Why You Should Not File Bankruptcy...
Think bankruptcy is the answer? Think again!
» Step 1
There is an abundance of TV, radio and internet ads for bankruptcy attorneys and bankruptcy filing services today. They make it seen so smooth and easy like it’s the answer to all your problems and challenges. In a few instances bankruptcy may in fact be in order. However, please allow me to share a few words of wisdom with you on the subject before you sign your life (and your credit) away.
A few years back when I was still in mortgage company management I recall meeting with a very nice lady who informed me she wanted to purchase a home. We’ll call her Ms. Jones for privacy sake. After doing the preliminaries and running her credit we discussed the various options available to her. In my review I noticed she had filed a Chapter 7 Bankruptcy just 2 years earlier. Since that time, however, she had opened several accounts and had paid them on time like clockwork. How had she made the transition from money habits which caused to her to file a “BK” to money habits that brought her back to financial solvency and a high credit score I wondered? Good money habits don’t just show-up in a persons’ life. They have to be worked at and developed. Nonetheless, I congratulated her on her fantastic turnaround and recovery.
Ms. Jones began to share with me the details of her situation at that time and how she arrived at the decision to file for bankruptcy. I listened very intently to her story but the numbers I’d calculated from her credit history combined with the investigative nature of my mind told a different tale. She had a total debt load of only $3800.00 spread over about 8 different accounts at the time she’d filed. I’d also calculated that every single one of these accounts had been paid on time up until the exact day of her bankruptcy filing. I questioned her further on this and then interrupted her and told her the end of her story. In her surprise she stated: “How did you know?” I explained to her that the numbers always tell the real story. Then I very gently explained to her that she’d been given some very bad legal advice and had been a victim of what I call the “Good Attorney – Bad Attorney” syndrome. “Ms. Jones, a debt load of only $3800.00 is not enough to justify a bankruptcy filing. Your attorney saw an opportunity to make a quick $2500.00 even though all your bills had been paid on time and your credit score was well over 700” I stated. She was shocked and questioned me as to whether I’d been given the particulars of her filing by the attorney. I explained that I didn’t even know her attorney but that I’d seen this scenario so many times before that I already knew how it turned out.
» Step 2
It’s unfortunate but while there are many great legal counselors (Good Attorneys), there are also those legal hustlers (Bad Attorneys) out there who cannot resist the lure of easy profit from an unsuspecting and trusting consumer. When they encounter these timid and fearful souls they advise them to file bankruptcy as if it were the “Holy Grail” of high finance even though it destroys their credit. The sad truth is that many consumers are making the very same mistake right this very moment. They are in a pressure situation, not knowing what’s going to happen tomorrow and looking at their retirement statements every 15 minutes. Afraid they’re going to get laid-off or get a reduction in pay. They’re stressed because they couldn’t go out and drop their usual $10,000.00 to have a “Nice Christmas” (whatever that is). Their problem is not the “market”, the “mortgage meltdown” or the banking crisis. Their problems consist a few very small things that create a few very big problems. #1- Poor Money Habits, #2 – Credit Cards Abuse, and #3 – Fear.
Often in our efforts to avoid financial discipline and solid money management we look for a quick and easy fix and choose bankruptcy as a way out of a financial challenge. Most of the time it’s not even as bad as we think, however, our F.E.A.R. (False Evidence Appearing Real) colors our world in such a way that we cannot even see solutions that are staring us right in the face. Many times a re-allocation/budgeting of available funds to the right areas and a determination to pay with cash (instead of credit cards) could address many financial challenges. However, all the money in the universe cannot help you if you live in constant financial fear of what may or may not happen. Fear is so debilitating that many extremely wealthy people without a financial care in the world can’t sleep at night for fear of what may happen to their money! The one thing that can conquer fear is accurate information and applied knowledge. Before you run off i fear to file an unnecessary B.K. allow me to provide you with a few strategies which may serve to address your concerns and save you much pain, suffering and money (as well as salvage your credit rating).
» Step 3
a. Develop a Budget: This will reveal where you are wasting funds and help you to develop money discipline. Once the areas of waste have been fully identified you can then utilize those funds to pay down your outstanding debt.
b. Get a 2nd Opinion: As stated previously, all attorneys are not good attorneys. An extra $2500.00 for 2 days work is often hard for some to resist vs. telling you the truth that you don’t have enough debt to file. Before you run off to file bankruptcy request the advice of a good finance, CPA or mortgage professional. This is a person with a reputation of integrity and the highest ethical standards. They usually are not seeking your business, operate by referral only and come highly recommended. Also, you can search a multitude of data and information on the internet about ideas for payment plans and other options you may not know are available to you.
c. Negotiate Credit Card Payment Arrangements: With our current economy all bets are off and you may be able to negotiate sweetheart deals to lower your payments, obtain payment moratoriums for a short period of time or
d. Stop Ducking Your Creditors: Caller ID has helped us
all duck a creditor at one time or another. However,
the best thing you could do is to communicate with
them. Tell them the truth about your situation and
you may be able to reach a mutually beneficial
solution. Creditors are well aware of the upheaval
taking place in our economy right now. They would
much rather work with you to solve your problems
than to have you file Chapter 7 and they get nothing!
e. Have Your Interest Frozen: You can contact your creditors and request the interest be frozen on your account due to extenuating circumstances beyond your control (and explain in detail what they are). Consumers are not even aware they have this option. However, it is a powerful tool which can assist you to pay down the actual principal balance faster than under normal account circumstances.
f. Re-negotiate Your Mortgage Balance & Interest: This is a biggie. Please do not fail prey to the scams and the pressure of foreclosure. The Federal Government is unveiling new programs as we speak to keep homeowners in their homes. Many are forcing lenders to refinance consumers based on 90% of Current Appraised Value (not the hyper-inflated value figure at which you purchased). This will put you in an instant 10 to 20% equity position in the next two years. The lenders want you to keep your house as well. When you call them you may encounter some individuals that seem to have the I.Q. of your basic trash receptacle but don’t be dismayed. Request their manager’s managers’ manager until you get a decision-maker who understands and also has the authority and ability the to make changes and expedite getting it done. Remember....If you lose your home and enough of their customers lose their homes, they no longer have jobs!
g. Eliminate All Non-Essentials: Do you really need the $200.00/month cable movie package or can you survive with the basic package for $50.00/month? Do you really need the $7.00 Double-Frappe’ Latte’ every single day? Just on these two items alone we freed up nearly $300.00 per month you can utilize to get out of debt!
h. Pay Off Accounts & Leave Them Open: The traditional wisdom has been to pay the accounts off and close them immediately. This is 100% inaccurate. What facilitates a higher credit score is keeping the balance as low as possible while keeping the account open for as long as possible. When you close the account the credit bureau scoring model gives that closed trade line a lesser value in the rating system thereby instantly dropping your FICO score. Leaving it open maintains a higher score status and a lower Debt-to-Income ratio.
Just remember, in this economy, everything is negotiable and as Donald Trump says: ‘When you go to the negotiating table ask for everything and you’ll usually come away with what you really want. Ask for only a few things and you usually come away with nothing.’ Be strong, be vigilant and never, EVER, give up!