Tag Archives: bankruptcy


The author of this post is not giving legal advice, just reporting what’s out there.  You should consult a competent foreclosure defense attorney regarding such matters, as the contents in this post appear to reflect the court’s intolerance for homeowners who file bankruptcy to stop a foreclosure. 

OP-ED — 

Folks who are in trouble with their mortgages in Florida really need to strategize before taking the plunge into the abyss known as the Florida legal system, where state judges clearly have “agendas”, the Florida Legislature has “agendas” and the federal courts have “agendas” … all aimed at taking of property when you can’t make the payments on it.  It’s not often that the author of this post steers away from chain of title issues, but there appears to be widespread ignorance (or in the alternative, intolerance) on the part of the Sunshine State’s legal system, which makes things “not so shiny” anymore, given the recent spate of legislation and court actions.


All one needs to do is examine court dockets to see how fast, over time, that Florida circuit judges have blindly assumed that the financial institutions coming before them actually own the promissory note they’re trying to enforce.  It would seem that judges simply rely on the blatant attack on the property owner as just because otherwise, why would this particular bank show up in court?   Because they can!  And they do!  And judges give them so much leeway that Florida homeowners are stymied for options.  This is why the State of Florida has so many zombie homes (despite what the politicians, economists and the media would have you believe) and shadow inventory that sits empty because of title issues.  In very few cases I’ve examined have I seen evidence within a transcript that allowed for a forensic examination of the note, to make sure it’s “original”, like the bank’s attorney says it is.  To show you that the inequity between state court systems is similar in nature, I’m consulting a case in New Jersey where the bank’s law firm sent a “cover lawyer” into court with what appeared to be a “faxed copy” of the note, claiming it to be the “original”.  I think most judges, even in light of the foreclosure defense attorney’s objections, could tell the difference, but nope … this judge said that the word of the law firm and the faxed copy of what it self-authenticated is good enough!  Can you believe that shit?

Another part of the equation is the existence of foreclosure defense lawyers who have seen fit to turn the foreclosure debacle into a cash cow by using delay tactics to keep property owners in their homes, despite the probable outcome that only about 1 in 25 cases brought into court makes it past the 810-day mark in a Florida foreclosure cycle.  Knowing that the odds are never “in their favor” (attributing the quotation to The Hunger Games), frustrated mortgagors then contemplate using bankruptcy court to dodge the “sale bullet”. However, things in Florida are about to change.


Effective July 1, 2017, Florida homeowners who run to the bankruptcy court and get their promissory note discharged are going to find themselves without other options to fight the foreclosure.  See House Bill 471 here if you don’t believe me: fl-hb-471  It’s only two pages long and I’m sure you can read (if you’re reading this)!

Simply put, any documentation that is filed in Bankruptcy Court which would indicate surrender of the property (commonly seen in Chapter 7 cases) makes it legally okay for the bank’s attorney to submit that document that was filed in the Bankruptcy Court under penalty of perjury to a Florida circuit judge to get a Final Judgment of Foreclosure.  I see this as a definite negative if you’re trying to fight a foreclosure.  But then again, most homeowners are like electricity.  They want to take the path of least resistance; and declaring bankruptcy is certainly a hell of a lot cheaper than fighting a foreclosure through Florida’s appellate system.

It appears that folks don’t understand the difference between an in rem and an in personam action.  Enforcement of a security instrument, which in Florida’s case is a mortgage, can only happen when the party claiming to have an interest in the property can prove ownership.  An attack on the property through the recorded security instrument is an in rem action (like quiet title actions).  This is why I wrote the book The Quiet Title War Manual (with the professional help of California attorney Al West).  The book explains the difference between the note and the mortgage.  Folks who don’t get it should get this book and read it, because when Al West and I taught quiet title workshops, we hammered these basic principles into the heads of the attendees.  In personam actions are actions involving debt, which in this case is the promissory note, NOT the mortgage!   How convenient it is that the Florida legislature has come up with this House Bill in the wake of the recent court conflicts within the federal system!


