Credit Scores and Bankruptcy – Interview with Attorney Christine A. Kingston

Katherine:

Hello everyone. Thank you so much for joining us today on This Needs to be Said. We’re being joined by attorney Christine Kingston. She’s a bankruptcy attorney, and she had such a great time with us last time she was on, and I really enjoyed her energy, but she made me feel real comfortable about this bankruptcy talk. On our last talk, we talked about debt jubilee, and maybe we’ll revisit that, but for today, I want to know about credit scores and bankruptcy, so welcome back Christine. How are you?

Christine:

I’m doing great Katherine. Thanks for having me back. It’s so great to talk to you again.

Katherine:

I feel the same way. Bankruptcy and credit scores all sound like bad news to me, and now we have them in the same conversation. Let’s talk about credit scores and what really happens to a credit score during bankruptcy, and after, of course.

Christine:

I think that’s a great conversation. Yes absolutely. Generally, before bankruptcy, a lot of people already have trouble with their credit scores because they’ve missed a few payments. What the creditors, and what the big banks always tell people is that bankruptcy really is bad for your credit, and so because they spend a lot more on the lobbying and the political realm, those messages get out a lot faster than the actual truth of the matter, which is pretty ironic. Bankruptcy’s actually counter-intuitive. Filing bankruptcy increases credit scores. I know that probably shocks you.

Katherine:

It did. My eyebrows went up. If you could see me, I was like, “Excuse me,” so yeah.

Christine:

Right? It happens every time someone is in front of me in my office, they’re like, “Excuse me? Your credit score goes up after bankruptcy?” Here’s what happens. Your credit score’s got so many different algorithms and formulas that go into creating the credit score. One of the factors though, that has an impact on the credit score, is the amount of credit that’s available, and the credit to credit line ratio, meaning you have a credit limit of about $1,000 and it’s maxed out. That drives your credit score down as opposed to if you have that $1,000 credit line and you only charge it to $500 and then you pay it off. What happens is, not only do they have a maxed out credit line, but then they also have the late payments, which actually hit your credit score harder than a bankruptcy. What happens is, when you get rid of the debt, it drives the credit score up. Bankruptcy gets rid of the debt, which drives the score up.

Katherine:

Awesome, awesome. I think that’s good news for people. Let me ask you this. Do you think that people get too caught up in credit scores and bankruptcy? Are we spending too much time thinking about this?

Christine:

Yeah. I couldn’t agree more Katherine. I think people are spending more time being attached to an outcome, and attached to trying to save a credit score, and what they end up doing is they end up spending more money trying to do things, what they think is the right way, and it’s based upon what everyone’s been telling them, that bankruptcy’s bad, don’t look at it, don’t talk to a bankruptcy attorney, exhaust every other option first, and when you’re down to like no shoes and a t-shirt, then go talk to the bankruptcy attorney. I would say that I would talk to a bankruptcy attorney sooner, maybe make some decisions, and decide at that point, is there something to do to save this without filing bankruptcy, because bankruptcy attorneys often will turn people away when they’re not ready yet, or if bankruptcy’s not right for them, so at least they can get a consultation. That can save people time and thousands of dollars. Yeah, I think they’re attached to the credit score and trying to save, for some reason. I think it’s more emotional, if you ask me.

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Katherine:

What made bankruptcy, I want to move onto my other questions, but what made bankruptcy a bad word? Before meeting any bankruptcy attorney in my entire life, it’s always been said, no don’t do it, but I don’t know where that comes from. Where does that come from?

Christine:

I think it started with the creditors and the big banks wanting you not to file bankruptcy because they make more money when they have you on a payment plan at 15-25% interest if you’re on normal credit, but if you’re on sub-prime, or sub-standard, and your credit score’s really low, you’re going to pay more interest. The more interest that you pay, the more they make. They more they get late fees, $20 here, $20 there might be small change to you and I, but to a creditor, who’s got millions of people hooked on credit cards, $20 a person times 330 million people is a big number. To you and me, it’s an annoyance because it’s a $20 charge when I miss my credit card payment, but there’s a reason why they want you to pay $20, and then everybody else to pay $20, and they want you to keep doing it.

Katherine:

I can see that. Then you are discouraged. It’s like you fill in that application and they ask you, “Have you ever filed bankruptcy?” You don’t want to admit to that. It just seems like that’s a question that would get you automatically denied. I can see that. I can see how they would want to stay in business. That makes sense on the business side, but for people just trying to get back on their feet, trying to get reset, we’ve been talked into doing it, like you said, the right way, and the right way can be expensive when you’re not doing it actually the right way. As for people who have this credit that we are emotionally attached to, and we file the bankruptcy, how soon after that can we start doing the stuff we were doing before? Not getting in the situation of filing for bankruptcy. I don’t mean that. How soon can we get credit cards again, or buy a home, or rent an apartment, or get a car?

Christine:

These are all great questions, because people want to plan for it, and they want to know what’s coming down the pipeline if they take certain steps. What I tell my clients is that the moment I file the bankruptcy case for them, they can immediately get credit again, if that’s what they want to do. As a bankruptcy attorney, I have to be biased. I’m not a fan of credit. I have to state that as my disclaimer.

