Today, we have something a different… our first guest blogger: a former client who shares her perspectives on her journey into, through and out of bankruptcy.
Posts Tagged ‘Credit and Debt’
CareOne: What’s Behind Those Commercials?
Thursday, February 18th, 2010
As I was watching the news the other night, I saw this commercial for CareOne Credit. The name rang in my head – and then it hit me: I had recently read about them in a case while doing some research Since the judge’s observations in that case and his comments were stuck in my head – and since I am seeing these commercials more and more - I thought I would share them here.
The Case
In late 2006, Debra Wood was struggling with debt – and after apparently seeing an ad, she contacted CareOne Credit Counseling. When she contacted CareOne, she was referred to Consumer Law Associates, LLC (CLA). CLA then gave her documents to start her into a debt management plan – which would be administered by Ruther and Associates, LLC (RA). They describe themselves as a “national law firm dedicated to consumer debt reduction.” As the facts of this case unfold, you’ll see what that description is inaccurate – at best.
Short Sales & Foreclosure: Perception & Reality
Monday, February 8th, 2010
Many people struggling to pay the mortgages are motivated to consider a short sale. I am often told that it is considered because of their concern that if a short sale is not done, and the property is allowed to foreclosure, they will never be able to own a home again. Today, I want to tackle the perception of that…and present a bit of reality, from my point of view.
Facing Bankruptcy with Nagging Regret
Wednesday, January 20th, 2010
I recently met with a bankruptcy client who had a lot of credit card debt, almost no equity in their home, and were unable to meet their obligations.
After getting some information, and assessing their situation, I learned that they had lived in their home for almost 25 years, but in the last 12 years had refinanced their home 3 times. The client told me that in no uncertain terms he would not be contemplating bankruptcy if he was able to refinance their home to pay the credit card debt.
Clearly, that wasn’t going to happen.
But then I started thinking, how does someone who has lived in a home for 25 years in the same home have almost no equity to show for it?
Relearning How To Buy Stuff
Tuesday, January 19th, 2010
When I meet with a debtor who has expressed a desire to file bankruptcy, once of the first things I start discussing is their use of credit. Many times, their use of credit also turns to their relationship with credit. If you’re going to file bankruptcy, you need to stop using credit cards. That seems like a bit of a no-brainer. But recently, I had a conversation that went something like this:
“You cannot use credit cards any more,” I told my client. “You need to start operating on a cash basis.”
I saw my client thinking about this, and then after a momentary pause, I heard this reply:
“But how will I buy food?”
Under Water, Walking Away & My Two Cents
Tuesday, December 1st, 2009
Over the holiday weekend, there were a number of press reports about a discussion paper, Under Water and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis. Reportedly Brent T. White, an Associate Professor at the University of Arizona’s James E. Rogers College of Law advocates that homeowners who are underwater (meaning, the outstanding mortgage balance[s] is more than the value of the home…is now, or in some cases, will ever be) should simply walk away from their obligations and not look back without feeling a bit of guilt. Obviously this all got my attention, but before I took to this here blog and declared “You Have Got to be Kidding Me!” (which at first glance seemed like the most expedient way to address it), I opted to read the discussion paper (rather than just the abstract). Before you click the link below, pour yourself a fresh cup of tea.
Here’s my take:
NY AG Seeks to Vacate 100,000 Judgments
Wednesday, July 22nd, 2009
Way back in 2005, I wrote about a need to reform our state rules on returns of service. You’ll find that article here. In August of 2006, then Mass. Bar Association President Warren Fitzgerald wrote a column in the Boston Globe also calling for reform based on the failure of small claims defendants to get any meaningful notice of a suit being filed against them. Today we’re learning that in New York, Attorney General Anthony Cuomo has filed suit to vacate over 100,000 judgments that were entered against consumers who were not properly served. (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.
Still Considering Debt Settlement?
Tuesday, May 12th, 2009
In the past, I have written and warned readers here about it. It is simply not all it is cracked up to be. From CBS News/The Early Show:
[C]onsumer advocates warn that a majority of the companies can’t or won’t deliver on their promises to reduce your debt. The National Foundation for Credit Counseling recently explained that, “A settlement company may suggest that you stop paying your creditors and instead begin making deposits into a special third-party account. The settlement company will attempt to negotiate a settlement offer with your creditor once enough money relative to the debt is on deposit. This may take six months or more, although the exact length of time will vary with circumstances. During this time, the balance on your debt can continue to grow if interest and various penalty fees continue to be charged by your creditor. As a result, you may owe more than when you started and your credit may suffer.”
Even worse, there have been many instances where none of this money ever makes it to creditors — the companies simply steal it, Gibbons points out. Plus, a growing number of credit card companies refuse to work with debt settlement groups. Of course, a group probably won’t tell you that until after you’ve paid them.
Clean Up
Thursday, April 23rd, 2009
No one likes cleaning up a mess that someone else made, especially lawyers. I’ve coined the term “clean up” to describe a particular type of case – whether it be debtor or creditor. In most cases however, it’s a debtor’s case that was handled by an attorney who is no longer returning phone calls, or has informed the debtor that they can no longer handle the case. The debtor is extremely concerned, and is usually in a very difficult position. And unfortunately, I’m seeing these types of cases with greater frequency.
There are many reasons why a debtor’s case may not be progressing the way they expected. But in many cases I am seeing, when a debtor is contacting me to either get a second opinion, or to get a new attorney it’s because something in the case is going dreadfully wrong. It could be an improperly completed form, or a complete lack of understanding of how bankruptcy works. It could also be a little of both.
The economy is drying up legal work in other areas and this may be pushing attorneys who do not know bankruptcy law into the practice in an effort to their own ends meet. However, attorneys who do this with an assumption that bankruptcy is “easy” or is just about filling forms will soon realize that this is not the case.