Let’s look at the case of In re Hookerin-re-hooker   Once you get past the first three paragraphs, you’ll understand why the Florida legislature did what it did to help the banks fight continuous counterattacks in state court.  Again, how convenient, to avoid further confusion in the courts.  Let’s just legislate this away, shall we?

Now we come to the slam dunk that affects the way the 11th Circuit Court of Appeals (which covers Florida), has ruled that Chapter 7 debtors who file a bankruptcy action and put forth a statement of intention to surrender the real property cannot later contest a foreclosure in the state court. in-re-failla   If you read the first paragraph of this PUBLISHED OPINION, and then read the background on the case, it appears that the homeowners wanted to “have their cake and eat it too”.  The Failla case simply states: “Debtors who surrender property must get out of the creditor’s way.”   The Florida Legislature (I believe) made sure that a bill was passed that shut off the trough at the source of the feed (so to speak).

No more hogs at the trough.  There have been so many different points of view, it’s understandable that the Florida legislature would pass a bill that state courts could point a finger at and say, “SEE?”   So for those of you thinking that running into bankruptcy court (in any state for that matter) and declaring your intent to surrender the property (God forbid, why would you do that?) under penalty of perjury is so confusing to some when their state court cases get shut down.


It has also become relatively apparent that any homeowner that has placed themselves in the foregoing position and continue to litigate their foreclosure in the state courts of Florida are likely to get sanctioned!   Vexatious litigants are likely to wind up in jail on contempt charges!  I say this because of what happened to foreclosure defense attorney Stuart Golant, 70,  in the Palm Beach County courtroom of Senior Judge Howard Harrison for simply making a motion!

Florida homeowners have had the deck stacked against them by the courts and the legislature in favor of the banks when it comes to promissory note enforcement.  Once a mortgage has been recorded in the land records where the subject property is situated, all it takes is a missed payment and the door to “foreclosure hell” opens to swallow the homeowners whole.   I can’t help but wonder what kind of counseling homeowners have received, given the phone calls and emails I get regarding strategizing an in personam case against them.


In a judicial foreclosure state like Florida, a lender comes to court and waves the promissory note around and claims it has the right to enforce the terms of the note!  It should be required to prove that the note is genuine, forensically.  Have the actual paper tested.  Have the ink tested.  Check for pixelation by blowing the note up on a computer screen to examine evidence the note was photoshopped.  Object to the note being entered as the original.  I believe a majority of securitized notes are copies of what was downloaded into the MERS® System and later shredded, as I’ve covered in previous posts.

Once the lender gets the note in front of the court and gets it admitted into evidence and gets the court to agree that U.C.C. Article 3 (Negotiable Instruments) exists and that the alleged lender has the right to enforce the note, THEN the Lender gets to enforce the Security Instrument, the in rem part of the equation.  The security instrument (Mortgage) is then “ripe for the picking”.  Believe it or not, most homeowners think that the lender is foreclosing on the mortgage.  That couldn’t be further from the truth!  The Lender is foreclosing on the Note.  Proving it has the right to enforce the Note means the Lender gets the right to enforce the Security Instrument, not until!

Bankruptcy Courts are designed to handle in personam scenarios.  In personam relates to debt.  Promissory notes are evidence of debt!   Recorded mortgages are evidence of security interests, not debt!   If you’re going to use the bankruptcy court to alleviate your personal obligation to the note, and liquidate it in a Chapter 7 bankruptcy proceeding, be prepared to move out of your home!

Thinking twice about running into Chapter 7 bankruptcy court to stop the sale?   The “system” is ready for you!   (Hint: This is why we have Chapters 11 and 13!)  No matter, if you live in any state where you think the “deck is stacked” against you, plan your “end game” BEFORE you go into default, not after!

And this is why I don’t talk about in personam issues much.  Homeowners really should get a financial education before they sit down at the closing table.

