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…)
Posts Tagged ‘Credit and Debt’
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.
Here’s Another Reason Why You Actually Need to Read Credit Card Agreements
Friday, April 3rd, 2009
After reading a 9th Circuit Court of Appeals decision issued yesterday, I’ve been struggling. There’s an important legal issue to discuss, but at the same time, I’ve been struggling with the title. I wanted to use a title that was little kitschy, because after all, that’s what makes a blog even moderately entertaining and worth visiting. I think. I also thought the issue justified my resorting to something profound. Something that makes the reader go “hmmm…so true.” Then, there’s a part of me that just wants the decision to speak for itself. So here goes.
In July 2001, Robin got a Providian credit card. The terms of the account – on that slip of paper that people have a tendency not to read required that it be governed by New Hampshire law. If you have not heard of Providian, spend some time on the net searching them out. You’ll get the sense that they weren’t a particularly consumer-friendly company, unless your idea of being consumer-friendly is only to pretend to be friendly. But I digress.
She defaulted on the card in November 2001. We don’t know why she defaulted. Don’t know if it was a lost job. A health matter. Don’t know if she was just being irresponsible. We just don’t know and I cannot assume what I do not know (and what’s not discussed in the decision). Her bill was about $3,000 with an interest rate that was high enough to be flirting with 25 percent. The New Hampshire statute of limitations on credit cards is three years.
In December 2004, more than three years later, Robin received a letter from a debt buyer attempting to collect the debt. The debtor buyer than sued her. After that suit was voluntarily dismissed, she sued the debt buyer claiming violations of the Fair Debt Collection Practices Act for attempting to collect a debt that was time-barred.
WhatsaMatta with WaMu?
Tuesday, September 9th, 2008
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…
When Parents are in Debt
Thursday, April 17th, 2008
Parents – like all of us – get older. Parents – like all of us – are human. And parents – at times – find themselves in a financial mess. Over the years, I have had a chance to represent older debtors, and in many cases, that representation resulted from the urging of their children. If you think your parent or parents might need to file bankruptcy, you might want to think of a few things.
Today’s News…
Friday, March 21st, 2008
From FoxBusiness: a look at the legislation Congress is mulling over to give bankruptcy judges more authority to modify residential mortgages.
Have you ever heard those radio commercials touting “debt elimination?” It usually has an announcer proclaiming that “my plan does not reduce your debt, it eliminates it!” One commercial in particular on a local station also has a speaker who says “using this system, I will be able to pay my 30 year mortgage in just three years making only the money I am making now.” That sure does sound too good to be true. Well, it was a bad week for two scam artists from California who ran such an out. The Mercury News reports that on Tuesday they were sentenced to more than 25 years in prison for mail fraud.
Actually, this bit is yesterday’s news, but it’s worth mentioning: The New York Times reports that the mortgage crisis is not only affected lower and middle income borrowers. According to the report “affluent consumers with annual incomes of $100,000 or more … are increasingly being ensnared in the home mortgage crisis.”
And finally, here’s something we might want to think about this weekend: is the US Dollar on its last leg?
Another Reason to Avoid “Debt Settlement”
Tuesday, March 11th, 2008
I have written about so-called “debt settlement” companies that tout a benefit of paying off your debt quicker and cheaper. In the long run, consumers are left with less money and still at the door of the bankrutpcy court.
From the March 6 issue of Business Week:
The booming business has caught the attention of prosecutors and regulators, who say such programs can leave consumers in worse financial shape. Fees for the services run high. And when banks don’t agree to settle—if the settlement firm contacts them at all—consumers get hit with late charges and penalized with higher interest rates, leaving borrowers with even more debt than when they started.
You may have missed…
“Be Debt Free in only 18 months!”
Thinking about Debt Settlement? Think about this…
And Speaking Of Credit Counseling Predators…
Credit Counseling Predators
When Your Mortgage Company Files Bankruptcy
Wednesday, December 26th, 2007
The foreclosure crisis sweeping the nation is also sending some mortgage companies into financial ruin, leaving many folks caught in the middle. Last week the Federal Trade Commission issued a new publication giving consumers advice on what to do if their mortgage company files bankruptcy.
The PDF of “How to Manage Your Mortgage If Your Lender Closes or Files for Bankruptcy” can be found here. There is also information how to obtain the publication by mail.
