Tag Archives: debt

Buying Time to Stay Afloat

The most valuable tool for saving a business in turbulent times is frequently — time.  I read an article yesterday explaining why oil will be $100 a barrel by the end of the year — that is less than eight months from now.  Whether that prediction is true or not, oil isn’t likely to go a whole lot lower.  So, how do you hang on until the world changes again?

You know where your cash flow goes.  How much more profitable would you be, or just how much longer could you last, if you could change where your cash flow goes?

If you could not pay the debt — at least for a while?  If you could break leases without penalty?  If you could change all the things we are trained to believe we can’t change?  Well, except for taxes.  Let’s not get carried away here.

How much time would you need to redirect your company’s resources?  Can your welders make something else?  Can your trucks move something else?  Can your people do something else?

If you need time, if you need to drastically remodel your cash flow, if you need to redesign your business or just your business model — do the unthinkable.  Call a Bankruptcy lawyer.  We don’t just end businesses.  We can help reinvent them.

Elaine

 

Mortgage Payments and Coronavirus

Before you call your mortgage company to find out what they can, or will, do to help you through this current mess we all find ourselves in, there are a couple of things you should know.

First, your mortgage company is going to have lots of options, and the first person you talk to may – or may not – know all of them.

Second, what your mortgage company can do for you will depend in large part on one thing — do they own your mortgage or are they merely the servicer.  You probably have no idea, but it doesn’t hurt to ask when you call.  If you write your mortgage check to Bank of America, they may actually own your loan — which is kind of what you expect.  On the other hand, your loan might be owned by a securitized trust that hires Bank of America to accept and process payments, make sure the taxes and insurance get paid that sort of thing, i.e., service the loan.  If your mortgage company is just the servicer and not actually the owner (or holder) of your note and mortgage, what they can do for you will be determined by their contract with the actual owner (sometimes referred to as the investors, although, that is not technically accurate).

Third, if your mortgage loan is insured by a U.S. Government program, that will also control, at least in part, what options your mortgage lender has.  That means that if you have an FHA insured loan or a VA insured loan or Fannie or Freddie, you can expect there to be regulations from FHA or VA or Fannie or Freddie or USDA Rural housing or whomever that will tell your mortgage company what they can and can’t do and what they should and shouldn’t do.

I know it is confusing, but knowing enough to ask your servicer for specifics can take some of the frustration out of the process.  You may read a news article about things that your mortgage company says it will do for home owners, only to call and be told that what you read in the news doesn’t apply to you.  Ask why it doesn’t apply to you, and then make sure it is right.  Mortgage companies really do make mistakes — often.

The next thing you need to know is to ask follow up questions.  You call your mortgage company, you are out of work until your employer reopens, what can they do for you.   They say they can agree to a 3 month deferment on your mortgage payments.  No payment necessary for three whole months!  Not so fast.  Your next question should be — and then what?  What happens to those three missing mortgage payments?  I can promise you that they won’t just go away.  There are a number of possibilities (including the one that I’m not thinking of, so please don’t assume this is a complete list).

One answer to this that I am already hearing is that after the three month deferment the missing mortgage payments are all due at once — along with the next month’s payment too.  So, the mortgage company won’t expect you to make payments for three months, but it will then expect you to bring those missing payments current at the end of the deferment period.  That is probably not a great option.

Another answer is that the missing payments will be added to the end of your mortgage loan.   That is a better option, but it is also not a great option.  Here is why.  Let’s say that your mortgage payment is $1000 a month on a 30-year-loan (360 months) with interest at 6%, and you are in month 99 (almost through with year 9).  Those three mortgage payments will defer to the end — with interest accruing for the next 21 years.  Now, I was an English major, and someone else should always check my math; but according to my calculations that means when you complete the 30 years of your original mortgage term, you will still owe over $10,000 — all because of those three missed payments.  So, if you are going to do this put yourself on a schedule to pay extra every month.  Then, at least once a year check your payoff against an amortization schedule to make sure you are getting those missing payments paid before the interest gets out of hand.  Oh, also ask how the escrow payments (taxes and insurance) will be handled.  If the lender advances the escrow portion of those payments you could wind up with a significant payment increase in the next year after your next escrow account analysis.

The next option is that you may be eligible for a loan modification at the end of the three months.  If you are, certainly apply for whatever you are eligible for.  Again, I will caution you to read the terms of the proposed modification carefully.  Historically, principal reductions have been rare on mortgage mods.

Probably the best option is for the mortgage company to put you on a schedule after the deferment period to cure the missed payments over a reasonable period of time.  If you can get it done in no more than a year, that is probably your best option.