Tune into kdwradio.com every Friday night at 6:00 p.m. EST for my radio show, City Spotlight: Special Edition!   Order any of the author’s books by visiting Clouded Titles!

For those of you waiting for the new FDCPA book, it’s almost ready!   Pre-order your copy today!  (FDCPA actions are for dealing with debt collectors!)


Filed under Financial Education, Op-Ed Piece


The author of this post (Dave Krieger) is not an attorney.  Try to find an attorney near you that does quiet title actions as successfully as Al West (I want proof of the winning cases) … and I’ll let him TEACH the bloody workshop and pay his/her airfare and expenses to boot!  I’m not handing out legal advice today (nor will I ever, because the state bars, who are technically NOT affiliated with any Supreme Court jurisdiction, would love for me to stop talking about this subject, permanently), so if you need an attorney to assist you in a quiet title action, be prepared to do some serious digging to find one that knows their stuff.  I’ll tell you why in a minute … 

Since the beginning of this country, county land records were designed because America needed some sort of “fundamental order” in its keeping of land ownership records.   And in this case, I’m talking about the proper ones, not the ones influenced by the behaviors of today’s legislatures (at the whims of the banking cartels).  One of the many concerns within the realm of real property law, which I have had the pleasure of studying to the umteenth degree, much to the chagrin of others, began with my own experiences, which I write about in Clouded Titles, now in its final Mayday Edition version.

I expressly designed this work as an educational product because I found America lacking in the basic principals of real estate ownership that they may have either NOT learned in high school or college, or in the alternative, conveniently forgot about as part of the Age of Entitlement generations.  There are two issues here that I will discuss further, the key reasons for WHY quiet title actions should become part of your legal research and education to benefit your future and the future of America, if there ever is to be one.

There are a lot of Patriot-type folks out there that will disagree with my theories and my educational principles regarding quiet title, but I can tell you, I’ve done them … and they work.  Without quiet title, burps and hiccups in any given chain of title will render it impaired and thus, unmarketable.  You can disregard your belief that the “county” you live in has any authority, but let me tell you, you are in the minority of all of the registered voters who have faith in their county government, until their government proves them otherwise.  If you want change, then run for public office and change things!  First, have some respect for our current system, because it’s the only thing we have in place that stands in the pendulum path of civility versus anarchy.  Those of you out there who think you can still get title in allodium … keep dreaming.  We’re way past that point.

The first issue I will discuss here is WHY most attorneys DON’T WANT TO do quiet title actions!

Attorneys who specialize in real property law should completely understand the principals of quieting title, including pleadings and procedure, which Al West and I share in the workshops I host around the country.  Many attorneys ignore quiet title, because it represents (for the most part in a majority of the cases) a finite end to issues involving superior title to property.  This may also result in what is known as a “lien stripping” of a promissory note (which of course is what the judges suspect), which is then rendered unsecured because the quiet title action may end up causing the complete removal of the mortgage or deed of trust, if the parties who show up can’t prove they have superior title.  I said nothing about the Note here because the having a lien vis a vis a promissory note does not, in of itself, constitute superior title, unless the the Note has terms within it wherein the borrower gives up title to the property until the lien is retired in full.  Title theory states operate that way.  Lien theory states however, grant an “interest” in the property by what I call a “unilateral adhesion contract”, which is a one-way ticket to hell!  It’s called a mortgage or deed of trust.  Of late (within the last 15 years), these two documents have been tainted by a process called MERS (an acronym for Mortgage Electronic Registration Systems, Inc.), whose parent, MERSCORP (in whatever incorporated form it happens to be in at any given point in time) runs the obfuscation game for Fannie Mae and Freddie Mac and the rest of its members.

