Sometimes it is comforting to approach a situation knowing the worst-case scenario. When discussing bankruptcy and credit counseling options, the first step towards understanding the worst-case scenario is to consider both the advantages and disadvantages. If you’ve already taken the time to run through some of the many articles available to you, both online and at any experienced southern California bankruptcy attorney’s office, it may be time to discuss the worst case scenario.
At Westgate Law, you won’t find many fans of credit counseling. No surprise there. We’re bankruptcy attorneys after all and consumer debt counseling and credit counseling services are, by definition, our competition. But the truth is that you won’t find a lot of bankruptcy fans here at Westgate Law either.
The debt business in the United States is broken. Bankruptcy and credit counseling are both options because of the abundance of debt in our country. If the debt problem weren’t so out of control, neither of them would need to exist. In a perfect world the creditors themselves would carry more of the responsibility for delinquent borrower rehabilitation instead of having such strong incentives to charge off accounts and hand delinquent balances off to collectors.
The harsh truth is that we can’t fix the debt problem without major system overhaul. That’s why we turn to other solutions on an individual basis. This is where consumer credit counseling and bankruptcy options come into play.
What is the Worst Case Bankruptcy or Credit Counseling Scenario?
Future Employment: Prospective employers can access evidence of your bankruptcy. It’s a public record. Some employers will see it as a sign that you are experiencing financial distress and therefore will be distracted from your work. Additionally, if you work in a high security position, employers will view the record of bankruptcy as an indication that you could be a vulnerability to their information security. Employers may view credit counseling and bankruptcy differently. Bankruptcy leaves petitioners with bad credit, but no more debt. Credit Counseling means consumers are managing their finances, but still have potentially high balances.
Future Landlords: Landlords considering a new tenant can discriminate against those who appear to have trouble with their finances. They don’t want to end up with a tenant who cannot pay their bills. As someone well versed in the industry, it would seem logical to me that landlords would be more comfortable renting to a new tenant who has just had all their debt discharged through bankruptcy rather than someone who is currently enrolled in a credit counseling program. Landlords, like the rest of us, are aware that the bankruptcy filer is now free of all debt. Being free of debt and the associated payments makes it more likely that the tenant will be capable of paying their rent regularly and on time.
Future Lenders: Lenders considering loaning money may charge higher interest rates or even deny offering you credit altogether. Post bankruptcy filers need to reestablish their credit by obtaining new credit. Bankruptcy filers who take action immediately could have a decent to good credit score within 2-3 years after their discharge of debt is received. Filing bankruptcy will result in higher rates for a time on any form of credit offered, but utilizing these opportunities in a limited manner will rebuild your credit and result in better terms for future offers. The sooner you rebuild your credit, the sooner you can demand better interest rates and loan terms.
When it comes to credit counseling, it would be almost impossible to obtain new credit while in an active program. Any lender you approach for new credit would immediately know you were having trouble managing your accounts and that you are in the midst of dealing with your outstanding balances. It is most likely that you will be unable to obtain any new credit until after you have completed the full program and made attempts to rebuild your credit.