on the Bankruptcy Soapbox

The most frequent search terms that bring visitors to Bankruptcy in Brief have to do with getting credit after bankruptcy. New clients, saddled with enough debt that they will engage a bankruptcy attorney, at our first meeting either ask about the impact of a bankruptcy on their credit score, or proudly tell me that they have “perfect credit”: that translates as “never having missed a payment.” What they miss in their decision making process is that they can never pay off the credit they have! And their first concern seems to be how soon they can get back into the credit market.

Identity theft and the misuse of credit scores for employment and insurance purposes have heightened our awareness of credit reports and credit scores. This legitimate concern is hyped by those who, having created the credit scoring “game” and cemented their lock on the rules of the game, then want to sell us services to protect us from damage to our scores.

What most consumers don’t understand is that credit scoring is a purely arbitrary analysis, with changing rules controled by each score provider. It is not regulated, objective, or transparent. It seems your score can suffer from having too much credit, too little credit, or even for astutely shopping for better interest rates on purchases.

Let’s focus on our personal balance sheet, rather than our ability to acquire more debt, as a salutory exercise. Let’s look at our savings, our preparation for retirement, the adequacy of our insurance protection as the measure of our financial health. Let’s ask ourselves first how long it will take us to repay the debt we already have . What would we save if we weren’t paying interest on credit card debt?

Let’s learn to find our self worth in something other than the kind of credit card we carry or the credit score someone else assigns us.

In the flurry before the effective date of BAPCPA, the bankruptcy “deform” act, I encountered two articles on the role of credit cards in the economy of American familes. Borrowing to Make Ends Meet looks at the growth of credit card debt during the 90’s and concludes that the increase in housing and health care costs at a time when incomes were stagnant is a large part of the problem.

The findings of that study are expanded with policy proposals in The Plastic Safety Net: The Reality Behind Debt in America.

Hear, hear!

Cathy Moran