Most attorneys refuse to study the convoluted ways of the MERS® System, which I believe was started up to hide the behaviors of Fannie Mae and Freddie Mac (the two Examined Members talked about in the April 13, 2011 Consent Order involving MERS and its parent) as they involve the chain of title (but also to the financial benefit of other users of the database).  Thus, attorneys do NOT know what my network of attorneys know.  Thus, they render inconsistent and improper pleadings (IMHO).  Thus, anyone who attends my workshops will probably come away with more information than attorneys learn about quieting title than they learned about in the whole of their law school.  Since they don’t teach MERS in law school (to the degree we do in our workshops and educational materials), you can bet most attorneys don’t want to be bothered with it when they can be making a monthly income off the backs of desperate homeowners who want to stay in their homes (sadly, most of them have no game plan for the future).

Attorneys who specialize in foreclosure defense have quickly learned (as I have surmised here) HOW TO stall a foreclosure.  During that time, they bill their clients with a monthly fee that similarly equates to their monthly mortgage payments.  This is the first wave of foreclosure fraud.  Many attorneys want their clients to file bankruptcy to stop a foreclosure sale, yet seemingly, they ignore the 10-year “stain” on their clients’ credit reports as a result of what?  Delaying the inevitable?  According to the Office of the Comptroller of the Currency (O.C.C.; who coddles MERS, because they’re all “in on it” together, in whatever sort of conspiracy you want to call it) has plainly stated on its website that bankruptcy is simply just a “stall tactic” (for the inevitable).  I would have to ask these folks at the OCC, “Whose side are you on here?”  All of what has taken place in the shaping of legislation has obviously been instigated by the banks.  It may be time to vote out those in the electorate who aren’t on “your side” when it comes to property ownership and maintaining proper real property records in the county courthouse.  The continuation of this current way of doing things illustrates my point on the need for quieting title even more.

Attorneys would rather have their monthly annuities coming in than seeing a finite end to their client’s case involving a quiet title action.  There is no guarantee that getting your title quieted will stop some bank (or MERS, as it unsuccessfully did in the Groves case in Texas) from pursuing you down the road, but the “law of the case” seems to make things a bit easier.  In short however, why have a “finite end” to things in favor of a monthly paycheck?   For example, if a law firm has 10 attorneys doing foreclosure defense and each one brings in a retainer (for a single client) of $5,000 and then bills them for two years at $1,000 a month; if each attorney had 50 clients to “stall” for, the gross income to that firm would be $2,500,000 in retainers and $12,000,000 in monthly fees.  That’s $14,500,000 for those of you doing the math.  Such a business model it is.  This is why it’s so hard to find an attorney to do quiet title work.  Another major reason attorneys don’t favor doing quiet title actions is that these attorneys simply don’t want to be chastised and ridiculed by a judiciary that appears heavily vested in the very securities that are screwing America!

Equally important however, which attorneys overlook, is HOW and WHY quiet title actions are necessary if our current “system” of property ownership is to be salvaged.  Attorneys have to educate themselves FIRST, then they can educate the judges, who will then understand WHY quiet title actions are necessary.  For the time being, most judges I’ve read up on think of quiet title as just another assertion for why a homeowner wants a “free house” when this is so far from the truth. It’s unfair and totally biased to ignore the fundamental basics of quieting title; thus, we will discuss it here in further detail.

Now let’s look at the other side of the coin … the second issue in this think piece … 

From all the research my collective “network” has done, quiet title actions will become fundamentally commonplace because of what the MERS business model has done to contribute to the corruption of any chain of title it’s involved with.  I will NOT buy a property that has MERS anywhere in the chain of title! I suggest you take my comment to heart here, especially if you’re an investor.  This can only be overcome by (again, my suggestion and not legal advice, in the “if it were me” scenario) stipulation to judgment in the quieting of title prior to the deal being closed.  That means that MERS would have to be notified, so it too can “sign off” on what rights it thinks it (or its member users) may have (which I humbly disagree that any exist other than what’s in the contract, which are feebly explained by language a third grader can’t understand, let alone a future homeowner who doesn’t ask questions before signing papers at closing).  I would love to debate Bill Beckmann about how successful his “business model” really is, because the only thing I see here is how it benefits the users of his “system” and NOT homeowners. I’ll explain in more detail in a minute …