However, there are companies out there that will issue lines of credit for people that have already filed for bankruptcy. There’s one company called Orchard Bank, as in the apple orchard. There’s another company called Merrick Bank, M-E-R-R-I-C-K, they will issue lines of credit to people that are in bankruptcy, or have just completed bankruptcy with a discharge. You can get an instant credit line, $300 from Orchard Bank today, or Merrick Bank.

They’re sub-prime lenders, which means the interest rates are higher, but you can rebuild your credit after bankruptcy by having no more than four trade lines open at any given time, and a trade line is one credit card or a mortgage, or car loan, or student loan, or any combination of those. You don’t need any more than four credit lines open at any given time, charging no more than half of the available credit line unless it’s an installment payment like a car loan. Just keep those car payments current, and that is how people rebuild their credit.

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Katherine:

Sounds simple enough.

Christine:

It is.

Katherine:

You said student loan, and that triggers the next question. I have heard that you cannot discharge student loans. I have heard that student loans stick with you. You can pay them on time, or you can have them in deferment, and it don’t hurt you, but the minute you skip a payment, you are doomed and there’s no way to save you ever again. Again, we’re back on the credit report, so here we are talking about student loans and bankruptcy, and I have heard that’s impossible, but I have heard that you’ve done it twice.

Christine:

I’ve actually just finished my third discharge in bankruptcy on a student loan, so thank you.

Katherine:

Okay.

Christine:

What’s interesting is the first-

Katherine:

Woo-hoo.

Christine:

Yes, right. I’m excited, because it means hope for more people. I think first of all, the student loan conversation Katherine, we could probably have another day and a half on student loans alone. Let me briefly touch the surface on the student loan issues. The great news is they are being discharged in bankruptcy. The bad news is, it’s going to be a challenge for most folks in America to help them right now, because there’s not a lot of my colleagues and practitioners outside of California.

I think I have a few bankruptcy attorneys, but outside of California, I don’t have too many people in the bankruptcy world handling student loans, because it requires litigation, so it’s a little bit more complex than normal bankruptcy discharging of debt, but it is possible under a new hardship, or maybe it’s not even a qualified education loan. The ones we’re talking about there, would be an offshore medical school in the Cayman Island, helicopter schools, things like that where they’re not accredited, they’re optional education institutions, or maybe someone took out a private student loan to put their son or daughter in a rehab facility like one of my client’s did. Those are all great facts that would be good for student loan discharge, but it is possible in bankruptcy and I am doing it.

Katherine:

Okay. We will continue that conversation, because so many people are going back to school because they heard, “If I go back to school, I can improve my situation, I can get an advancement on my job, I can climb the corporate ladder.” Whatever the reasoning is, get a better job, or just have a better life, and sometimes I’ve heard a whole lot of times, not just sometimes that people are not finding those green jobs, or by the time they finish with that degree, the position is filled, or whatever, so now they’re stuck with this loan that they can’t pay back, and they don’t know how to get out of it, and they don’t know how to manage their life with this loan now added to everything else that they had, so we’ll definitely revisit the topic of student loans.

Christine, I want you to share one more thing. What is different about you in the bankruptcy world versus other practices?

Christine:

Besides being cute and cuddly as a bankruptcy lawyer. I don’t know that you get that very often, I’m passionate about helping my clients eliminate their debt, and I’m not talking about just being a bankruptcy attorney. What I’m talking about is we’re finding a holistic approach to debt relief. What I do with my clients, is I will go through all of their options, even non-bankruptcy options. I will help them with debt settlement if that is appropriate for them. Those are things that I do.

I turn people down for bankruptcy, which is unusual, because most bankruptcy attorneys, we all have to make a living. I get that part, but I want more for my clients than just to earn my living. I will do that, and I will do it with passion and integrity for my client’s outcome. What I want to do is provide a total solution, including the student loan debts, the taxes, the junior mortgage liens, the foreclosures, the loan modifications. All of those problems that they’re out there with suffering right now, wondering what they’re going to do about the problems that are mounting, and the paperwork coming in the mail, and the debt collections, the calls. Those are things that I will take a holistic approach to.

Whatever they bring to me, I will deal with it one way or the other. It will either be discharged in the bankruptcy or not, and we will provide a strategy for them long after the bankruptcy case. I get them on a plan so that they don’t have to go into debt again, so that they can create the possibility for themselves to lead a debt free life, either on their current budget, or with whatever their future plans are. I think that’s really what sets me apart from the average bankruptcy attorney.

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Katherine:

I think that left me feeling warm and fuzzy, so there are some words that we have used in this interview today audience, and this needs to be said, we’ve said bankruptcy, we’ve said student loans, we’ve said attorney, and all those can make you a little squeamish.

Christine:

It’s all about the cute and cuddly Katherine.

Katherine:

Exactly. That’s where I was going with it. It’s so cute and cuddly, so Christine, how do they get in touch with you outside of this needs to be said?

Christine:

You can give my office a call directly, 714-533-9210, or you can reach us at christine@attorneychristine.com.

Katherine:

Awesome. Thank you and until next time, have a wonderful day.

Christine:

Katherine, always good to talk with you. Have a great afternoon. Thank you.

Katherine:

Thank you.

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