans, and let’s say $40,000 in credit card and medical debt.  They qualify for and file a Chapter 7 bankruptcy.  They make no payments to the trustee.  But are they still paying on debt?  Well, yes – they decided to reaffirm their home and car loans.  So, they’re still making monthly payments.  Chapter 7 didn’t wipe out all of their debts.  But it did wipe out the $40,000 in credit card and medical debt.  Is this family happy?  Yes.  Could they have been happier in Chapter 13?  Maybe.  It depends on the circumstances.
For instance…
  1. What if they had two mortgages, and they were already underwater with just the first mortgage?
  2. What if their vehicles are older and worth next to nothing, but they still have huge balances on them?  Or high interest rates?
  3. What if they have massive tax debts, child support obligations, or student loans?

In Chapter 13, we can do special things that we can’t do in Chapter 7.
For instance…
  1. If there is no equity for which a second mortgage to attach to your house, we might be able to get rid of the second mortgage.
  2. We can cram-down vehicle loans so that you pay what the car is worth instead of the actual balance.  We might also be able to reduce your interest rates on the auto loan.
  3. While taxes, child support, and student loans cannot be discharged in bankruptcy, they can be handled in Chapter 13 bankruptcy, which means you will exit bankruptcy with less debt, and while paying 0% interest on many of these debts.

In essence, most people who would qualify for Chapter 7 bankruptcy would get the same level of discharge of their unsecured debts in a Chapter 13, PLUS they would enjoy a few additional benefits that they could not have gotten in Chapter 7.  In the above example, the debtors still get a discharge of their $40k in credit card and medical bills, whether they file Chapter 7 or Chapter 13.  They also still must pay on their house and cars, whether they file Chapter 7 or Chapter 13.  But at least in Chapter 13, they got to pay less on their house and car loans, due to lien stripping and cram-downs.
In the interest of full disclosure, people who qualify to file Chapter 7 but choose to file Chapter 13 may end up paying some of their unsecured debt back.  This can be due to a variety of administrative concerns (interest-bearing priority and secured debts are paid before unsecured debts; rounding numbers; commitments of tax refunds; claims coming in lower than anticipated; etc.).  But an experienced and knowledgeable Chapter 13 bankruptcy attorney can help you minimize the amounts paid to unsecured creditors.  And even if the unsecured creditors do get some money (more than the $0 they would have gotten in Chapter 7), the other benefits of Chapter 13 could vastly outweigh any nominal amounts paid on unsecured debts.
It is also true that some Chapter 13 debtors end up paying back all of their debt.  This is because either their income to debt ratio is too high to permit a discharge, or there is some other circumstance in the case that requires it.  Why on earth would someone file bankruptcy just to have to pay it all back?
Again – it’s important to realize that while a discharge is the main benefit of bankruptcy, it is not the only benefit.  Even in a “100% Chapter 13 Plan”, the debtor still enjoys reduced or no interest rates (in this district, all debts receive 0% interest with the exception of tax liens, property taxes, auto loans, and other secured loans).  Bankruptcy also bestows the automatic stay, which prevents wage garnishment, utility shut-offs, repossessions, foreclosures, harassment, and other invasive debt collection tactics.  In short, you get to pay back the debt on your terms – in a structured manner – with court protection.