Most title attorneys will NOT admit that Schedule B circumvents the payment of 99% of any claims against a title policy.  They wouldn’t want you to know that because the title insurance industry is a racket unto itself that I’m not going to go into detail about in this particular article.  I will however, discuss it in finite detail when the book THE QUIET TITLE WAR MANUAL is finally published.  One needs to have all of his “A” game on before venturing into the shark-infested waters of what I term the quasi in rem quiet title realm.   Title attorneys further do NOT care about MERS, because users of the MERS® System do NOT record proper assignments anyway, and most title companies (“the racket”) have subscribed to the fact that they can now “write around the defects in title” simply because MERS exists somewhere in the chain.  Schedule B is the key here.  Read it and weep, preferably BEFORE you buy a worthless homeowners’ indemnity policy.

I don’t give a damn about the insurability of a property, but the “system” of the way things are done around here seems to cater to that modus operandi.  I care more about the marketability of property and what a prudent and reasonable person would do when confronted with a piece of property that is loaded with chain of title issues. Hopefully RUN … in the opposite direction, far away from the deal!  I realize that this may leave millions of blighted homes out there unoccupied, but it’s about damned time we sent Congress and our state legislatures a message: Either come up with a game plan to keep owners in “the game”, or watch your system turn into total chaos!  You let the banks “dangle the carrot” and you looked the other way when you repealed the Glass-Steagall Act and then end result was a system of modified securitization that has now turned this entire country’s court system into a game of reckless indulgences by foreclosure mill law firms who are making beaucoup bucks off the banks to keep the “game” in play in courts across the country, as long as it can, in the end, take the property, by whatever means (including the manufacture of phony documents for the purposes of litigation).

This is another reason why the banks are trying to actively change the Uniform Commercial Code (the “UCC”).  This is the last resort of any viable defense in both foreclosure and quiet title actions.  The banks know this full well.  If they can totally tip the scales in their favor, borrowing money will leave a bad taste in people’s mouths once they see others getting screwed.  Wait a minute!  That’s already happening here!

Instead of being honest about how they make money, the major banks have corrupted the securitization scheme in favor of side bets, called credit default swaps.  The borrowers seem to never have any of this payout money applied to their bottom line, but the banks who started it are reaping big benefits.  Securitization DOES INDEED affect the chain of title, because the Pooling and Servicing Agreements (“PSAs”), are never adhered to.  These are the governing regulations established by Congress under 17 CFR 210, 228, 229 et seq.   Conduct a full audit of one of these securitized trusts and you’ll see why investors are screaming that the failure rate of these REMICs is 100%! 

This is another reason that MERS was created: to facilitate securitization.  This beta model has done more harm than good despite what MERS tells its members.  If you look at their policies and procedures, you can plainly see that MERS® System users violate MERS’ policies with wanton impunity.  This is another reason WHY quiet title actions are fundamentally necessary.  This is another reason why the laws need to be changed to allow property owners to finitely challenge any piece of paper that is publicly recorded having to do with their chains of title.  This is all part of quieting title and THIS is what MERS and the banks DON’T WANT.  But … it gets better! 

If MERS and its parent had their way, all quiet title actions and their respective state statutes that mandate quiet title would be declared unconstitutional and your case discarded! 

MERS does NOT care about your rights to property.  MERS and its parent, MERSCORP (the for-profit corporation that is going to find itself embroiled in more lawsuits in the future, I predict, when the real truth comes out) caused to be filed an amended pleading (in the California federal case in Robinson) that asserted that the California Quiet Title Statutes were unconstitutional!  Can you believe the arrogance?  Is MERS now better and more powerful than the state legislatures?   Have we elected a pack of wimps that can’t stand up to them?  You be the judge here, because you have the power to change things!   State statutes regarding the quieting of title were created for a purpose … not to be ignored by MERS!  MERS has some sort of liability somewhere in this equation (facilitating breach of contract possibly) and someday it will be called upon to ante up.

