Monthly Archives: January 2015

What do You Do When You Can’t Pay Your Bills

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Most of the people who call me have always paid their bills. They have never been in the kind of position that leads them to call a Bankruptcy lawyer before, and they are scared and don’t know what to do.

The first thing that I tell them is to just breathe. Calm down. Stop the racing mind. Just breathe.
Now, prioritize. Pay the utilities, the car payments, the house or rent, the groceries first. Second, if at all possible keep a small cash reserve. Did you hear me say pay the credit cards? Sure, if you can, you should always pay your bills; but if you can do that, you aren’t reading this. If you are reading this you have lost a job or your income has dropped dramatically, you’ve had major health problems, or even worse, your child has had major health problems. Even good insurance won’t necessarily insulate you from major financial ramifications.

Seriously, I have had people on the phone hyper-ventilating at the thought of not paying their credit cards. I ask them what they think will happen, and they can’t tell me; but it is clearly TERRIFYING. We’re talking asteroid slamming into the Earth, wiping out all life kind of terrifying – which may explain what happened to the dinosaurs. They missed a payment on their Master Card. Ok, so, I’m teasing a bit.

Here is what is likely to happen if you stop paying your credit cards. First of all, they are going to start calling – a lot. This is why God invented caller ID. Then, they are going to shut down your charging privileges – probably not a bad thing. About the same time, they will start reporting you delinquent to the credit reporting agencies. Sometime thereafter, you will get a letter that they are referring your file to a LAWYER for further action. The word lawyer is in all caps, because the only reason for this letter is to be scary. They can send your file to anyone they want to for “further action” or whatever other scary (and generally vague) terms they want to use, and they don’t have to send you a letter telling you they are doing it. When that file lands in the lawyer’s office, his office will also send you a letter telling you that they have it. Notice, that no lawsuit has been filed yet? It is easier and cheaper to try and scare you with letters than it is to sue you. That doesn’t mean you won’t be sued, you probably will be – eventually; but in the meantime you still have a bit more time to try to find your feet.

You will know you have been sued when you are served. The actual rules for service of process are complicated, but if you wind up with a copy of something called a Summons and a Petition or Complaint – odds are pretty good that you have been sued. How do you know that is what these things are? Well, they have the name of the court at the top, then the names of the parties beneath that on the left, with a case number on the right, then a bunch of paragraphs explaining who you are, who is suing you, and why you are supposed to owe them money. Letters start, “Dear so and so”. Court pleadings don’t.

Once you have been sued, you will be given a certain amount of time in which to file an Answer or otherwise appear and dispute the case. If you don’t do that, then a default judgment can be taken against you. Once a judgment has been taken against you, then (at least in Oklahoma) the creditor can attempt to garnish your wages, levy on bank accounts or otherwise force you to pay them money – and it will hurt. A wage garnishment can take up to 25% of your gross wages – not take home – gross. Of course, you will still pay taxes on the pre-garnishment amount,, so your net will be substantially reduced. Most people can’t afford that.

Everyone in financial trouble is different. Some people will decide to contact a lawyer earlier in this process than others. One thing that is almost universally common is that most people who have accounts in collection want to pay them. They frequently put off calling a lawyer hoping that they will be able to pay them. Where this becomes tragic is when they wait too long hoping against hope that something will save them from drowning. Then, their employer is served with a wage garnishment; and they have no money to pay attorneys fees or filing fees. They don’t have the paperwork started to get a bankruptcy filed; and they can’t afford to pay really basic living expenses if they are having their wages garnished. At that point these people are starting to be out of options. So, once you are sued, it is probably time to call a lawyer if you haven’t already and get things started. The collection process takes long enough and filing a lawsuit increases the collection costs enough that if you haven’t found a way to get the account paid by then; you probably aren’t going to.

Once a lawsuit is filed, time is no longer on your side.

