Will I ever get credit again? is the query from prospective bankruptcy clients. Before the Great Recession that we are living through, my answer was a confident, “Absolutely“. Now I’m not sure that what I’ve learned about bankruptcy and credit over 30 years of practice is of much use predicting the future.
Clients come worried that they will be without credit for as long as the bankruptcy appears on their credit report. They fret that they will never get a loan again. They see the loss of credit as making their existence more precarious still.
In large part, our current financial mess has been brought on by the reckless extension of loans on terms that few understood, and most purveyors of that credit didn’t want borrowers to understand. The borrowers, the lenders and the entire economy got burned.
The reaction to those excesses may be that credit in the future will be more limited and more difficult to get for everyone. Witness the struggles of those we’d see as strong candidates for home loans trying to get mortgage money. Lenders are exceedingly cautious in general. It’s hard to argue that the liberal credit all free-for-all that characterized the past decade was real prosperity.
One thing I’m confident of is that in an era of more restrictive credit, those with a stronger balance sheet will be better candidates for loans even if the balance sheet was cleaned up by means of bankruptcy. No longer will someone with debt balances that are several multiples of their annual salary be seen as credit worthy. It is time to stop measuring one’s financial success by credit score rather than by net worth.
And I am even more insistent that, even if it meant a period without access to credit, a huge percentage of our population would be better off discharging impossible debt burdens in bankruptcy and moving their families to a cash economy. One attorney’s views….
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