Posts Tagged ‘“Bankruptcy Alternative”’

Living Below Radar, Best Time for Hardship Settlement Offer

Wednesday, September 18th, 2013

Question: I am living below the radar, not paying off any debts. I believe that several debt collection lawsuits have been filed against me, which I have ignored. I am not sure if they have gotten judgments against me or not, but there is nothing in my name and all my transactions are in cash, even my income is entirely cash-based. Is there a good time to come out of the shadows and deal with this and, if there is a good time, when and how? Thanks.

My response:
You appear to be following a mish-mash of (a) my “Don’t Pay a Dime Strategy” in which the debtor does not pay the debts in the hope that the creditor or debt buyer will miss the statute of limitations and (b) some other advice you found somewhere commonly referred to as “Judgment Proof.” I am not a fan of your current strategy, because anyone with a house, bank account, or a job that pays more than the minimum wage in California, would not be judgment proof or would be subjected to massive judgments once they get a job, bank account, or real property.

The result is the debtor ends up overpaying to resolve old debts, because the judgment creditor (the person or entity who has a judgment for money) gets a judgment for the full balance, plus accrued interest, court costs, and sometimes attorney’s fees. Defending my clients from debt collection lawsuits has saved my clients so much in most cases. If you’ve ever experienced a small bulb growing into a large flower, you can relate to how these debts blossom and bloom from a simple credit card balance to a default judgment. For the judgment creditor, it’s a sweet smelling, colorful flower. To the judgment debtor, it’s a Venus fly trap!

I have posted several blogs about timely responding when served with a debt collection lawsuit. I have also explained how default judgments are obtained without the debtor knowing about it and what can be done to resolve those old default judgments. I have blogs and legal guides on Avvo.com that explain how to settle and what documentation is essential. Please review my postings, which are organized by several categories.

Great question on when is a good time to settle old debts, including old default judgments. Of course, right now is a great time to settle old debts, especially if the debtor has no assets and very low or no income. When the judgment creditor is unable to collect most or all of the judgment and the debtor could be a candidate for Bankruptcy Chapter 7, that’s when the debtor can propose a “hardship settlement offer,” because they have an actual financial hardship. The offer works best if the debtor has access to additional funds to make an offer that is greater than what their assets and income can provide. For example, since retirement funds are beyond reach of civil judgments, borrowing from a 401-k, a family member, or on an open line of credit, are ways to get the funds for a hardship settlement offer.

How you come out is up to you, but this can be done between the debtor and the debt collection agency directly or the debtor may want to use outside resources. Perhaps there is a family member who is comfortable doing this or hire a debt collection DEFENSE attorney to negotiate. The key is not paying too much for the settlement process, to leave enough to propose an attractive settlement amount. Too little and the debt collector will reject the offer and wait.
Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler
Facebook: www.facebook.com/SoCalConsumerLawyer

Should I file bankruptcy to stop end my student loans and daily debt collection calls?

Wednesday, May 8th, 2013

Question: I am unemployed, owe a fortune in student loans, and $2000 in credit cards with two debt collection agencies. I live rent free with my family. There is no way that I can pay $100 per month to settle one of the debts, which is what they want from me to stop calling. Other debt collectors also call me every day. I don’t have the $2000 that a Bankruptcy attorney quoted me.

My response:
Bankruptcy court will approve the discharge of student loans only if you satisfy the “undue hardship” standard, which requires a special procedure to be filed in Bankruptcy Court. That can be expensive and there is no assurance of a favorable outcome. For a large amount of student loans, however, it may be worthwhile if you hire an experienced Bankruptcy Attorney, who evaluates your case and determines that you will likely prevail at such a hearing.