Statutes of Limitation on Debt Collection

Often, my clients believe that certain debts are uncollectible because the debt is very old.  They are, of course, referring to “statutes of limitation” which put time limits on how long one can wait before commencing a legal action against someone else.  The general thought behind statutes of limitation is that people shouldn’t be haunted by certain conflicts many years after they first arose.
Wisconsin laws concerning civil limitation statutes are found in Chapter 893.  Each state has its own statutes of limitation (some are longer, others are shorter).  Which state’s laws are applicable?  Generally speaking, it will be the state in which the contract was executed or the state where the action is commenced (or attempted).
The first myth to dispel is the notion that you no longer owe a debt, just because the deadline to file a lawsuit has passed.  Statutes of limitation impose restrictions on filing lawsuits.  Creditors may still attempt nonjudicial methods of debt collection (assuming a bankruptcy stay / discharge hasn’t intervened), though their options are limited.
Actions to collect on a previous judgment or court decree must commence within 20 years of the entry of judgment.  (Wis. Stat. sec. 893.40)
Actions to collect domestic support must commence – roughly – before the child reaches age 38.  (Wis. Stat. sec. 893.415)
Actions to collect on general contracts – oral and written – must commence within 6 years of the date the cause of action accrues.  (Wis. Stat. sec. 893.43)
Actions to collect for property damage must commence within 6 years of the date of the cause of action.  (Wis. Stat. sec. 893.52)
Actions to collect for personal injury must commence within 3 years of the date of the cause of action.  (Wis. Stat. sec. 893.54)
A limitation can be tolled (suspended, and therefore extended) by lawsuit or injunction.  (Wis. Stat. sec. 893.13 and 893.23)
If you continue to make obligations on a debt obligation, the statute of limitations may be extended.  (Wis. Stat. sec. 893.45 and Lyle v. Esser, 98 Wis. 234 (Wis. 1898)).
Generally, if a debt is incurred fraudulently, the limitation could be extended to within a reasonable period of time for the aggrieved party to become aware of the fraud.

The myth of the “pay it all back” bankruptcy.

I’ve lost count of the number of times I have recommended a Chapter 13 Bankruptcy to a client only to have them stare back at me with their eyes bulging, and usually with one of the following responses:
“Isn’t that the one where I have to pay everything back?”

“Why should I bother filing for bankruptcy if I have to pay everything back?”

“#@!$ you.”
Or some combination of all three.
One of the major problems with getting legal advice from your friends at the bar is that an entire new field of “faux law” develops.  Assumptions are made, facts are distorted, and words are used carelessly.  Before you know it, a new bankruptcy myth emerges that bears little or no resemblance to reality.
I spoke about this once before.  The notion of “filing against debts” gave rise to a mistaken notion shared by many of my clients that whether a debt would be discharged or not had to do with whether or not it was listed on their bankruptcy schedules.  I’m not going to go down that road again.  Suffice to say, listing creditors on bankruptcy schedules is a due process requirement, and has very little to do with the discharge.  You can read more about that here.
Filing Chapter 13 Bankruptcy does not [necessarily] mean you are paying everything back.  So, how does this myth get started?
Well, for one thing, if you are in Chapter 13 – you are indeed making monthly payments to the Trustee.  The way I explain it to my clients (at the beginning of our consultations, before I have specific facts of their case) is that…  Chapter 13 is a 3 to 5 year debt consolidation and repayment program.  We take all of your debts, pool them together, and break them up into categories.  Then, based on the types of debts you have and the circumstances of your case – certain debts will be paid in full and other debts will be paid a percentage – based primarily on income but sometimes other factors.
Let’s take a simple example…  Unmarried individual makes $20k per year, he has a car loan and three credit cards.  He qualifies for Chapter 7 based on in his income, but he has a prior bankruptcy case that makes him ineligible to refile a Chapter 7 at this time.  In his case, he will make monthly payments to the trustee – he will pay off the secured balance on his car during the life of the plan, and he will likely pay nothing to his unsecured creditors based on his income.  In this particular example, he may very well be paying the exact same thing he would have been paying if he filed Chapter 7, except instead of paying his auto creditor directly, he pays the trustee.  And, with up to 60 months to do the Chapter 13, and the possibility of lower interest rates and a possible reduction of the principal balance – he is actually paying LESS in Chapter 13 than he would have been paying if he filed Chapter 7.  So, while it is true he is making monthly payments, he is certainly not paying “everything” back, and in this case, he’s actually better off than he was in Chapter 7.
Does everyone come out of Chapter 13 faring so well?  No.  Often, people in Chapter 13 will pay back something to their unsecured creditors, but seldom do they pay it all back.  People file Chapter 13 either because they make too much money (in which case they’re paying unsecured creditors a percentage based on income) or they’re filing Chapter 13 for a non-income reason, and most of those reasons require a percentage to unsecured creditors.
And of course, many priority (taxes, domestic support, etc.) and secured debts (auto loans, mortgage arrears, etc.) do have to be paid in full.  Though, not always, so don’t let the general rule frighten you.  Talk to a bankruptcy attorney to find out exactly what does and what doesn’t have to be paid if you choose to file Chapter 13 Bankruptcy.
Are there cases where debtors have to pay back all of their debts?  Yes, there are.  These are relatively rare, but there are several different ways this could happen.  Someone could make so much money relative to their debt (remember that bankruptcy is less concerned about income and more concerned with your debt-to-income ratio) that the formula set forth by Congress determines that you have to pay back all of your debt.  Or, if you’re filing for a non-income reason, that reason may also force you to “pay it all back” – though these scenarios are far less common.
So, let’s say you’re that rare debtor – the one unfortunate enough to find out from your attorney that you have to file Chapter 13 and “pay it all back”.  Why bother filing?
Well, maybe you don’t want to file.  But don’t rule it out just yet.
For starters, you’re still probably not paying it all back.  Interest rates on debts in Chapter 13 vary by district, but they are almost always better than what you would be paying contractually.  For example, in the Eastern District of Wisconsin, priority debts and general unsecured debts are all paid with 0% interest.  Mortgage and lease arrears are also paid at 0% interest.  The only real interest that gets charged are for other secured loans (such as vehicle loans), and those receive “Till interest” which is prime rate plus 1-3%.  Prime rate has been stuck at 3.25% for several years now, so unless you have ridiculously low rates on your vehicles and interest free credit cards, you’re still getting relief on interest rates.
You will still benefit from the automatic stay – which means any adverse collection actions (ranging from wage garnishments and bank levies to repossessions and foreclosures – and including annoying creditor phone calls) all stop.  Apart from any long-term debts, you can walk out of Chapter 13 debt free, with a reorganization plan that will put you in much more control than you are perhaps feeling right now.
The lesson of today’s story is that you shouldn’t get your legal advice from a bar stool.  What happened in your friend’s bankruptcy case is unlikely to be what happened in your bankruptcy case (for better or for worse).  Results vary by the circumstances of each case.  Get the facts from an experienced bankruptcy attorney.