Elaine

Medical Debt and Credit Reports

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The reporting of medical debt on credit reports has gotten quite a lot of press lately.  The Consumer Financial Protection Bureau has recently done a fairly extensive report that includes a number of findings.  One of these is that 1 in 5 Americans has outstanding medical debt on their credit reports.  Another is that slightly more than half of all debt in collections is medical debt.

The CFPB makes the point that part of the problem with medical debt appearing on credit reports is rooted in the complexities of the health insurance billing process.  No dispute there.  The CFPB also wants to enact regulations to change the way that medical debt is reported on credit reports.  The goal is to make medical debt less detrimental to a credit score (at least as it is currently calculated) than other kinds of debt.  I have a problem with that.

WHAT!?!  I’m supposed to be all pro-consumer.  How can I have a problem with that?  Simple.  First of all, there is no such thing as a single credit score.  We all have many of them, and they change constantly.  Establish rules for how credit scores are to be calculated, and the credit reporting agencies will simply change the way they package the information.  Why?  Because they exist to serve their clients’ needs, and their clients are people who lend money and collect money.

But, but, but, classifying medical debt on credit reports differently from other (presumably less noble debt) only makes sense!  If you do that, than anyone looking at a credit report can tell that this person always pays for his car, he just can’t pay that horrendous hospital bill that his insurance company refused to pay.  So, a car lender ought to be able to glance at a credit report and score and tell that this person makes his car payments, so it would be good business to make him a car loan.  Right?

Not so fast.  If someone applying for a car loan owes $30,000 to the local hospital the fact that he has always made his car payments before is not going to stop the hospital from suing him and garnishing his wages.  If the local hospital is taking 25% of the gross off of just about anyone’s pay check (Oklahoma law, only), that could change whether or not he is still able to make his car payment.

Despite popular opinion, credit reports (and credit scores) don’t measure how good a person you are; and the idea of reporting medical debt differently seems to buy into that fiction.  An outstanding liability that remains legally enforceable — whether it be medical, taxes, child support or credit cards — is always going to be a threat to someone’s ability to repay a new obligation.  Wage garnishments, bank levies or any other form of enforcement action that is available to the creditor will impact on someone’s ability to make future payments.  Changing how something is reported or how it is factored into a magic number won’t change that.

The ways to make meaningful changes in your ability to access credit remain the same.  First, if your insurance company denies a claim — appeal it.  Complain to the State insurance commissioner.  Do everything you can to get the claim paid.  Second, police your credit report.  If something shouldn’t be there, get it removed.  If debt has been re-aged or is otherwise no longer enforceable — dispute it.  If you owe the money and it really is legally enforceable, then you either need to find a way to wait it out (and hope that they don’t sue you just before the Statute of Limitations runs) or consider a bankruptcy filing.  Even if a chapter 7 isn’t the answer, a chapter 13 might be.

Oh, and don’t be afraid to ask for help; and don’t be embarrassed.  No one who knows enough about credit reports or the collection industry to be of any use will confuse anything on your credit report with your value as a human being.

Elaine

What If Something Bad Happens During a Chapter 13 Plan?

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The answer to the question, what if something bad happens during a Chapter 13 Plan is – call your lawyer. Please notice, I did not say, call the Trustee. Even if you haven’t talked to your lawyer since your case confirmed, at least in the Western District of Oklahoma, your lawyer is still your lawyer until the case concludes, you fire him or the Court allows him to withdraw for some reason. The Trustee does not work for you, your lawyer does. Call your lawyer.

Now, for the rest of the story. Clients come to see me and are nervous about filing a five-year plan. What if something happens? Well, something will happen. It is called life. The problem with answering that question is that the answer is always going to be – that depends. The answer depends on exactly what happens, when it happens, what has or has not been paid in the Chapter 13, where you are in the plan, whether the case is confirmed or not. It just depends.

