Tag Archives: unemployed

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

What If Something Bad Happens During a Chapter 13 Plan?

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