Many federally guaranteed student loans can be discharged in other ways that may have a more favorable standard depending on the circumstances and type of loans. For instance, if you are disabled and the loans are either FFELs, direct, or Perkins loans, you may be qualify for a disability discharge, which merely requires you to file the form, signed by a physician, that you qualify for total and permanent disability, including the medical diagnosis and why this prevents the borrower from working. There is no cost for this application. More information is available online from Student Loan Borrower Assistance and the U.S. Department of Education. There are other statutory loan discharges, such as for a closed school or if the school falsified eligibility. If a statutory discharge is sought and fails, perhaps bankruptcy can be a backup plan.

I have seen debt collection lawsuits filed against my clients for with under $1,000 in principal balance due. I would not assume that this debt collection agency will not sue to enforce either or both of these debts. However, why would they sue you if you are not working and have no assets or income? To file a debt collection lawsuit in California, the debt collection agency must hire a licensed California debt collection attorney, then pay the court’s filing fee and pay to have a process server deliver the documents to each defendant. These costs and fees can be added to the total debt, but if a collection lawsuit pushes the debtor to file bankruptcy or if the debtor is long-term unable to pay, then the debt collection agency has made a poor business decision to invest money on a debt that will not be recovered.

If the debt collection agency waits too long to file a collection lawsuit, then the debt becomes time-barred by the statute of limitations. From that point on, the debt collection agency cannot file a debt collection lawsuit, without risking having the case dismissed as untimely and risking being sued for violating the Fair Debt Collection Practices Act (FDCPA).  The debt collector may not even threaten to file a lawsuit on a time-barred debt, without violating the FDCPA.  Thus, please read my prior blog posting on the “Don’t Pay A Dime Strategy” as an alternative to bankruptcy.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Facebook: www.facebook.com/SoCalConsumerLawyer

Living Paycheck to Paycheck, Debt Collector Wants Too Much to Settle

Monday, February 18th, 2013

Question: Like so many others in this economy, I can barely pay my current bills, so I had to stop paying the minimum on some of my credit cards. The phone calls and final notices for payment from the banks stopped about a year ago, but I just received a letter with a settlement offer from a debt collection company, which also says that I can dispute the debt within 30 days of receipt. What do you suggest? At the end of the month, there is still nothing left over, after regular expenses, living as cheap as we can. I cannot pay the settlement, but I am afraid their next move will be to sue me in court, like your website says. My wages are higher than the bankruptcy means test amount, so I need help.

My response:
As you know, you are not alone. Now, 41% of Americans live each week paycheck to paycheck, according to a recent survey by Allstate, covered in the LA Times Business/Money Section. After several months of no credit card payments, the bank charged off your account as a bad debt. A charge off is an accounting term to show that the debt is probably not collectable, so bank auditors will no longer allow this to be considered an asset of the institution.

At that point, the credit card bank reviewed its uncollectable accounts and sold many of them to a debt collection agency, known in the industry as a “debt buyer.” Either this debt collection agency or another debt collector is now contacting you to settle this debt, which now belongs to them. If you do not settle soon, they may refer the debt to a collection lawyer licensed in California, who will probably file a lawsuit in the Superior Court that covers where you live, if settlement arrangements are not made in writing. I explain the reasons in an article on my website, Understanding Why You Were Sued.

It can be less costly for the consumer to settle when no lawsuit has been filed and the lawyer has not been retained, because the debt buyer has not paid for those costs and fees. However, depending on the debt buyer’s policies, it still may be unaffordable or you may feel that they want too much to settle the debt, which did not cost them much to buy. Bear in mind, however, that if they sue you in court and win a money judgment, the amount will probably be the full balance on one of your last statements, plus accrued interest, court costs, and maybe attorney’s fees. The judgment may then appear on your credit reports and be secured as a lien on any real property (such as your home) by recording an abstract of judgment with the County Clerk or Recorder’s Office. There are numerous other ways that the collection agency’s lawyers can enforce this debt, such as by levying the consumer’s bank account and wage garnishment.

As painful as a settlement would be now, a worse alternative is having to pay this entire account plus interest and attorney’s fees on a money judgment that itself yields 10% interest per year and many costs can be added to the balance. By the same token, I would not accept any settlement offer that the consumer cannot ensure will be paid, exactly as promised. This would only put you in a worse position, as the discount that you negotiated in the settlement will be lost and the payments will merely be applied as credits towards the full balance due.