Losing a job in the last year of a plan is very different from losing one in the first year. Having a house burn down might change how hard you want to fight to save it. (Yes, I have had that happen to a Chapter 13 debtor.) The death of a spouse is just hard – all the way around, and being in a Bankruptcy at the time doesn’t make it easier. Totaling a car means having to get a new one. Divorce complicates a Chapter 13 in ways very few other things do. Regardless, you will have options; and only your lawyer can talk to you about them.

Still, there are some generalities. If you lose a job during a chapter 13, you will want to discuss with your lawyer whether your plan payment can be reduced, whether you should consider converting the case to a Chapter 7, whether you should consider seeking a loan modification on your mortgage, maybe you want to talk about whether or not you can sell the house. Maybe you should dismiss the chapter 13 with an eye towards refiling when you have found new employment. Maybe staying in with the smallest possible plan payment makes more sense. Maybe the best answer is some combination of the above.

Dealing with a Chapter 13 that has gotten into trouble is relatively easy when there is some flexibility in the plan. The worst cases are the ones where the Debtor was a year behind on his mortgage when the case was filed. The plan is all about saving the house. There is virtually nothing besides the house and the car getting paid in the plan, the plan payment was a real reach for the debtor before he lost his job, he is already at a full 60 months – and he loses his job. Well, you can’t extend that plan term. You can’t reduce the payment without giving up either the house or the car, because there is nothing else there. You can get the debtor a little bit of time to find a new job, but every plan payment he misses is going to increase the remaining payments – which were a stretch to begin with, before he lost his job. So, after three or four months the Debtor finds a new job that pays less than the old one, he is now three or four months behind on his plan payment. The remaining payments will have to go up to cover that, and he can’t do it. In that case, sometimes the best option is to dismiss and refile.

I want you to notice, though, that even with the facts above; there was still an option. Dismissing and refiling may not sound too fun after three or four years in a plan. The last thing you really want to do is start over, but at least in this case it means starting over with a much smaller mortgage arrearage than you had to deal with in the first place, and you get a whole new 60 months to cure it. It isn’t a great solution, but it can make the difference between saving a house and losing it.

So, if life hands you more than you can handle during your plan term. Call your lawyer. You will have options. They may not be wonderful, but you will have some. Oh, and don’t be surprised if your lawyer’s first suggestion is that you try to sit tight until you find a new job. You will always have more and better options employed than not.

Elaine

What Will I Have to Pay in a Chapter 13?

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A Chapter 13 Bankruptcy is basically a modified payment plan where you can restructure certain kinds of secured debt, get current on secured debt on which you have fallen behind (like a house or a car) and pay some percentage of your general, unsecured debt (like medical bills and credit cards).

Let me begin by saying that SOME percentage of your unsecured debt means just that – SOME. I say that to clients in my office, and they almost universally translate the word some to mean all. They are not synonyms. The actual percentage paid by most Chapter 13 debtors is closer to zero percent than it is to 100%, and most of us can afford to pay 0%.

So, what does that actually mean?

There are two primary factors that determine how much money you will have to pay to make a Chapter 13 plan work. The first is determined by what is generally known as the Means Test. The Means Test is basically a worksheet where you start with your income and deduct your reasonable and necessary living expenses until you come up with an amount left over. If that figure is positive, then you will have to pay that amount each month for probably 60 months to your general unsecured creditors (the credit cards, medical bills, personal loans, that kind of debt). In other words, if you have $112 a month left over, you will have to pay $112 each month for (probably) 60 months plus 10% as a trustee fee, so $123 a month, over the life of your plan for the benefit of the general unsecured creditors. Most of my clients are paying a lot more than that on this kind of debt when they come to see me. So, for most people flunking the Means Test and having to pay something to their general, unsecured creditors is actually an improvement!

The other factor is the kind of debt that you have. If you want to keep the house and the car and you owe money on them, you are going to have to keep paying for them. This really shouldn’t be a surprise. The car, in the Western District of Oklahoma, will have to be paid through the plan; meaning that the plan payment you pay to the Trustee every month will include enough for him to make your car payment for you. If you are behind on the car at the time that you file the case, you can expect that you will catch up on it (and probably pay it off) over the life of the Chapter 13 plan.

