Bankruptcy – The Obsession With Credit Before Filing

Oftentimes, when someone comes to see me for bankruptcy advice, they are already thinking beyond the process and into regaining credit.  The trouble with this line of thinking is serious.  Firstly, the client should be mostly concerned with getting out of debt.  After all, the excessive debt is the reason for the consultation in the first place.  Secondly, the client should be thinking about taking corrective action to ensure that bankruptcy does not appear in the future.  Lastly, the client should think about rebuilding credit whether or not they are going to actively seek to use credit in the future.

A typical client will tell me that they have great credit or once had great credit.  Once again the focus is all about credit instead of debt elimination.  What good is a great credit score if you are $75,000.00 in debt with credit cards and no assets to show?  It would certainly be much preferable to have a lower credit score and no debt.  Many clients do not see this as being true.  They have been so conditioned into having a particular credit score that they lose track of what really matters.  They fail to realize that credit can actually be the catalyst for their debt problems.  It is the smart use of credit that separates those with assets and those with debt.

For example, good credit will help you qualify for a better mortgage at a lower interest rate.  This can make a huge difference in the amount of money paid back on a mortgage over the life of the mortgage.  Someone with poor credit may obtain a mortgage as well, in certain circumstances.  However, the financing cost of the mortgage will be significantly higher.

Good credit will also allow you to purchase an auto at a lower interest rate than someone with poor credit.  The total costs of the auto can vary significantly depending upon the interest rate of the loan.  Thus, credit is very important.  However, folks must look at the other side of the coin.  Where are they financially in relation to the credit?  Once again, I would trade poor credit for less debt in a heartbeat.

In closing, since my clients are so interested in credit after bankruptcy, I have put together educational materials to help them get back on their feet fast.  I only hope that the additional credit leads to smart decisions and not to more unnecessary debt.  Just because you can file Chapter 7 bankruptcy every eight years does not mean that you should file every eight years.

 

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