One of my colleagues recently handed me an article he had seen in a credit union’s periodical (he didn’t tell me which one) arguing that attorneys who advertise their bankruptcy services are trying to push bankruptcy as an “easy way” to solve money problems and that you shouldn’t believe all the ads.

The article claims that bankruptcy “is no cure-all,” except in cases of “total financial collapse.” The article went on to point out that bankruptcy “scars” a person’s credit rating for 10 years and points out that this “scar” will mean difficulty in “finding a place to live,” “obtaining a credit card,” and “finding lower cost insurance.” The article urges a person to visit the credit union “as soon as possible” and that the credit union can “help you regain your financial health by providing free, confidential assistance.” The article does not explain what “assistance” the credit union can offer, but definitely tries to trash the bankruptcy process as a solution to debt problems.

You and I both know what “assistance” the credit union is going to offer; none! Offering someone a consolidation loan isn’t resolving the person’s debt problems. It’s just shifting the debt from one creditor to a different creditor, but the debt remains and the interest continues to accrue. It is true that credit unions can offer lower interest rates than most major financial institutions, but you are still going to pay interest and interest is the reason you haven’t been able to get out of debt up to now!

I also take issue with this article’s assumptions of the “difficulty” a person who has filed for bankruptcy has in “finding a place to live,” “obtaining a credit card,” or “finding lower cost insurance.” The article ignores the fact that a person who is considering bankruptcy already has a scarred credit report and is already going to have difficulties with these things even if the person hasn’t filed for bankruptcy.

Let me explain. Credit is merely the ability to borrow money. When someone asks me, “what does bankruptcy do to my credit rating?” what the person is really asking is “what does bankruptcy do to my ability to borrow money in the future?” This question assumes the person has an ability to borrow money now! In most cases, a person does not begin to think about bankruptcy until he is behind on payments or about to be behind on payments. Once you fall behind on payments, even if you catch those payments up and pay off your debt, the credit report is going to show your history of being behind and this is already a “scar” on the rating. Also, when lenders make decisions about giving credit, one of the major factors the lender looks at is debt-to-income ratio. If your debt-to-income ratio is poor because you have a lot of debt, you are already a credit risk to lenders.

All these difficulties the credit union refers to don’t result from bankruptcy, they result from being in debt. In my opinion, bankruptcy can be the first step to “rebuilding” credit because it is the only way many people can get out of debt in their lifetime. Getting out of debt is the first step to “rebuilding.” I don’t deny that people who file bankruptcy have a “scar” on the credit report. I also don’t deny that having to file for bankruptcy is not an ideal situation, but the “scar” on the credit report is there usually well before someone actually files for bankruptcy. It is there once the payments go into default or once the credit score, because of the debt-to-income ratio falls below a certain threshold. These things are true with or without bankruptcy.

The bottom line is that if you are struggling to meet your minimum payments, or have already defaulted on your minimum payments, you are going to have difficulty obtaining future loans or satisfying landlords of your credit-worthiness. In order to get back into a good credit situation, you must get out of debt! For many people, filing bankruptcy is the only way they can get out of debt and it is for these people that I recommend bankruptcy!

I was recently contacted by a soldier in Iraq asking about Bankruptcy. The problem here is that the Bankruptcy Code requires debtors to appear at a meeting of creditors and if the debtor is unable to appear, the case can be dismissed. Since it is impossible for someone serving overseas to pick up and leave to come back to the USA for a meeting and since the Bankruptcy Code doesn’t require the trustee to hold the meeting telephonically (though some agree to do so), then I can’t guarantee the bankruptcy would be successful for this veteran.

However, all is not lost for the military veteran serving overseas. There is a Soldiers & Sailors Act that provides limited protection to military members serving abroad. Basically, the Soldiers & Sailors Act says that a creditor cannot sue a member of the military who is stationed overseas to collect its debt. This Act recognizes that it would create an unreasonable burden on the military and on members of the military to have to try to defend themselves in court actions here in the USA while overseas. This means that if you are a member stationed overseas, you do not have to worry about being sued for non-payment of debts while you are overseas. Basically, then, there is no reason for a person serving in the military overseas to file for bankruptcy because creditors already can’t collect their debts.

Of course, the Soldiers & Sailors Act does not permanently eliminate the veteran’s obligation to pay a debt, like bankruptcy could do. Thus, there may be a need for a bankruptcy case in the future if the veteran still can’t afford to pay debts once back in the USA.

Legal Helpers is happy to announce our new bankruptsy office location serving the Detroit area! We’ve just begun setting appointments for our new location at 17117 West Nine Mile, Suite 1303, Southfield, MI 48075. Appointments begin July 25, 2005!

I’d like to announce our three new bankruptcy law offices opened just a few weeks ago in the Los Angeles California area. The offices are in Glendale, Santa Ana and Riverside California.

This is the first of several new office openings we have in the works this Summer and we are all very excited about it. I’ll post the other office openings when they occur.