Ultimately, however, if you and your mortgage lender can’t come to an agreement that you think is in your best interests, you might want to consider what a chapter 13 bankruptcy can do for you.  Chapter 13 is designed to give home owners an affordable means to cure a an arrearage or default on their mortgage.  In a chapter 13 you can take up to 5 years to cure a default, and deal with whatever other debt you have accrued along the way as well.

Elaine

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

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

There May Be Some Justice in this World After All

CNN is reporting that the FBI has arrested the owner of a debt collection business in Georgia and six of his employees.  The collectors in this case were lying to people, telling them that the collectors were Federal agents, and if this debt wasn’t paid the person they were calling was going to be arrested.

There are two things that make this story unusual.  First, of course, the arrest of seven people by the FBI.  The second, however, is what enabled that arrest — the debt collectors were inside the United States.

It is not uncommon for me to get calls from terrified clients, because they have just gotten a call like this; and some of these callers are very good and very persuasive.  In most cases, however, if you could trace the call you would find that it came from a VoIP number — in Pakistan, Eastern Europe or Northern Africa — take your pick.

So, it is really refreshing to see the FBI getting involved in one of these scams when the scammers are within reach.

If you get a phone call like this.  The first question I tell my clients to ask is for a mailing address to send a cashier’s check to pay this debt.  Now, since these people were in Georgia they might have given out a mailing address; but the overseas scammers won’t.  They will tell you that there is no time for that, the debt must be paid right now by electronic funds transfer out of your bank account.  I tell my clients to take a deep breath and try to think of any legitimate creditor who won’t take a cashier’s check drawn on a Federally insured financial institution.  That is a dead giveaway that you aren’t dealing with someone legit.

The next thing, though, is to try and remember the last time you knew someone who was arrested for not paying their credit cards.  Now, you can be arrested for ignoring or disobeying an order of the Court (like failing to appear at a Hearing on Assets); but you won’t get a phone call giving you an out for that.  So, keep thinking, the last time you knew someone who was arrested for not paying an old credit card account was when?

Now, consider what it costs a State to incarcerate someone.  So, the State is going to do that to collect a debt owed to some debt collector?  Really?

The long and the short of this is, if you get a phone call from someone claiming to be collecting a credit card or medical bill, and that person threatens to have you arrested if you don’t pay — and probably if you don’t pay RIGHT NOW.  Your first thought really should be that this is probably a scam.

Elaine

They Said I Can’t Bankrupt That

I get told this a lot. Someone calls and they have talked to a loan company, a debt collector, or the guy on the next bar stool at a local dive. What I hear is, “They said I can’t bankrupt that.” Well, of course not. Bankrupt is an adjective. To Bankrupt is not a verbal – of any kind. You can be described as bankrupt, but there is no such action as to bankrupt. The moral of this story is, of course, don’t take legal advice from anyone who speaks English this poorly. In fact, don’t take legal advise from non-lawyers – especially when they are trying to get you to pay them for a debt or if you aren’t sure just how many drinks they have already had.

Now, are there debts that cannot be discharged in a Bankruptcy? Sure, and some of them you will kind of know, and there are a few that will probably surprise you.  For instance, most people are pretty comfortable with the idea that you can’t discharge child support in a Bankruptcy.

However, most people probably don’t know that you can’t discharge a debt for willfully or recklessly failing to maintain the capital of a Federally insured financial institution. Don’t worry if you don’t understand what that means, it almost certainly doesn’t apply to you.

I will concede to being a bit silly (or snarky, your call) with that last example, but the fact is that there is a section of the Bankruptcy Code (11 U.S.C. §523) that lists all of the debts you cannot discharge (or get out of) in a Bankruptcy. In the copy of the Code I keep handy, that section is five pages long, and very little of those five pages apply to the vast majority of  people with more debt than they can pay.

In fact, no matter what you have heard about the 2005 Bankruptcy Reform Act there is no general exception from discharge for credit card debt. That’s right. Despite what that debt collector told you, absent certain general restrictions, a Bankruptcy filing will still discharge most, if not all, of your credit card debt – and your medical debt – and pay day loans – and even in many cases old income taxes. Really.

The exceptions to discharge that apply most commonly  are:

  • Child support;
  • Alimony;
  • Property division or other divorce related debt (in a Chapter 7 Bankruptcy);
  • Student loans;
  • Debt incurred by fraud or shortly before a Bankruptcy filing; and
  • Recent taxes (rules are complicated).

Embezzlement? Well, that is a problem. Lying on a loan application or borrowing money with someone else’s identity, forging loan documents, taking the vacation of your lifetime in Paris paid for by Visa with the intention of filing for Bankruptcy before those bills come due?  These are all at least as non-dischargeable as you should think they are.