When agreeing to a debt collection settlement, you as the debtor should know that the collection agency will require you to acknowledge in writing the full balance due. If you miss one or more of the settlement payments, then they will have a much easier time enforcing in court the full unpaid amount of the debt. This would not limited by the settlement amount. This lawsuit would also not be limited by the fact that some debt buyers lack adequate documentation of their debts and it can challenging to obtain the full records for the account.

Your question also asked about a written dispute, because the debt collection letter states that you have the right to get it verified in writing or to dispute it. You may want to access the free consumer letters on my other web site, sample letter #1.1, which contains the language that I recommend for this purpose. Be prepared, however, for a simple letter back from the debt collection agency that says we have verified it. There are court cases that make this an adequate verification of the debt, so they can continue their collection efforts. I am not aware of potential harm from sending the dispute letter, but asking them to verify the debt in writing can make them more “aware” of you.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Facebook: www.facebook.com/SoCalConsumerLawyer

Three Common Mistakes to Avoid when Negotiating a Settlement of a Collection Lawsuit

Friday, August 17th, 2012

Consumers routinely try to settle a debt collection lawsuit, which is something that I believe should be explored, before deciding which option is best (see the first video on my web site’s home page, “Understanding Your Options”)).  Below are the three most common mistakes that consumers make in the settlement process.  There are plenty of others, but from the horror stories that I have reviewed after the fact, these are the most common regarding settlement.   Often, these pitfall prevent a settlement and risk a money judgment for the full balance and other charges by the debt collection law firm, which then shows up on consumer credit reports.

Mistake 1.  Whatever settlement you negotiate and accept, be sure that you can comply with the payment terms, or you may probably end up with a judgment for the full amount (less credit for payments), if you miss a payment or are late.  I often caution people to look carefully at their finances before entering into a settlement discussion.  I also warn against very long term payments, even if the seem affordable. This is not a car that you can at least drive around for several years.  If anything happens financially, such as unemployment or illness in the family, and you are unable to make the monthly payments, the collection attorney can enter a judgment on the full unpaid balance, which is almost back to square one for this lawsuit, but now there will be a money judgment on your credit reports.

Mistake 2.  Be aware of the little things that can add up to an enormous settlement, if agreeing to make payments over time.  In particular, the rate of interest on the unpaid balance.  The current legal rate in California on a money judgment is 10%, which is what money judgments earn, even if the debt was originally at a higher rate.  Not only that, but many creditors and debt collectors will not charge any interest (0%) on a long-term payment settlement agreement, provided that the agreed payments are timely received and don’t bounce.  Consider the rate of interest and try to get interest waived (0%), before agreeing to make long-term payments, as an interest rate  adds many payments to the settlement.

Mistake 3. A few people believe that they can negotiate a lower settlement of a debt collection lawsuit by misstating their income or other financial information, or not providing it at all.  Debtors must be accurate and avoid misleading statements when negotiating. Debt collection agencies and their lawyers often have a copy of the debtor’s credit report and other available information to help root out inaccurate statements.  For instance, if the debtor claims to be swimming under a load of debt, but their credit report shows only two low balance credit cards, then that will be viewed as a bad faith settlement tactic, and probably be rejected.  Another example is to claim that the house has no equity, which is easy to verify using free online databases of housing values.

Please also be aware that credit reports contain inaccurate information or are missing key data, which the debtor may need to clarify or explain, if aware of that.  For instance, some credit reports show the debtor at a different address in a good area, but if you have moved or it is only a private mail box, perhaps the debtor should clarify, so they understand your circumstances are more dire than once assumed.  Some credit reports also show employment information, which can also make a big difference in negotiating a settlement.

Hiring an attorney to negotiate and defend against a debt collection can make a difference, but I try to encourage consumers to try this for themselves, to see if they can save the legal fees and courts costs.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

How much should I offer to settle a debt collection lawsuit?