Title 11? I thought I filed Chapter 7!

This is a very common misconception that I want to dispel quickly.  On the bankruptcy forms, in formal court pleadings, and perhaps even in an attorney’s retainer agremeent or other forms and letters – there will be several references to “Title 11 of the U.S. Code” or “11 U.S.C.” or “Title 11 – Bankruptcy Code” or some other variation.
People reading this will mistakenly believe that this refers to Chapter 11 Bankruptcy.  It does not.
The United States Code – the body of federal statutes – is divided into 51 “titles” which are broad-area topics.  For example – Title 18 covers federal crimes.  Title 26 is the Internal Revenue Code.  Title 12 is about banks.  And Title 11 is all bankruptcy.  Each title is further broken down into parts, chapters, sections, and subsections.
When we refer to “chapters of bankruptcy” such as Chapter 7 or Chapter 13, we are referring to a subdivision of Title 11.  There just so happens to also be a Chapter 11 bankruptcy, which is what fuels the confusion.  For the record, certain entitles can also file for bankruptcy under Chapters 9 and 12 (and 15, but that’s not exactly a separate filing).
There are other chapters in Title 11, too, which contain general provisions that apply to the other “chapters of bankruptcy”.  Chapter 1 is “General Provisions”, Chapter 3 is “Case Administration”, and Chapter 5 is “Creditors, the Debtor, and the Estate”.  There are no even-numbered chapters, except for Chapter 12.  That’s just the way Congress chose to structure it.
So, when you hear or read something from your attorney or the court talking about “Title 11”, that doesn’t mean that your attorney filed (or is going to file) a Chapter 11 Bankruptcy for you.  All chapters of bankruptcy, such as Chapter 7 and Chapter 13, fall within Title 11 of the United States Code.

