Some espouse the belief that if you’re up to your eyeballs in debt, it’s better to eat beans and rice for weeks, months and years until the debt is paid. I won’t mention names. This isn’t about them. While it’s pretty indefensible to live a lifestyle you cannot afford at the expense of creditors, it’s even worse to lead a lifestyle that can be downright counterproductive and harmful when you’re trying to pay your creditors. There’s being “super frugal” and then there is being “stupid frugal.” So today, I want to cover a few things I’ve noticed people doing while they are trying to pay down their debt. I sharing my observations, but I think it’s good if you consider it food for thought.
Posts Tagged ‘Bankruptcy’
Why Not Wipe The Slate Clean?
Friday, March 26th, 2010
I was recently talking with… I guess I could refer to him as ‘an entrepreneur.’ He was a former mortgage broker who found himself down on his luck after the real estate market tanked. Among the things he said to me was that he did not like bankruptcy at all. I asked him if he filed bankruptcy and had a bad experience with it – and he said no on both counts.
“So then what do you base your feelings about bankruptcy on?” I asked.
“Well, it kills your credit score, and I just don’t like it” he replied.
Initially, I thought it was an odd response. Now that I’ve had a few weeks to kick it around in my head, I think it is more than odd – it’s very ill-informed.
Families Fighting About Debt
Thursday, February 11th, 2010
Lately, I’ve been hearing a lot – and I mean a lot – about the stress that finances (and the lack thereof) is taking on families. I’m hearing about spouses sleeping on couches or in basements. I’m hearing from couples that are fighting and contemplating divorce. And I’m hearing from people who have gone through a divorce because of the household finances and they are trying to find a way to move on.
Today, this blog is for all of those families who find that joy and laughter have been replaced with debt and strife. (more…)
Power(lessness)
Thursday, August 13th, 2009
When the money stuff is not going the way you hoped, or planned, there can be a sense that things are just beyond your control. And sometimes they are. Sometimes people lose jobs, get sick or get divorced. Sometimes bad things happen to good people. And sometimes, decisions we made that seemed really good at the time based on the information we had have been revealed by the light of time as regrettable. Right now, many that are facing financial problems are experiencing regret. That regret, and the emotions that it brings along with it can be utterly paralyzing.
In a way, it’s odd. At one time, we had the power to make the decisions that brought us to the stage of life we find ourselves in. Yet somehow, we cannot seem to find the power to get ourselves to move forward from it. We end up wallowing. (more…)
The Importance of an Informed Decision
Tuesday, June 16th, 2009
I recently met with clients who got some very bad advice from probably well-meaning but – to be perfectly blunt – clueless friends and family who thought they knew what was best. What happened to them is undoubtedly a lesson for others.
The married debtors have a large and unmanageable amount of credit card debt. A few years ago, one of the debtors was actively employed and making a good living until a work injury changed all that. Now, one of them is in chronic pain, has no income and is currently seeking disability benefits from the Social Security. The injured debtor had a workers compensation claim which was resolved through a $30,000 settlement about 9 months ago. There are children, and there are domestic support obligations.
Because this two-income family had been struggling as a one-income family for a few years, the debtors have been “robbing Peter to pay Paul.” Retirement accounts had been depleted or had loans against them. Credit cards were maxed out. Collectors are calling, and lawsuits have been filed. Before the settlement even arrived, they were thinking about the possibility of having to file bankruptcy.
The Decision-Making
Family and friends urged them not to file bankruptcy. Having not met the family and friends, I assume that they had good intentions and were ultimately well-meaning. None of the family and friends were bankruptcy attorneys. I didn’t ask if the friends and family were aware of this blog.
The debtors have vehicles and only own personal property. The current sole bread winner makes a respectable, but nevertheless modest income in light of their expenses. None of their expenses are extraordinary or raise a specter of bad faith. They seemingly qualify for chapter 7, and since they have no real estate, they could consider electing the federal exemption schemes. Had the debtors elected to file bankruptcy when they received the settlement, the federal exemption scheme would enable them to keep most if not all of the proceeds of the settlement and discharge their remaining credit card obligations. That’s not what happened.
Instead, they took the $30,000 and paid down the credit card debt. It did not get paid off. The credit cards and credit lines did not get closed. The debt was merely lowered. The credit card companies got some of that money. However, had they filed bankruptcy before opting to pay them, the credit card companies would have received nothing – or close to nothing.
I asked them “why didn’t you file bankruptcy back then when you were thinking about it?”
They told me that their friends and family were telling them that they should not file bankruptcy and that they emphasized it: “oh, you don’t want to file bankruptcy!” Apparently they were concerned about stigma and were concerned about being “one of those bankruptcy debtors that doesn’t pay their bills.”
Yet here they were. In my office. Not happy being there. And I’m willing to bet, sick to their stomach because of it (actually, one of them expressed that sentiment). Why? The simple answer is that they now thought of themselves as “one of those bankruptcy debtors who doesn’t pay their bills.” But I do think there maybe another reason.