Friday, August 10th, 2012

Question: I’ve never been sued before, this is all new. I read your Settlement Guide #1 on Avvo.com, which explained many of my questions. I’m sure that I will read your other two Settlement Guides, once I know how much to offer to settle. Should I offer 10% of the amount stated in the lawsuit?  Bankruptcy is something I want to avoid.  I have a home with some equity in it, but not much. The lawsuit is not by the bank, but filed by a debt collection agency, so shouldn’t they be willing to settle for much less?

My response:
How much to offer is probably the top question on everyone’s mind.  First, understand the debt collection agent’s perspective.  The goal of the collection attorney and their agents is to maximize the recovery from each case and turn a profit for a particular portfolio of debts.

Time is money, so the sooner the funds are received, the less costly a settlement proposal can be.  If you can pay the settlement funds soon (such as within 30 to 90 days), that will usually make the settlement a lower dollar amount.  Settlements can often be approved with payments for 12 to 36 months, sometimes longer. Some companies will agree to waive interest, so long as the payments are received timely and don’t bounce.  Some debt collection agencies insist on full payment of the principal amount, if the settlement payments are made over a year or more.

Then, there are those debt collection agencies who like to squeeze everyone, because they believe they have the upper hand over unrepresented consumers.  They squeeze the debtor consumer into paying every cent, even obnoxious rates of interest and attorney’s fees.  Why bother settling if there is almost no difference between what would be the result if you go to trial and lose and making settlement payments of the full amount plus interest, etc?

The risk of heavy-handed debt collection practices is that when push comes to shove, people will learn their options (see the first video on my website’s home page).  Once they know their options, if the debtor cannot get a reasonable, affordable settlement, they may reject settlement and see if the judgment will be enforced, file bankruptcy, or hire an attorney to defend them in the collection lawsuit and likely negotiate fairer settlement terms.

Ten percent up to half of the amount in the lawsuit might be accepted by the collection company, if the debtor can show at least one good reason why the company risks get nothing and wasting its time and money in the case, if they don’t settle.  For instance, perhaps the lawsuit was filed too late, well past the statute of limitations, which should result in immediate dismissal if proven.  Perhaps the debtor has many debts and their income is such that they qualify for a Chapter 7 Bankruptcy, in which case if the debtor is faced with an unreasonable settlement posture, the bankruptcy option may be explored and the debt collection agency may get nothing.

Even if the debt collection agency purchased the debt for less than ten percent of the amount of the unpaid principal, unless the lawsuit was not filed timely or the debtor is a good candidate for bankruptcy, I would not expect the company to accept 10%. That is because they speak with debtors every day who are unable to pay.  In their view, they must turn enough accounts into a profit over the purchase price, or they will no longer have enough income to pay employees and other business expenses.

There really is no magic number to offer or that all debt collection agencies will find acceptable, each case can be negotiated, if a difficult situation is properly and accurately presented.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Financial Columnist’s Advice on Old Credit Card Debt May Mislead Money Talk Readers

Monday, July 16th, 2012

Q & A Posted on LA Times Money Talk Section on July 15, 2012: Link to Money Talk

My response:
This question concerns a credit card debt that was charged off in 2007. That means that it has not been paid since 2006 or 2007, because banks usually charge off accounts 180 days or earlier, after not receiving any payment.

I agree with the columnist, Liz Weston, that contacting the bank that issued the credit card would not be productive.  Within one year of default and lack of payment, banks almost universally sell the credit card account to a debt buyer or sue in their own name.

However, this debt has not been paid for more than four years, making it almost certain that the debt is well beyond the statute of limitations, thus discharged under California law.  See my blog on the Don’t Pay a Dime Strategy, using California law at this DPAD Link.

Ms. Weston’s response should have explained that the debt is most likely discharged, because the statute of limitations had long since expired, so that the consumer has the upper hand on this and should not offer to pay much at all and should be clear in his or her communications that this debt is discharged by the already-expired limitations period.