Your house is a little different. If you are current on the house at the time that you file for bankruptcy (in this district), you may continue to pay the mortgage payment directly. However, that means completely current. So, if your mortgage payment is due on the first, and late on the 15th, That means it is due on the 1st. So, if you file bankruptcy on the 2nd, that payment had better already have been made. If you are behind on your mortgage payment, then it will be paid through the plan and the plan will include enough money to get you caught up an d current on it over the life of the plan.

If you owe other secured debt, debt that is secured by a lien on a specific piece of property, and you wish to keep the property, then that debt will have to be paid during the life of the plan. Debts that are given certain priority for payment in the Bankruptcy Code must be paid in full over the life of the plan. For most people that means recent taxes, and past due child support or alimony, these are things that have to be paid over the life of the plan. What most people expect to see listed here but isn’t is student loans. Student loans are a whole different problem in a Chapter 13 that will be addressed separately.

So, what this means is that most Chapter 13 plans pay for the house, the cars, the taxes, the child support (if any), fees to support the Trustee’s office and the Debtor’s attorneys fees. Then, there will be some amount added to be shared amongst the general, unsecured creditors who are usually everybody else. That amount is determined by the Means Test, and in many cases it is less than my clients have been paying on that debt before they filed.

Now, I don’t mean to kid you. A Chapter 13 plan is not a walk in the park. There are good reasons why only about 30% of all cases filed successfully complete. It isn’t, however, nearly as bad as clients expect it to be.

Often when clients come to see me their mortgage company is wanting a year of missed payments made up in six months or less. They are facing a wage garnishment that will take 25% of their gross income. The IRS is threatening to levy on their bank accounts. There is a repo guy out looking for their car, and the lender wants all the missed payments plus late fees, plus interest plus the repo guy’s fees by Tuesday. A Chapter 13 plan, even if it is expensive, can be a huge relief after the financial pressures most of my clients find themselves facing.

So don’t be afraid to investigate a possible Chapter 13 filing. It can do things for you that you can’t get done anywhere else, and, although, it won’t be cheap, it may be more affordable than any of your other options.

Elaine

Don’t Be Afraid to Sue Somebody

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A friend of mine, Louis Green, and I were talking last week about talking to clients about being a plaintiff, i.e., suing somebody.  Louis is a consumer law attorney.  He handles many of the same kinds of issues that I deal with, but he practices in District Court rather than the Bankruptcy Court.

A while ago Louis had a man come to see him – who was seriously embarrassed.  He was an older man, who felt like he should have known better; but — to be blunt — he was suckered by a car dealership.

The first thing he needed to understand is that he was taken advantage of by professionals.  This can be hard for a lot of us to grasp (umm, that would include me), but people who are truly professionals at things tend to be better at them than those of us who are really just amateurs.  I hate this.  There are all kinds of things that I think I ought to be just as good at as anybody else — but I’m not, and my kidding myself is hurting no one but myself.  (Why, yes, I do self-manage my IRA — your point?  Sigh.)

This man was old enough to know better.  He had bought cars before.  He knew better than to sign things without reading them, but the print was small; and his eyesight isn’t what it used to be; and the pros made him feel rushed and uncomfortable.  Well, even though he should have known better, that wasn’t his fault.  He was damaged by it, and he stuck to his guns.  He hired a good lawyer; and he won — an award large enough the car dealership required that it be kept confidential for fear anyone might find out how much they were having to pay.

Was all of this embarrassing?  Yes.  Did his adult children find out he had been scammed?  Yes.  Did he have to take the time to go to court and participate in discovery and deal with lawyers?  Yes.  Was it worth it?  That is a question that only he can answer, but I can say it was the right thing to do.

