Adding teeth to the fresh start in bankruptcy.

By Edward Jurkiewicz
In April 3, 2015
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When it enacted the Bankruptcy Code in 1978, Congress defined its overriding goal: to provide debtors with a “fresh start”, financially.

In my view, discharging some or all of one’s credit card, medical, and other debt is the single most immediate and effective way to promote an individual’s financial turnaround. Of course, bankruptcy is not a panacea. Creating or maintaining a stable income and minimizing the gap between income and expenses post-discharge is also essential to continued financial health.

It is a good idea for anyone to order their personal finances on a cash basis as much as possible. I find that many bankruptcy clients have become so used to the idea of living on credit (read: addicted to credit) that shifting to “cash only” comes as a shock to the system. Nonetheless, most filers quickly adapt, particularly when they experience the satisfaction and peace of mind that comes with living within their means.

But only a lucky few can pay cash for every necessity. For example, cars wear out and need replacement every few years, usually requiring a car loan. Unanticipated emergencies occur.

Many chapter 7 filers are surprised to start receiving credit card offers within a few weeks of being granted a discharge, including from creditors that have been discharged!

Banks are not stupid. First, they know that your ability to repay a loan just improved dramatically, in one fell swoop. Second, they know that you can’t file another bankruptcy petition and receive another discharge for at least eight years. In short, receiving a bankruptcy discharge makes it very likely that you will repay any money that you borrow afterward. But banks restrict lending and charge higher interest rates to people who have been through bankruptcy anyway.

What is the purported justification?

The answer lies in another federal law, the Fair Credit Reporting Act, which permits consumer reporting agencies, such as Equifax, Transunion, and Experian, to report negative facts, including bankruptcy, for ten years.

In light of the strong fresh start policy of the bankruptcy laws, and given that a bankruptcy discharge is limited by definition to the “honest but unfortunate debtor”, lumping a bankruptcy discharge with negative facts that may be reported makes no sense. In economic terms, a bankruptcy discharge improves the consumer’s ability to repay a loan, and should not be considered a negative fact. Upon entry of a bankruptcy discharge, discharged debts should be expunged from credit reports without reference to the bankruptcy discharge.

I haven’t heard any calls to action to reform the Fair Credit Reporting Act to bring it into line with the important fresh start policy underlying the Bankruptcy Code. In these times, when the economic health of the working and middle classes is a national priority, I think a dialogue on this important issue should begin.

For more information about bankruptcy, please visit my website at  http://www.ljct-lawyers.com/practice-areas/bankruptcy, or call (860) 299-6263 to schedule an appointment with a Torrington-Avon bankruptcy attorney.

Hartford area bankruptcy attorney and divorce lawyer Edward P. Jurkiewicz has over 20 years of experience representing clients. Our firm represents debtors and creditors and handles both relatively simple divorces and bankruptcies and more complex litigation matters. With this depth of experience, our firm is able to anticipate and prepare for any potential issues that could arise in your bankruptcy, divorce or family matter.

CONTACT US TODAY AT 860-299-6263

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