My concern is that the consumer may contact the debt collector and offer in writing to pay the debt. Some debt collectors may potentially try to use this written offer or actual payment to claim that the consumer has revived the statute of limitations period on the unpaid balance, giving them another four years to file a debt collection lawsuit. I disagree with that possible position.

Some debt collectors incorrectly believe that they can report any payment received as “last activity” on the consumer’s credit, thus renewing the 7.5 year period for credit reporting.  I disagree with that possible position.

Thus, I hope that the LA Times removes this posting, so its readers would not be mislead.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Can they put me in jail for an unpaid judgment? Is bankruptcy the only option?

Thursday, July 12th, 2012

Question:
I wonder what can happen, if I cannot pay my court-ordered judgment from a credit card debt that I stopped paying?  Can they put me in jail or must I file for bankruptcy?

My response:
There are various options available to the judgment creditor and their lawyers, but jail is not one of them, provided that if you are ordered to appear in court to answer questions, you appear in court and answer the questions truthfully. Also, if the order to appear requires that you bring documents, you bring those documents to the hearing.

The methods that the debt collection agency’s collection lawyers can apply to enforce the default judgment against the debtor are: (a) wage garnishment, (b) levy funds on deposit in a bank account or investment account, (c) record in the county a lien against the debtor’s real property, (d) place a lien against any non-exempt personal property, (e) have the court order other sale of assets or assignment of title to assets, (f) order of the court for the debtor to appear for examination regarding his or her finances, to find other assets and income, (g) get an order to have any company or persons which owes money to the debtor to instead pay the judgment creditor.  Perhaps there are other creative ways to enforce an unpaid judgment that the debt collection attorney has, but jail is not one of them.

My law office’s web site’s home page (linked below) has several short videos. I suggest watching the first video, which explores options when sued, several of which still apply, after a judgment has been entered.  Also, if this was a default judgment, then you may be permitted to set aside the default judgment, if you were not properly served or the default judgment was entered within a certain period of time. Please search my blog postings for more on default judgments.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Am I better off filing bankruptcy now, than dealing with a credit card lawsuit?

Saturday, May 19th, 2012

Question:
I was served with a debt collection lawsuit from a credit card that I was not able to pay off.  I had been paying the minimum payments with interest for many years, which no longer made sense to me and was never going anywhere.  A debt collection agency, not the credit card bank, is named in the lawsuit and they have a lawyer here in California.  Does it make sense to file bankruptcy now?

My response:
No. Filing bankruptcy is a substantial decision that can be delayed and decided later, if you are unsuccessful in fighting off or settling this debt collection lawsuit and any other lawsuits that happen to be filed against you for other unpaid debts, if any.  The first video on the home page of  www.StopCollectionLawsuits.com discusses an individual’s six options, each of which deserves consideration and understanding of the pros and cons, before narrowing it down to a couple of worthwhile options, then going with one.  Thus, that video and my other videos are a good starting point, along with my blog posting on making your next steps count.

In deciding whether to file bankruptcy or one of the other six options, much depends on your and your family’s financial status and current income.  Perhaps you do not qualify for a Chapter 7 Bankruptcy, and thus this is not an option for you now, but you may qualify in the future.  Also, perhaps you are in a career or regulated industry that prohibits employees from having a recent bankruptcy filing or any bankruptcy.  Perhaps being able to discharge this and all other debts would make bankruptcy worthwhile, though sometimes if you are patient, you can discharge other substantial debts, such as income taxes.  Perhaps your finances are mixed up with other family members, such as you have property or accounts held in joint names, which can make filing bankruptcy a problem for that asset and the other persons.

