Taking the high road on bankruptcy lies
Posted Oct 19 2009 in Wink and Wink by @winkhesaidIf you read my wife’s blog last week, you know that a recent article on ForeclosureBuzz.org uncovered that banks control the message to people in financial distress, even when the message is delivered through State and Federal Agencies. Could these government institutions be deceiving the public? Are their reasons not to file bankruptcy legitimate?
Hearing the bank sponsored reasons not to file (they're the guy with the big nose!)
When I read my wife’s blog last week, I couldn’t help but feel outrage about the deception many State and Federal Agencies are spreading to people in financial distress. Strangely, it made me feel like Republican House member, Joe Wilson, and I just want to yell, “You lie!” Despite this feeling, I hope to differentiate myself from Mr. Wilson by channeling my frustration through an appropriate venue, my blog, and supporting my argument with facts.
Mr. Wilson, if you’re reading, please take note.
I will address the most commonly published reasons not to file bankruptcy. First, as pointed out by the Nevada Department of Business and Industry, the State of New York Banking Department, and the Federal Trade Commission, bankruptcy will have a negative impact on your credit score and will be on your credit record for 10 years.
This is true, but is it a reason not to file for bankruptcy? It is if you can afford to pay your bills. But if you can’t you’re probably already behind on them, or the bank is moving to foreclose. What do you think being behind on bills does to your credit record? How about a foreclosure?
What’s worse, loan modification scams, er, I mean schemes, also negatively impact your credit. So, the argument from the banks, through their government minions, goes something like this – ‘Don’t file for bankruptcy because it will negatively impact your credit? Rather, consider loan modification.’
Now I’m working hard to control my inner Joe Wilson and take the high road by honing my argument with facts. An interesting article on MSN points out how you can build your credit back quickly after filing bankruptcy, and says you may be in position to qualify for a mortgage in as little six months to two years after bankruptcy.
If you think about it, this makes sense. As a former CEO, I know that banks lend to balance sheets more than companies or people. If you file for bankruptcy and wipe out say $20,000 to $50,000 of credit card debt and or a similar amount of medical bills, guess what? You’re a better credit risk because you now have fewer bills to pay. Banks know this, which is why they will lend to you after bankruptcy.
The second bank sponsored reason not to file is that bankruptcy will only temporarily halt the foreclosure process. This is also true because bankruptcy cannot keep you in a mortgage if you can’t pay it. But, bankruptcy can give you time to catch up on back payments if that’s all that’s needed. What’s better, bankruptcy can actually get rid of your obligation to repay a 2nd mortgage or home equity line. And that would be permanent!!
Furthermore, even if your home is going to be foreclosed upon anyway, bankruptcy can keep you in it a few more months and make sure the bank cannot come after you for a deficiency judgment when they sell your home for less than the size of your mortgage. This is a permanent fix to that problem.
The third reason the banks and government agencies warn you not to file bankruptcy is that it’s expensive and unforgiving. I love this one, which comes courtesy of the Federal Trade Commission. An average Chapter 7 bankruptcy will cost you approximately $1,500 and a Chapter 13 something like $3,500. Depending on your situation, you may be able to wipe out most if not all all of your credit card debt and medical bills, and possibly other debt. For many, the amount of debt which can be wiped out in bankruptcy is 10, 20, or 30 times the amount it will cost them to file for bankruptcy.As a former venture capitalist investor, I can tell that this kind of return is a considered a HOME RUN. Rather than phrasing it as expensive, they should call it what it is – dirt cheap! For many debtors, bankruptcy is the best investment they could ever make.
With regard to the process being unforgiving, it does require some planning and there are definitely deadlines which must be met. However, data from the National Bankruptcy Research Center reports that less than 2% of Chapter 7 filings (most common type of bankruptcy) get dismissed. While the dismissal percentage is higher for other types of bankruptcies, the vast majority of personal bankruptcy cases do not get dismissed. Rather than a reason not to file, the complexity of the bankruptcy process is simply a good reason to hire a bankruptcy attorney.
Finally, the banks and government agencies will have you believe bankruptcy is somehow a scam or not legitimate. The Federal Trade Commission warns people to avoid getting caught up in “foreclosure rescue scams”, which can include the scam operator filing for bankruptcy for you without your knowledge. The FTC’s advice – “contact your lender immediately.”
Your lender? How about a bankruptcy attorney? If you go forward with a bankruptcy attorney, I doubt you will be confused by the fact they are going to assist you in filing for bankruptcy. I also doubt you will be confused about its worth when most if not all of your credit card debt and medical bills are wiped out forever!
If you’re in financial distress and can’t pay your bills, please look past these contrived reasons not to consider bankruptcy. Many bankruptcy attorneys, such as myself, will give you free consultation to discuss the pros and cons of bankruptcy for your situation. By discussing a debtor’s most powerful weapon in debt relief, this free advice beats the heck out of the bank sponsored messages delivered through government agencies.
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