All silliness aside, here is what you need to remember. Most people who file for bankruptcy can discharge all, or virtually all, of their debt. There is a five-page laundry list of debts that cannot be discharged in a Bankruptcy, and for the most part, none of them are simple; and most of them are not all that common. The odds are very good that no one other than an experienced bankruptcy attorney can discuss any of them with you in any detail. Most people know just enough to be dangerous about Section 523, and that includes a large number of lawyers who don’t practice bankruptcy law on a regular basis.

If you have any questions about whether or not a debt is dischargeable, ask a lawyer who practices in the Bankruptcy Courts regularly. If anyone else tells you that something is not dischargeable, take that advice with a large helping of salt – especially if they think Bankrupt is a verb.

Elaine

 

Dealing With Debt Collectors

The relatively new Consumer Financial Protection Bureau has put some useful resources on the Bureau’s website to deal with obnoxious debt collectors.  The first thing on this page are links to two new bulletins providing notice to debt collectors of practices the Bureau finds abusive.  These things just make kind of fun reading.

The meat of the page are the so-called “Action Letters”.  These are form letters developed by the CFPB to help consumers implement their rights under existing consumer protection laws (primarily the Fair Debt Collection Practices Act).   These letters serve the following purposes:

  • To dispute a debt and request additional information about the debt;
  • To dispute a debt and demand that the collector prove that the consumer is responsible for the debt and to stop contacting the consumer until they have done so;
  • To restrict the times and methods by which the collector can attempt to contact the consumer;
  • To notify the collector that the consumer has retained an attorney and all contacts should go through counsel; and
  • A cease and desist letter — this is a letter instructing the collector to stop all contact attempts with the consumer.

These letters are very useful tools, but they do have some downsides.  FDCPA disputes almost never produce what you hope they will, and if you really do owe the debt, it will buy you only a brief respite from collection activity.  If, however, you are willing to proceed with active litigation against the collector, this kind of verification letter can be extremely valuable.

The most valuable restriction on time and place of contact is preventing the collector from contacting you at work.  This can be very effective.  It will not, however, stop overly aggressive collectors from calling your employer — just to verify that you really do work there — yea, right.

Attorney retention letters are really better coming from the attorney.  Far too often people will tell a collector that they are represented by a certain attorney (whose name they have plucked from the phone book or a website) when they really aren’t, because they have heard that will stop collection calls.  Believe it or not, the collectors really will verify this; and you will not be winning friends with an attorney you may need to actually represent you down the road if his or her phone starts ringing off the hook with creditors of a supposed client the attorney has never heard of.  Bad plan.

Cease and desist letters basically are a mechanism for requiring that collectors stop all collection contact.  It does not mean they can’t sue you.  Well, if they can’t call you, they can’t harass you by mail and you aren’t represented by counsel; there really isn’t much left for them to do.  Now, not every collector sues upon receipt of a cease and desist letter; and I have clients who have used them very successfully, but only in very specific fact situations.

Finally, at the bottom of this page the CFPB outlines its complaint mechanism for lodging complaints against collectors and creditors.  By all means, have at it.  In fact, I encourage everyone to investigate the resources available from the CFPB and make use of them.  Just be aware of the fact that not everything will do what you expect, and most things do have consequences.  Getting a breather from collection calls is not a solution, it is a tool.

Elaine

Reflections on a Webinar

Last week I taught a Webinar on the intersection of divorce law and bankruptcy law.  I have taught CLE before, and I have been recorded when teaching CLE before.  Last week, though, was the first time that I have taught a presentation where I was teaching solely to a camera.  Now, there were quite a few people watching live from their computers; and I received 5 or 6 questions by the end of the session.  I couldn’t see any of that, though.  All I could see was the big, blue eye on the camera.  The only other person in the room was the tech who was running the transmission feed and who wrote down the questions as they came in and walked them over to me.  I have to say it was an interesting experience, but not one that I am sure I want to do again.

First of all, I went through my material much faster than I expected.  I think that is a result of having no visual feedback.  I hadn’t realized how much I cue off of the expressions of the audience.  I started wondering afterwards just how fast I had to have been talking.  When I got questions, it was all at once at the end of the segment.  They were written in the Tech’s handwriting who brought them to me.  I had no idea when they were written, who wrote them and they had no facial expression or body language attached.  I’m not sure why that matters, but it does.

I’m all for virtual, and I am all for making things more accessible to people whenever and wherever they are.  I just think that the whole experience would have been better for all concerned if there had been a few real, live students in the room with me.

Oh, I said at the time that I would put the questions and answers up here; and I will — just as soon as I remember to take the questions home with me.

Elaine