MERS seems to forget that there is language contained within the contracts in which it’s named as a nominee and beneficiary or mortgagee (yet these terms are NOT specifically defined within the mortgage or deed of trust, so they become conveniently arguable as to their meaning in court) that specifically gives homeowners a duty-bound, contractual right to defend title to their property.  This is why every State in the Union is now faced with conflicting rulings when MERS is a party to any action.  That is fact, not my opinion.  Further, MERS doesn’t get to cause a breach in contracts it’s named in, in the name of squelching a quiet title action!  You should take out your mortgage or deed of trust and read the first few pages, especially the “seisin mechanism”.  That part of the contract is your contractual duty to defend title.  If you don’t, YOU’RE IN BREACH OF CONTRACT!  YOU DIDN’T ABIDE BY THAT SECTION OF THE CONTRACT YOU SIGNED! THE LENDER SHOULD BE SUING YOU FOR BREACH, BUT THEY DON’T.  WHY? BECAUSE THEY’VE ALREADY BEEN PAID OFF BY CREDIT DEFAULT SWAP MONEY! (The money, by the way, that wasn’t applied to your “bottom line” balance as typically referenced in Section 23 of your long-form mortgages and deeds of trust.)

What?  You didn’t know all of this when you signed the damned note and mortgage/deed of trust at closing?   Well … welcome to the real world!

As long as there is a mortgage or deed of trust out there with this language in it, you have a contractual duty to quiet title!  Maybe the lenders and Fannie and Freddie will remove the seisin mechanism completely from their security instruments at the insistence of MERSCORP, and will change the language to read:

“BORROWER COVENANTS that Borrower may not actually own the property they just bought, or in the alternative, have just purchased a property full of holes that title companies will not insure. Borrower agrees that they are stuck with what they bought and further agree that any rights to litigate to correct title are hereby waived completely.”

When it comes to the foregoing language, the courts seemingly treat Borrowers as if they have no rights at all … because … they owe somebody!   Title doesn’t matter … because the judge said so!  Read some of the appellate case law on quiet title and you will see where appeals have been reversed and remanded to allow attorneys for property owners to amend their complaints to quiet title, because they didn’t get them right in the first place!   Then you will see WHY attorneys need to be educated on the subject! It’s a shame you have to appeal quiet title actions because foreclosure mills denounce this practice, ignoring the contractual right (which to me wreaks of tortious interference with contractual relations).  Again, judges seemingly ignore this too!

Further, there is established case law regarding the quieting of title.  We have compiled quite a bit of it for your research, which is on the 16GB USB flash drive every attendee gets as part of their research materials for attending these classes.  Sorry, you have to attend the classes.  We do NOT sell the flash drives a la carte with no explanation behind it as to how we came up with this research!

Still confused, this is what we have the upcoming quiet title workshop in Chicago for.  Visit the Clouded Titles website for details.  The Chicago event offers three different workshops on chain of title assessments (COTA), quiet title actions and a session on the Uniform Commercial Code, state-specific, taught by attorney Robert M. Janes, who I deem the UCC “guru” in America.   You and/or your attorney needs to especially attend THAT workshop if you’re going to attend any of the events we’re offering here!  This is the educational series you want to drop the dime on!  This is the only event remaining this year with this kind of discount offering. We will not be doing another event like this in 2015, maybe ever!  That’s right, I’m making a pitch here for your benefit!

When we start addressing the real issues involving quiet title, then American homeowners will become more responsible and productive citizens!

I should hold a contest to see how many folks out there have incorporated themselves as one of the defunct lenders of the past, or MERS, for that matter.  There seems to be a lot of brouhaha about those scenarios as well.  I will discuss two relevant cases in the future regarding this point (involving MERS and America’s Wholesale Lender; “AWL”; anyone with an AWL mortgage or deed of trust will want to pay attention to this upcoming article!)