After the cash was done, many of the credit lines were still open. So if they looked ahead to through the end of the month and saw that they were a few hundred dollars short, they knew where to get it.
And with the settlement, they were able to pay their debts and feel good about paying their debts – which is presumably what their friends and family had in mind when they conveyed their likely less-than-helpful advice. It’s good to pay debts. After all, no one wants to file bankruptcy. No one wakes up one morning thinking “hey…here’s something I haven’t done yet.” But life does not always work out the way we want, hope, expect, and in some cases need it to.
In their case, the credit has run dry. The retirement accounts are empty. And now the settlement is gone. And before me were two people who – like many others – had to struggle with an unexpected change in income, and who tried to do what they thought, and what their friends and family thought, was the right thing to do. But they should have elected to get bankruptcy advice from a bankruptcy attorney rather than bankruptcy advice from well-meaning friends and family more than 9 months ago.
What advice would I have given to them if they saw me 9 months ago? I would have advised them to take the time to explore their personal spending. I would have advised them that with one income earner disabled, they had to adjust their budget…or adjust their income. I would have determined that their credit card debt could be discharged in a 7, and depending on the amount of the settlement, and the value of their other personal property, the settlement proceeds would likely be exempt. I would have told them to stop using credit, to start using cash, and to view the cash as what it was: finite.
Instead, they now know that their personal spending must be adjusted, that very tough decisions need to be made, and some very difficult discussions with friends and family members might be in the foreseeable future. And the most important thing that has changed since they listened to their friends and family: there is no more cash they can tap into when they need that extra few hundred bucks to get them through the month.
For these good people, I think it could played out differently. And I am willing to bet that this realization is what is contributing to that awful feeling in their stomach.
The Sunday News
Sunday, June 14th, 2009
A fellow bankruptcy attorney shared this article that appeared in last month’s New York Times Magazine. I see in it some of the same difficulties I see in clients. It also makes me question how “half-empty” the glass really is. Although in the interest of full disclosure, the writer has a book coming out. In other news…
ONE FLAG! Six Flags Amusement Parks files for Chapter 11 protection.
Nashua NH Telegraph: Welcome to the New Consumer Economy.
Boston Herald: Consumer spending may never be the same as it was.
South Coast: Home values could take years to recover. We also could be hitting bottom (I’m not being sarcastic, it says the market “could be a reading a valley”). I could also be a ledge (ok, that was sarcastic).
Nantucket foreclosures. I wonder if these homeowners claim their loan was predatory? I also have to question whether it was.
A bad apple is removed from the barrel: Brockton lawyer settles fraud suit with the Massachusetts Attorney General’s office.
My Thoughts on the Half Glass
Wednesday, June 10th, 2009
There seems to be a trend to see our country’s economic problems through the lens of a glass containing several ounces of a beverage that is approximately 50% of what the container will hold. Some will look and say the glass is half empty. Those folks are perceived as pessimists. Others, including our President, view the glass as half full. That view is considered more optimistic. I have a very different take on all of it.
Let’s assume that the beverage is water. The conventional wisdom (which apparently is now being debated) is that you need 8 glasses of water each day. Thus, if I am looking at half of a glass of water, I’m not thinking “by golly, it’s half full!” Instead, I’m thinking “where the heck are the other 7 ½ glasses?” Surely, I can enjoy that half-full glass. But sooner or later, I’ll be thirsty again and if I do not find more water, I could slip into dehydration and then things could just get uglier from there.
Recently, a prospective client called me to discuss their business problems. Over the last several years, the client had made major investments into what he miscalculated as a growing business. Additional locations were added, staff was increased, and overhead costs exploded. The problem was that the revenue of the business depended exclusively on consumers who have disposable income and have a budget that provides for recreational spending. Needless to say, business was not going according to the original plan.
He told me his goal was reorganizing the business. After exploring a few options with him on the phone and learning more details about his situation, I asked if - as a part of his reorganization – he had considered pairing down his business to a more manageable or fiscally feasible model. He didn’t like that idea. I reminded him that it was important to consider a ‘Plan B.’
Before we ended our conversation he was kind enough to share with me this gem: “You know, I think need to work with someone who like me, sees the glass as half-full.”
Really?
I appreciate the need for remaining positive. Being positive is what helps us all get out of bed in the morning. However, I also appreciate the need for being realistic.
Imagine your waiter bringing over a lovely cheese soufflé and then asking him, ‘is this fattening?’ If the waiter wants you to feel good and still eat the dish you ordered, he’ll say something like ‘of course not’, or perhaps something wry such as ‘only if you eat it on Sunday, and since today is Wednesday, you’re ok.’ It would make you feel better about eating it, but it you cannot really say it was being particularly realistic…unless you really believed that eating certain foods on certain days of the week somehow affects their caloric value and fat content, which is far, far beyond what I am capable of commenting on.