Chapter 7 Exemption Planning & Strategizing

Before I begin this blog post, I just want to assure you that asset cases (what is described below) are relatively rare in the State of Wisconsin due to fairly generous exemption options.  Just based on informal observation, I’d estimate that fewer than 5% of cases have non-exempt assets that could be administered by a trustee, and fewer still are actually administered.  I say this now so as to not induce panic.  Filing for bankruptcy does NOT necessarily mean that you will lose property.  It is certainly possible, but an experienced attorney can estimate with a reasonable degree of certainty whether your case might have an exemption issue during a free initial consult, before you’ve invested a single dime into bankruptcy.  And worst case scenario, you can always file under Chapter 13 and avoid losing assets altogether.  This article below applies to only a very small number of cases.
So, you’re getting ready to file Chapter 7 Bankruptcy.  You’re at your attorney’s office, and he’s punching his keyboard furiously – polishing off the last of the exemption math.  Then he turns to you and says, “You have $10,000″ in non-exempt equity.”
Perhaps you knew this was coming.  Perhaps this news came out of the blue.  Either way, you have non-exempt assets.  So what does this mean?
Well, if we’re going to get technical and grim about it, it means that you either have to cough up $10,000 to give to the Chapter 7 Trustee, or you have to be prepared to lose whatever asset(s) are exposed.
In reality, you’re not in nearly as much trouble as it looks like on paper.  Over the years, I have filed dozens of what appeared – on paper – to be an “asset case” – sometimes with thousands or even tens of thousands of dollars in non-exempt equity.  And in many cases, the trustee still filed an asset report.  Here are just some of the factors weighing on the trustee’s mind when he decides to pursue or abandon a non-exempt asset…
  1. How much is the trustee going to get paid?  The trustee retains a percentage of the assets he recovers for the work he must perform in distributing the assets.  If the only thing he can go after is $100, the costs of administration will far outweigh the mere pittance he will recover.
  2. How much are the creditors going to get paid?  $10,000 is a lot of money if the unsecured claims are only expected to be $25,000.  Even after administrative costs, creditors would still likely get paid over 33% of what is owed them.  But if you owe $200,000, the percentage is a lot less (less than 5%).
  3. How easy will it be to liquidate?  Is the trustee seizing money in a bank account?  If so, that is easy to convert and use to pay creditors.  But what if the exposed money is in household furniture and appliances?  Even if the trustee realized the full market value that you estimated your stuff to be worth, he still has to go through the process of selling the stuff, and that costs money.  And the likelihood of him selling your stuff for even a fraction of what you think it’s worth is still pretty low.
  4. Is the asset contingent?  Sec. 541 of the bankruptcy code describes “property of the estate” and includes contingent assets – or assets that you are entitled to possess, but do not yet possess.  There are tons of contingent assets.  Rights to tax refunds are the most common.  Unresolved lawsuits, inheritances, and residual income are all examples of possible contingent assets (depending on the specific circumstances).  Okay, so you have a lawsuit pending against someone else for $5,000.  Does that mean the trustee wants to hold open your case for months or years, waiting for it to resolve?  Sometimes he will, but often times, he won’t bother.