As a sidenote … if the courts don’t want continuous and voluminous foreclosure cases wreaking havoc on their dockets, perhaps they should consider the positive nature of quieting title when a case dismissal occurs.  Why should the bank get a “second bite at the apple”?

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Filed under Chain of Title Education, Financial Education, Quiet Title Education

Those pesky credit scores, eh?

The one thing in life we seem to pay little attention to is our credit rating.  Yet every month our credit rating is subject to change.  Credit scores run from 350 all the way up to 850 generally; however, not one of us understands that the creditors we deal with actually control our credit histories and our lives, many times for the worse.

Any time you fill out a credit application … anywhere … and the creditor runs a check of your credit … an inquiry appears on your credit report.  An inquiry is generally a computer coded entry that lists the name of the creditor (and sometimes a code number) and the date the credit report was pulled.  Too many of these inquiries in a short period of time will actually reduce your credit score, but not many people know that applying for credit all over town is not a good thing.

As I’ve said in previous posts: There’s no such thing as “good credit” as opposed to what we all know as “bad credit”!

Having no credit is just as bad as bad credit.  Not having any kind of credit repayment history is of course a real detriment in trying to obtain a mortgage.  In this day and age, the lenders have tightened up credit and so one would need a minimum of 660 FICO  (Fair Issac) score; a good down payment and a great employment tenure in order to qualify for a mortgage with a decent interest rate.  Those who don’t have good credit scores are obviously “dinged” with higher interest rate loans.  Not a good thing if you’re trying to get ahead in life.  Ahh … doomed to rent forever!

This is one of the reasons why I wrote The Credit Restoration Primer, available on the Clouded Titles website!  People didn’t get this kind of education in high school (or college for that matter).   Textbook learning does not make for any kind of a credit repayment history … only experience in borrowing and repaying what you’ve borrowed does!

If people truly understood what creditors could do to ruin their life experiences they would be reluctant to borrow anything from them!

In fact, it is the major banks’ desire to enslave everyone deep in debt!

“The rich ruleth the poor. The Borrower is servant to the lender.”  -Proverbs 22:7

First … what is the real purpose of a credit card?

A credit card (as opposed to a debit card, wherein your already-credited book transactions are used to purchase something of value) is the bank’s created book-entry deposits being used to fund your purchase of something of value without you having to spend your own book-entry money.

Instead of using it for emergencies or for absolutely necessary purchases, consumers instead have chosen to use it to purchase everything under the sun.  Paying it back in monthly increments with high rates of interest is exactly what the banks want.  Your credit score is actually positively affected the longer you keep faithfully paying on a credit card every month!

Even more unfortunate … consumers tend to spend what’s on their credit line because they can.  They have been educated to believe in impulse buying; thus, instead of maintaining a 30% debt-to-income ratio, which also affects your credit score, they max out their cards.  I should explain here that, for example, if you have a $10,000 line of credit (which means you have $10,000 worth of the bank’s “created book-entry deposit money” to spend, courtesy of the bank), you should not spend more than 30% of it at any given moment.  30% of $10,000 is $3,000 (not $10,000, for those of you who failed math).  The more you exceed that 30% ratio, the lower your credit score.

And why do we even need credit?

Ages ago, my father told me that if I wanted something bad enough, save up and pay cash for it.  That was before I learned about credit.  Had I received the financial education I now give to my children, I wouldn’t have suffered through life dealing with crappy credit scores.  Oh, my scores have been over 700 mind you, but that’s not what’s important here.  What’s important is why I put my faith in someone else’s book-entry credit system, which is all systemically based on the creation of something out of thin air to purchase something of tangible value.  We tend to appreciate less the things we buy on credit than what we actually have to work to save up to pay cash for so we are not enslaved by monthly payments.

Many folks don’t even have credit cards.  Not having any credit cards also affects your credit score (like not having any credit at all).  If you intend on playing in the system’s fiat behaviors, you should at least do so with some modicum of common sense, don’t you think?

I paid off and cancelled all of my credit cards!

