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Promises, Promises. - Blather. Rants. Repeat.
A Møøse once bit my sister ...
captainsblog
captainsblog
Promises, Promises.
When Congress overhauled bankruptcy laws in 2005, almost entirely at the behest of the credit card and other lender lobbies, one of the major talking points was the alleged need to restore personal responsibility to the process.  The bill was titled the Bankruptcy Abuse Prevention And [Allegedly Some Other Stuff] Act, because banks had created a largely false image, from the same Hall of Mirrors as the "welfare queen buying lobster with food stamps" and the "loose woman who doesn't deserve to make decisions about her own pregnancy."  In this case, it was of the supposed spendthrift, who merrily lit $100 bills on fire- all obtained on cash advances- and then ran to Bankruptcy Court to plead poverty.

I've yet to meet that person.  Not in representing them, not in suing them.  Instead, I see a lot of hard luck cases, where matrimonial or medical problems or bad business decisions or just bad luck led them to seek this protection.  My morning hearing today was for a perfectly responsible businessperson who unfortunately chose an industry which gained a ton of nationwide and negative pub in a very short time and his revenue dropped by more than half in a year's time.

Also, of the debtors I've walked through this Valley of the Shadow of Debt for more than 30 years, just about every one of them would pay back every penny if they could- or at least will pay back the pennies needed to retain the important parts of their lives, like their homes and their cars.  Yet for all the alleged focus on personal responsibility in the 2005 law, Congress also packed in a butt-ton of new mandatory and often impossible language which discourages people from formally agreeing to repay some of their bills.

Supposedly this was caused by reported cases of abuse. I witnessed it on a few occasions, mostly in the 90s.  Some retailers (one famously rhyming with "Rears and Sawbuck"), who had bamboozled their customers into giving them liens on their purchased items, would come to the mandatory court hearing, ask no questions on the record, but then go out in the hallway and try to schmooze the consumer into "reaffirming the debt." Aw, I see you have three kids.  Wouldn't it be a shame if we took away your camcorder and then you can't record all their birthday parties and graduations? They followed up these efforts by breaking the relatively few rules that existed at the time- not filing the agreements with the court, not taking ability to pay into account to any extent, and in many cases just billing the customers for year after year for the eventually broken camcorder they wound up paying for many times over well past the last of those parties.

So Congress reacted, as it often does, by shooting at a fly with an elephant gun.  They concocted a set of rules, with mandatory and incomprehensible language, that makes it difficult to reaffirm a debt- even when you'd want to.

The reason you would? In most cases, it's because of the good payment history it creates- which is becoming as much a part of our lives as mobile phones and organic vegetables.

----

Credit reports used to be ugly, indecipherable things- and they still are, if made a little easier to understand.  But over the decade since the bankruptcy law was overhauled, they now directly drive a separate but connected stat called a credit score.

It wasn't always thus.  For years, our Chapter 13 trustee has passed out what he calls "not a legal book, but answers to the kitchen table questions that come up" over the 3-5 year life of these cases.  When I was appearing there regularly, his said this about credit ratings:

A credit rating is not A, B, or C or 1, 2, or 3. It is a record of all your past credit performances. This record is made available to a creditor and he or she makes up his or her own mind, by his or her own standards as to whether credit may be granted to you.

That changed with the introduction of the "credit score"- and it's still not as simple as ABC, or easy as 123. It's more like an SAT (at least the old-school one we took)- a number from 300s on the low end to 800s on the high.  And it's almost entirely computed by sekrit algorithms, from the debts reported to whatever credit bureau(s) the rating agency uses.  There IS no "he or she" anymore, making up "his or her own mind." For the big things, like mortgages, the government itself requires that borrowers have these automatically-generated credit scores sufficiently high to qualify for the loans.

For the first few years after a bankruptcy filing, the credit score is credit shit, and none of this matters. But maintaining some record of good payments starts to help, anywhere from two to four years after a case is completed.  So does having available amounts of credit on revolving accounts, not having a lot of inquiries on your record, and not having any post-petition dings such as defaults or foreclosures.  The problem, for many, is that bankruptcy wipes out not only their debt but all reporting. And the reaffirmation process makes it so hard to keep an account alive for reporting purposes, clients are coming to their bankruptcy lawyers- or to later ones like me- practically begging to have these obligations reinstated on their credit reports.

At least one major local bank around here refuses to do it, because, reasons. Unless the debt is formally reaffirmed, they will not report; not good, not bad, just not.  There is a workaround of sorts if you're actively applying for a new loan or a refi, but it involves a lot more legwork for both the potential borrower and the underwriter.  For a second class of discharged debtors- who aren't being actively hurt by the lower credit score but just want to be proactive about improving it- there's really nothing they can do.  Congress made it virtually impossible to reaffirm a debt except within a very narrow time window, and made it very hard even within that window for many borrowers to get them to stick.

The lenders themselves don't make it any easier. They're even more anal than the courts, which fine-tooth-comb these things and reject them in a heartbeat.  Thus, it's almost always required that the client (and I) sign the thing and mail the original back to them. They rarely accept them by email- even though the document that will be electronically filed is a .pdf copy of it- and they rarely let us massage them through the clerks' offices of the local courts where we know the people better than they do.

Which gets us - finally! /tl;dr- to why I'm posting this.

In February, a client was asked to sign one of these on an existing mortgage. I recommended the signature, because of the potential for positive credit reporting and the lack of any real downside.  The agreement was executed on the court date and mailed back promptly after it.  But today, a FedEx showed up from Okie-byGod-lahoma.  Apparently they didn't like the way they'd prepared it, and they now want us to do it all over again- and then FedEx the signed original back to them, so they can file it, unless they change their damn minds again.

Remember: this was an unsigned document.  It could've been emailed to me, printed out on my end for original signatures, and then returned.  But they chose to waste bank money on extra delivery fees and extra aggravation because they've made this crap even crappier than the original crap.

In the end, that trustee advice still holds. A credit rating, even now, isn't an A, B or C. It's BS.
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