SideBAR
By ATTY. REY D. TANCINCO, ESQ.
Many of my clients were initially very hesitant to consider bankruptcy protection as a solution for their financial woes. Bankruptcy connotes all sorts of bad things for many different people. For some people, bankruptcy labels one as a failure.
Many do not understand that bankruptcy is not a scarlet letter than labels one as a failure; but, rather it is a “protection” given to consumers. In the Philippines, for example, there is no such thing as a bankruptcy law. If one were in debt and unable to pay for their debts in the Philippines, one would have a hard time ever recovering from their financial woes as creditors would be able to come after the debtor for whatever assets or earnings they now own; as well as whatever assets they will accumulate in the future. It is not hard to understand why this is so considering that many of our representatives in Congress are from big business and financial sector whose interest they protect.
One of the biggest reasons clients are often hesitant to file for bankruptcy is because of the fear that it will ruin one’s credit score; and, hence jeopardize their ability to buy a home or obtain credit in the future. Reprinted below is an article in one of the forums by the NACBA (National Association of Consumer Bankruptcy Attorneys) discussing why fear of damage to your credit score is oftentimes misplaced:
“A bankruptcy filing will show up on your credit score for 10 years. In fact, damage to credit and a perceived inability to access it post-filing is one of the biggest reasons people shy away from filing for bankruptcy. Give it some thought and this might prove to be a mistake, especially if you are experiencing widespread defaults on a host of bills. You see, often a potential bankruptcy candidate’s credit has already been damaged by an inability to pay their debts as they come due. Perhaps a few mortgage payments have been missed or a credit card account has been closed due to non-payment or is being reported as 90 days past due. Even a delinquency on a utility bill or an old speeding ticket that has been sent to collections can have a negative impact on your credit. Fact is that people who are struggling financially often have poor credit and there isn’t much more that a bankruptcy can do to bring down their score. Once damage to credit is taken off the table, what reason do you have not to file? If you are facing a mountain of debt the reasons start to diminish quickly.
Believe it or not, there is quite a bit a bankruptcy can do to help people start to improve their credit. How? Well for starters, one factor in any credit score is an individual’s debt to income ratio. If you are earning far less than you owe to your existing credits, it is a sign that you don’t have the ability to take on new debt …. You are therefore not creditworthy. Bankruptcy eliminates or discharges most old debts leaving your balance sheet with a lot less red on it. The bankruptcy discharge can properly be viewed as a foundation upon which to build a new financial future. Keep this in mind, if you are already late on your bills, your credit is suffering regardless of whether you file bankruptcy; Staying out of bankruptcy court to “salvage” an already bloodied credit report doesn’t make much sense. If you’re stuck with a hit on your credit score you might as well get out from under the debt that is putting pressure on you and your family at the same time.”
Here, in the U.S., consumers are luckier as we are given more protection by law. Bankruptcy is one of these laws that protect consumers. It gives us a chance to recover from our financial misfortunes by discharging debts we can no longer afford to pay and start out again on a path to financial recovery. Do not let labels (or mislabeling) keep you from taking advantage of protections provided by law.
(DISCLAIMER: material presented above is intended for informational purposes only. It is not intended as professional advice and should not be construed as such. Rey Tancinco is a partner at Tancinco Law Offices, a professional corporation with offices in San Francisco, Vallejo, and Manila. The law office website is at: www.tancinco.com. Rey Tancinco can be contacted at (800) 999-9096 or (415) 397-0808 or via email at: attyrey@tancinco.com)
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