It is important to note that all of the above are pragmatic considerations for the Trustee.  That doesn’t mean that you will always get off the hook.  The trustees are also under considerable pressure from the U.S. Trustee to pursue worthwhile assets, and of course, they have a fiduciary duty to unsecured creditors.
Trustees are also human beings.  Understand that sometimes, the trustee’s decision to pursue or abandon an asset could be influenced by what kind of a day he is having and what kind of mood he is in.  For example, if he just landed a million dollar asset case earlier in the day, he probably doesn’t care too much about your thousand dollar case.  On the other hand, if you (believing that the trustee is going to screw you over and take things from you) treat the trustee with hostility and contempt – he might just exercise his full rights just to be vindictive.  Fortunately, trustees in our district are pretty good people and easy to get along with.
Younger trustees tend to scrutinize cases more to look for assets.  With age and experience, apathy tends to follow.  They know an asset case when they see one, and they don’t bother with the tiny cases.
So, what are some strategies you can use to retain as many of your assets as you can?
  1. Don’t try to hide any assets.  Anything not disclosed, if discovered later, cannot be taken as exempt – even if you had plenty of exemption to use.  And trustees WILL go after non-exempt assets, if for no other reason than to make an example of you and deter other people from lying to the bankruptcy court.  Learn from the mistakes of others.
  2. Believe it or not, I have learned that it’s actually better to over-estimate the value of your assets.  Trustees can usually tell if you’ve perhaps been a little too generous about their personal belongings.  They can also tell if you’re short-changing your schedules.  If they believe that is the case, they will scrutinize your schedules moreso, and perhaps hire their own appraiser.  If you thought you had problems with $1k in non-exempt equity, wait until the trustee gets real values and finds out that you actually have $10k exposed.  (It’s worth dispelling a common myth at this point.  Trustees do not actually come out to your home to look at your stuff.  But they can, and they will, if they have good reason to believe you have not been truthful on your schedules.)
  3. Check your exemption options.  For example, Wisconsin residents who have resided in Wisconsin for at least two years may choose between federal exemptions and Wisconsin state exemptions.  Each set has its own benefits and drawbacks, so debtors may select whichever set is most beneficial to them (though they may not mix-and-match).  Which exemptions you are entitled to depends on which state you currently reside in, and which state you have resided in during the past 730 days.  (We’ll discuss residency requirements and exemptions a different day.)
  4. You will have access to a variety of exemptions, which can only be applied toward certain types of property, and most of which have dollar limits to them.  To the extent the exemptions allow you to do so, leave exposed things that are hard for the trustee to sell, like furniture and appliances.  Cover up cash and cash-like items (aka liquid assets, such as bank accounts, whole life insurance policies, retirement accounts, tax refunds, stocks, and bonds).  Then cover up real estate and motor vehicles – yes, the trustee has to sell them, but they’re easier to sell.  Whatever is left – that is what you want to leave exposed.
  5. If there are assets secured by liens that you intend to surrender back to the bank, leave those items exposed, too.  The trustee can try to intervene in a repossession or foreclosure action if he chooses to.  But since you’re already resigned to losing the property, it’s no skin off your nose.  If you have a piece-of-junk snowmobile sitting in your backyard collecting rust that you could care less about – don’t waste exemptions on it if they can be better utilized elsewhere.
  6. Expose contingent assets.  These are things you don’t have yet, and it’s harder to miss things that you never had possession of in the first place.
  7. If the trustee is not willing to abandon assets completely, he is still likely going to be open to a settlement – particularly if you have left exposed contingent or hard-to-sell assets.  He doesn’t want to go through the hassle of administration, or leave a case open for months or years to collect a contingent asset.  He would much rather get a cash payment from you, in exchange for which, he will settle for less than what is exposed.  So, for example, let’s say you have $5k exposed in a car.  The trustee may settle for $3k and you get to keep the car.  Now, this isn’t Chapter 13, so you would be able to stretch payments out for 3-5 years.  In Chapter 7, if the trustee settles, he is going to expect payment pretty promptly.  Sometimes he may give you a month.  Sometimes 3-4 months.  The longest I’ve ever seen a payment plan for was 12 months, and that was for an extremely large asset (as I recall, $60-70k).

Don’t let fear or misinformation deter you from seeking relief.