You’ll notice that when you live within your means and you don’t “bite off more than you can chew”, having credit cards seems less important because you don’t rely on credit to get by in life.  One who lives on credit will most certainly find themselves at the mercy of a bankruptcy court at some point.  When I’m traveling, I walk right past those airport credit card solicitors because even though I could get a free “toaster” (for lack of a better gift) for filling out that credit card application … my credit score will be affected because: (1) I submitted an application for credit; (2) Someone else now has my personal information; and (3)  All because I absolutely needed a toaster?

If you have more than a certain number of inquiries within a 90-day window, your credit score will be negatively affected, especially if there is no evidence of any credit being granted.  An open line of credit on your credit report is called a “trade line item”.   Having a $5000 line of credit open on a credit card and paying your balance off every month, especially if your purchases do NOT exceed 30% of that line of credit, will actually increase your credit score.  Your credit score will be even higher if you leave a small balance on your card every month and pay slightly more than the minimum monthly payment.   Credit card offers will come flying at you in your mailbox!  That’s what they want folks … the trap!

Using those “payoff your balance” type credit card schemes (wherein you merge or consolidate your card balances into one card balance) may look good on paper, but what you’re actually doing is adding interest upon interest by contract, all for the sake of convenience.  You still end up having to make a single payment … for a longer period of time … with new interest being generated on those merged balances at some point.  These credit cards may have really great ZERO or 1% teaser rates up front, but after six months to a year, they jump up to a much higher rate (say 18%)!  I didn’t fall off the turnip truck folks. Avoid these consolidation loans like the plague, especially if you wish to consider a mortgage loan.  All of those credit cards will not only kill your debt-to-income ratios, you’ll have a string of denied mortgage inquiries on your credit report.

And what happens if there’s a shift in your income?

Should you lose your job or suffer a medical emergency, using those credit cards becomes extremely tempting.  There’s only so much credit you can use up in a month.  I find that when credit is available and stress is added to the equation, people tend to spend more foolishly.  Pretty soon, those cards are maxed out.  When they remain unpaid, the dunning phone calls and letters start and the credit scores plummet.  A huge percentage of American consumers have already fallen into this trap.  The number of bankruptcy filings continues to increase.  If you have this scenario present and you’re also paying on a mortgage?  The mortgage company will look at your credit history periodically as well and determine that you’ve become a credit risk.  Your mortgage loan account will be flagged and monitored at that point.

When you default on payments, whether it be a single credit card or a mortgage payment, other credit lines all of a sudden “dry up”.  You’ll get a letter in the mail from your credit card company telling you that the company has decided, “based on your recent credit history”, that it has either shut off your $5000 credit line to your current balance (whatever that may be at the moment) and each time you make a payment on that balance, your line of credit shrinks with it, until you can pay off all balances and prove your income to each creditor (before they will restore your credit line).  Other creditors may just shut off your cards completely and close the account before you can “do any more damage” to their created book-entry credit system.  Creditors then treat you like you have the plague.  And when you find out there’s no more credit left?

If you find yourself in this “trap”?  It is here you may wish to consider using your credit card to make one more small investment (in your financial education) … getting a copy of The Credit Restoration Primer before you find yourself at rock bottom!  I’m not begging you to buy this book.  In fact, if you didn’t, it would be one less consumer knowing all the secrets about how the credit bureaus operate and how to restore their credit reports to “tangible condition” … AND how to deal with collection agents!  This Primer is in its 5th Edition, because over time, the level of education changes.  To be honest,  I wish I had this book when I was growing up!

I’m sure there’s no greater a feeling than to be able to call into the more popular financial radio shows and scream, “I’m debt free!”  

In the meantime however, besides taking a more conservative approach when it comes to spending, you may wish to start researching ways to save money by entering into less credit contracts and dealing with your current trade line issues to improve your credit scores for something more meaningful in life.

Why give the banks all the credit?   We run this country … or at least I thought we did.

Look for my upcoming article on HOW TO LIVE WITHOUT CREDIT!

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