On the other hand, if your waiter respects that your need for information is fueled by a desire to make an informed decision (and hopefully the best one), the answer you get will be honest. After all, do you call a bankruptcy attorney because you want an straightforward assessment of the issues facing your life and what you can do about them? Or are you looking for someone else that will look at that half-glass of water and tell you what you want to hear?
Perhaps this is a better question: are you better off believing that things are better than they really are? Or are you better off with honest answers to tough questions so you can make the best and sound decisions for you and your family? The bottom line, it really doesn’t matter whether the glass is half-full or half-empty. What matters is what’s in the glass, and whether you can, should, or want to drink it.
And that decision, as difficult as it may be, is entirely yours to make. But you cannot make it without the right information.
Coming Soon: Chapter 13 in 13 Chapters
Friday, May 22nd, 2009
I’m pleased to announce the soon-to-be published consumer bankruptcy manual: Chapter 13 in 13 Chapters. The manual is available exclusively through the American Bankruptcy Institute. Pre-publication orders are being accepted now.
This manual provides a comprehensive overview of the chapter 13 process from the perspective of both debtors and creditors. Everything from filing preparation and debtor education to the role of the chapter 13 trustee to the discharge of debts is covered, as well as things to consider before a case is converted and when to modify the terms of a payment plan. Written by William J. McLeod and edited by M. Regina Thomas (McCalla Raymer, LLC, Atlanta, GA), the manual provides sage advice for the chapter 13 attorney regarding the timing of the debtor’s tax filings, anticipating and addressing a debtor’s change in circumstances post-confirmation, enforcing the debtor’s rights against a creditor’s collection activity, and post-discharge actions. Heavily peppered with case citations and key excerpts from relevant sections of the Bankruptcy Code, Chapter 13 in 13 Chapters is the essential reference guide that chapter 13 attorneys should have at their fingertips to assist in their practice and to share with clients to help explain the bankruptcy process.
To pre-order, please click here.
Another Good Reason to Stay Close to Home
Wednesday, May 20th, 2009
One of the best things about summer is the local produce you’re likely to find not just in the supermarket, but on road side stands. While I admit I’m a bit biased, when I was a kid, there was no better place to get tomatoes and sweet corn than the small farms on Aquidneck Island. That’s probably going to tick-off the good folks in Little Compton, but hey, I know what I know. I am sure that I can find a place online that would ship them to me, but it’s not the same as pulling over to the side of the road, smelling the air, and reaching into your pocket for a few bills to get some good stuff. Law firms advertise online, as do credit counselors and so-called debt settlement and consolidation firms…and there are hundreds if not thousands of companies and firms offering assistance to people struggling with debt. Is it a good idea for Massachusetts consumers stay “local” when they are looking for resources to help them deal with their debt? This very question came up today when I was talking with a prospective client.
For a variety of reasons, the family is in a lot of debt and exploring options. There’s bankruptcy (and I can help them with that), and there’s credit counseling (which I can offer a recommendation). There’s also debt consolidation and debt settlement, but ironically, there do not seem to be too many local companies that offer such services. Perhaps it is because those services are usually little more than a scam. Perhaps it’ because it’s been tried
The clients were considering the “Consumer Law Group, PA” located in Florida. I like Florida – I have not been there in years – but it’s a pleasant place to be. And while I like oranges, I don’t feel the need to go to Florida to get them.
Fortunately, the client did some research on this outfit on their own. They learned that the “Consumer Law Group, PA” had only been around since November 2007. They found websites where people had some very unfavorable things to say. More than one person, actually. They also learned that in less than two years period, they earned an exceptionally low BBB rating. That was their wake up call. It dawned on them: “why are we not dealing with a local business who can help us?”
While this is arguably yet another reason to stay clear from any outfit claiming to offer debt consolidation or debt settlement services (which again, are a scam), I think it is also important to consider going with someone local. It doesn’t matter if it is an attorney, a credit counselor or a lender who may be trying to help you refinance…. why go with an out of state outfit state? After all, we are talking about your money, your life, your family and your future.
For those reasons, it’s important to get good help from someone who knows what they are doing. And frankly, if these issues are important enough for you and your family, then you should be able to look that professional square in the eye. That’s hard to do when they are a few states away.
Rocking On & Moving On: My Take
I’ve been listening to The Moth for several months and recently listened to an episode that I thought my readers could identify with, so I shared it. And as promised, I am sharing my thoughts.
When one is facing bankruptcy – for whatever reason – it’s like facing a financial black hole. It’s dark. It can feel cold and creepy. You feel like it’s sucking you in and you’re not sure what’s going to end up eating you on the other side. And those feelings end up leaving many folks completely and utterly paralyzed with fear. Perhaps paralyzed is not a good word. Perhaps wallowing with fear is a better description.
(more…)
Tags: Bankruptcy, Bankruptcy Estate, Commentary
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