When people come to see me, they are tired of dealing with it all; and they just want it over.  Bankruptcy is good at that, but sometimes, they really do need to step up and be a plaintiff.  Sometimes, you just need to say — No, what you’ve done is wrong; and I am going to put up with the embarrassment and the inconvenience to make you pay for it.  Is it worth it?  More often than not, yes.  Is it the right thing to do?  Yes.

So, think about it.  Sure, you can file a bankruptcy and discharge the underlying debt, but if someone has been incorrectly reporting on your credit report or illegally harassing you about a debt, if a car is a lemon (for information on Oklahoma’s lemon law) or you were scammed by the dealer, at least consider whether or not you should be a plaintiff, as well as, a debtor.

Elaine

Private Student Loans Do Have Some Limits

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One of the nastier changes made to the Bankruptcy Code in 2005 was to make private student loans (i.e., not Federally insured) as non-dischargeable in a Bankruptcy as Federally insured student loans. That change did not, however, extend all student loan protections to private loans. So, private student loans are still subject to State law statutes of limitations.

A statute of limitation is the period of time within which a lawsuit must be brought or it may not be brought successfully. That statement is a little overly broad. In Oklahoma, although not in all States, a statute of limitation is an affirmative defense. That means that it must be raised by the defendant. If the defendant doesn’t raise it, the plaintiff can still win.

Anyway, back to the point. I got a call today from a woman who took out a private student loan some years ago. She filed a Chapter 7 Bankruptcy with another attorney in 2012. The student loan was obviously not discharged. She is now being sued on that loan by a local collection law firm. I checked the case on the Court’s online docket, and from the petition and attached documents I could tell that the first payment on the loan was due in May, 2009. No payments were made. The woman filed for Bankruptcy, and it was discharged 115 days later. If the bankruptcy did not toll the running of the statute, it ran last May. If it did, it ran 115 days later – sometime in September. The lawsuit was filed in December.

Unfortunately, it was in a different County. So, I have referred her to a lawyer closer to the action. Still, this one could be fun.

Elaine

Christmas Bills, a New Year and Bankruptcy

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There are a number of reasons why Bankruptcy filings surge after the first of the year. The New Year brings introspection and the desire to finally find a way out of the hole you have been trying to climb out of for years. Christmas bills can be the last straw. Then, of course, there is the impending tax refund, which can be a helpful way to pay for the bankruptcy filing.

There are a few things to consider, though.

First, let’s talk about Christmas bills. The general rule is that you want to wait at least 70 days and preferably 90 days after you have last used your credit cards before filing a bankruptcy. There are exceptions to this, but those are sufficiently fact specific, that you will want to talk to a lawyer about your particular facts. What you should remember is, if you haven’t already stopped using your cards – do it now, before you call the lawyer. Then, go ahead and schedule the appointment. You will want some time to get things ready to file anyway, but have a good idea what your card usage has looked like during the last 30 – 60 days so you can discuss it with your lawyer in detail.

There are actually a couple of issues with tax refunds. First of all, you will be happier if you have your tax return for the completed year prepared before you file your Bankruptcy. In some cases, you will have to have it, but you will always want to have it in hand. One reason for that is that if you have not received your tax refund before you file your bankruptcy, your Trustee may be entitled to the refund. The solution to that, of course, is to have already received it and done something constructive with it before the case is filed. I will caution you that you will want to discuss exactly what you do with that refund with your lawyer before you do it – not after. Of course, I think that one of the best things to do with that refund is to pay your attorney for filing the bankruptcy – but I might be prejudiced.

Finally, there is that decision to start a new year finally freeing yourself from the unending cycle of debt that you have been mired in. Finally, it is time to put yourself back in a place where you can take care of yourself, your family, put something aside for retirement – yes, it is time! Not so fast. Is it time? Are you through getting into trouble? If you have lost a job, do you have a stable pay check coming in? With health insurance? If you’ve had health problems, are they behind you? If so, then, yes. It is time. Time for a New Year and a new start.

Elaine