From time to time, I hear an anecdote from a client that reminds me that everywhere across the country, there are thousands of people who are not getting the fresh start they need because of misconceptions about bankruptcy.
The other day, I met with a fellow who was terrified that if he filed for bankruptcy, that he would lose his car, because a friend of his filed for bankruptcy, and she lost her car.
I explained to him that bankruptcy does not necessarily mean you will lose a car.  In fact, losing a car because of bankruptcy is incredibly rare.  Losing a car during bankruptcy (but not because of bankruptcy) is a little more common.  There are still others who choose to voluntarily give up their vehicle in the course of a bankruptcy, though there is no mandate that anyone do so.
There are only two ways that someone can lose a vehicle in bankruptcy.  And one of those ways doesn’t really have to do with the bankruptcy at all.
First, you could lose a car if there is a secured loan on the vehicle and you have defaulted on the loan, resulting a repossession.  This often occurs while someone is preparing to file for bankruptcy, but it certainly doesn’t happen because of it.  If you default on a secured loan payment, creditors have a right to repossess, whether you file for bankruptcy or not.  Thinking that bankruptcy has anything to do with repossession is the classic post hoc, ergo, propter hoc logic fallacy.  After this, therefore, because of this.  In fact, the repossession had absolutely nothing to do with the bankruptcy, the timing just happened to coincide because the bankrupt debtor was struggling on all bills, car loans included.
The second way to lose a vehicle in bankruptcy is if the equity in the vehicle exceeds the allowable exemptions.  Again, this is pretty rare.  Most vehicles don’t have equity to begin with.  Most vehicles depreciate rapidly the moment you drive them off of the lot.  Additionally, most people pay the minimum amounts on their vehicle loan.  This ensures that throughout much of the life of the vehicle, the amount owed on the car exceeds the value of the car, creating no equity.  By the time the debt is paid down enough to create equity, the car is several years old, has tens of thousands of miles on it, and is worth maybe a couple thousand dollars.  At that point, Wisconsin residents enjoy pretty healthy motor vehicle exemptions whether they elect federal exemptions: $3,450, plus any remaining wildcard exemption (up to $11,975) using federal exemptions, and $4,000, plus any remaining household goods exemptions (up to $12,000) using state exemptions – and both numbers are doubled for joint filers.
Still, there are times where there are vehicles in excess of exemptions, such as people who have purchased a new vehicle recently with cash and have no loan against it, people with expensive large vehicles, or people who have a collection of cars of high or antique value.  In these scenarios, it is possible that your exemptions will fall short of the equity you own.  But even then, the trustee has to want to sell the car.  In my experience, trustees don’t like to sell stuff, particularly in today’s economy.  They prefer to liquidate non-exempt assets that are easier to move, such as real estate, cash, and cash-like items such as tax refunds.
And by the way – both of these problems (non-exempt equity or a default on a secured loan payment) can both be fixed by filing a Chapter 13 Bankruptcy instead of Chapter 7.
The moral of the story is that no two bankruptcy cases are exactly alike.  How your bankruptcy case will unfold, how you will benefit, the extent of your relief, and the negative consequences you experience are highly contextual and dependent on the specific circumstances of your case.
It is important not to rely on the anecdotal evidence you hear from friends and family, who may not fully understand how or why certain things may have happened to them.  Consult with an experienced attorney to find out exactly what bankruptcy will mean for you, so that you can make an informed decision and weigh the risks and benefits for yourself.

Bankruptcy MythBusting #10

Myth:  I will never have another credit card again!  I don’t want or need to rebuild my credit.
Fact:  Your credit does more for you than allow you to incur debt.  Although rebuilding credit for that purpose is enough of a reason if you ever hope to buy a home or new car.  But let’s pretend for a moment that you are willing to live in an apartment for the rest of your life and buy beaters with cash, just to avoid going into debt again.  Your credit score is used by more than just lenders, such as prospective employers, insurance underwriters, and prospective landlords.
In a nutshell, you need to be concerned with your credit score (and more importantly, rebuilding your credit score), because it will impact many areas of your life.Credit cards might not be the best way to rebuild credit, but it is faulty logic to believe that credit cards are – in and of themselves – bad.  They are not.  Credit cards can be very useful tools, if used properly.The problem is that too many people use credit cards and loans as a means of supplementing their income.  For example, Bob earns $2k per month, spends $3k/mo, and supplements his income by taking out $1k loans each month.  Bob is living beyond his means.  The proper way for Bob to handle his finances is to either scale back his expenses, find ways to increase his income, or a combination of both.Credit cards are best used as a means of a temporary advance.  Bob spends $2k/mo, and Bob earns $2k/mo, but Bob doesn’t have $2k right this second.  He needs to make a purchase, and will have the money to cover the purchase on a later date.  He puts the purchase on a credit card, and promptly squares his bill when the statement comes in.Of course, budgeting (leaning how to scale back expenses as necessary) and determining what expenses are necessities and what expenses are optional is a whole other topic.  As an experienced bankruptcy attorney, I can help make suggestions for improvements to your budget so that you only have to go through bankruptcy once, and can avoid having to do it again in the future.
If you’d like to schedule a free consultation to determine what we can do for you, give my office a call at (920) 490-6160.