So yesterday I received this letter from WaMu:
Dear William McLoud [sic]:
Our customer (my client) informed us of his/her intent to file (chapter 7) bankruptcy. We realize this decision was not an easy one. We would like to resolve this matter and offer an alternative that may minimize the negative impact that filing for bankruptcy can have on your client’s credit and employment opportunities.
As of today, the balance on the (credit card) account referenced above is [$2,500]. However, you may elect to settle the balance for 60%, or [$1,500], and your client will be under no further obligation. Simply alert us of your acceptance and remit the settlement payment.
If your client is unable to pay this amount in full, or if you have any further questions, please contact our Bankruptcy Department…
I can understand why WaMu maybe looking for quick money instead of a debt that will be discharged in a bankruptcy. And, so do the bloggers over at Calculated Risk. However, these letters are – from my standpoint – a waste of time an energy.
First, I have to be sure my client received it – because an attorney is obligated to convey settlement proposals to their clients. There’s time and energy. A letter, envelope and a stamp. Without knowing the true cost of things, it’s difficult to know what sort of “carbon footprint” might be left by that whole process.
Second, my client has retained me to file chapter 7. This means s/he cannot afford to pay their debts. Does this letter change anything? No. The petition is getting filed, and since this is a no-asset case, no unsecured claims are getting paid. So they have wasted a stamp, and the “carbon footprint” has gotten bigger because now I have wasted a stamp. And an envelope. Made of paper. Which comes from trees.
Third, this is not my client’s only debt. I would be giving horrible legal advice by suggesting that someone file bankruptcy over a $2,500 credit card. I would also be giving horrible legal advice if I suggested that settling one credit card account before filing bankruptcy to discharge other claims (such as credit cards run by companies who don’t send out letters like this) might actually make the bankruptcy filing look better on the credit report. I’m all out of “carbon footprint” jokes.
Finally, this creates a possible preference issue. It’s a payment to a creditor within 90 days of filing a bankruptcy petition, and since it’s $600 or more, it must be disclosed. So WaMu might not get the money after all. Why, because a chapter 7 trustee could claim that it should be paid to the chapter 7 estate as a preferential payment. Remember, in bankruptcy all unsecured creditors are supposed to be treated equally (assuming, of course, that they all behave), and payments made to a creditor prior to the filing may be viewed as preferential, meaning the debtor preferred one creditor over another. The code penalizes this conduct by allowing a trustee to get certain preferential pre-petition payments to creditors.
Of course, I’m not sure what would happen if there were preferential payments to WaMu and then WaMu filed bankruptcy or found itself “bought” by another bank overnight.
So WaMu’s wasting time and resouces sending out these letters. Plus – WaMu is a big corporation – I bet there were department meetings, maybe even a “Letter Drafting Task Force”, and all sorts of resources expended just to get the wording of the letter in final form. Perhaps this is among the many reasons WaMu finds itself with a boatload of financial problems.
Or maybe not. There might be way more to it than that.
Related posts:
- Settlement Offers from Creditors
- Nasty Debt Collector, WaMu Responds, and BAPCPA
- Yet Another Reason to Avoid the Rip-Off of Debt Settlement
- Washington Mutual Offers Refis to Subprime Borrowers
- Preferences: What are they?
Tags: Bankruptcy, Chapter 7, Credit and Debt, Debt Settlement or Consolidation, Washington Mutual