If you have further questions, be sure to consult with an experienced debt collection defense attorney to help you understand each of the six options.  If you consult with an attorney who’s practice is mostly bankruptcy cases, he or she may be more inclined advise bankruptcy, rather than offer you alternatives to bankruptcy, such as defending the lawsuit or settling.  My web site’s free eCase review asks whether the consumer has received any settlement demands to settle the debt, because then the consumer knows earlier if settling is realistic.  The key to making the best decision here is to understand your options and having experienced legal counsel.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Credit Card Lawsuit: A Money Judgment Is Not Inevitable

Thursday, March 15th, 2012

Question:
I know that I owe this credit card debt. I don’t dispute it, though I don’t have money to pay it. Is there any point to fighting the credit card lawsuit? Shouldn’t I just declare bankruptcy, so that my wages will not be garnished for many years?

My response:
It may seem bleak, right now. You’ve just been sued by a professional debt collection attorney.  You are not sure what your options are or how to best proceed. My web site’s homepage has several short videos which you should watch, starting with #1 on understanding your six options.

Bankruptcy is one of the options, but please give each of the six options your careful consideration, both with respect to the lawsuit itself and your overall financial situation. I suggest that you submit a detailed account to an experienced attorney to help you get a handle on your rights and options, so that whatever you decide to do, you will understand and possibly be happy with the decision and outcome.

The one thing about bankruptcy is that it often can be done later. Other options need to be considered right away and a certain process and timetable followed, but bankruptcy often can be done later, if necessary. Sometimes, bankruptcy is appropriate, and sometimes it is better to try an alternative and if that fails, then review bankruptcy later. Sometimes, in fact, bankruptcy must be delayed, such as when there are income taxes to be discharged or other issues to be handled before the bankruptcy can be filed.

Simply because the credit card lawsuit is for a debt that you stopped paying a while back, does not make a judgment against you in court inevitable.  One of the options discussed in the video is settlement. You can settle and not have any judgment or risk, if both sides agree to a settlement that you can afford to comply with. I have a legal guide on Avvo on documenting settlement agreements.

Also, if you defend this lawsuit, it is entirely possible that the plaintiff will not ready to take the case to a judgment and may dismiss their claims. I have defended many cases in which this was the result. Maybe it is me or the way that I take care defending my clients.  Or, perhaps the debt was not that easy to present in court or there was something in the paperwork that may have been challenging.  Plaintiff collection agencies and creditors have the right to dismiss before trial, even on the day of trial.  Sometimes they dismiss at trial when they see an experienced debt collection defense attorney show up to defend the case, with papers for the judge to read.

Or, perhaps after the trial presentation. the court determined that the plaintiff’s evidence was inadequate or improperly presented. Perhaps the plaintiff fails to satisfy the rules of evidence for key evidence.  Perhaps the debt collection lawsuit was filed after the statute of limitations had expired or some other defense to the lawsuit was available, such as a prior settlement or illegible or lost documents.

There are so many reasons and possibilities that can occur in any debt collection lawsuit, which can take several months to more than a year to get from filing to trial.  With an experienced attorney defending his or her client against a debt collection lawsuit, a positive outcome is more likely, making bankruptcy or a money judgment not inevitable.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Protection of Homeowner Equity for Declared Homesteads from Debt Collection Judgments

Thursday, December 1st, 2011

Question:
I tried to represent myself against a professional debt collection law firm on a debt that I thought would be easy to defeat at trial, when I could tell my side of the story. A few days ago, the court allowed a summary judgment against me on the debt, plus interest and attorney’s fees.  There is no trial anymore, the case is over.  Is there anything that I can do to protect my home, which has about $50,000 in equity, based on current market values?

My response:
Sorry to hear about the court ruling against you and awarding a judgment for all the items sought in the complaint by the debt collection law firm.  Most debt collection cases are decided without trial.  See my prior blog on this at this blog link.

Protecting the equity in your home from a money judgment (other than for child or spousal support) is pretty easy.  A homestead declaration is available online for FREE at Los Angeles County Government’s web site.  Form Link Declaration Otherwise, you can get one at the local law library or many mailbox stores with legal forms.  Prepare the form and take it to a notary public who will notarize your signature on the form, then you must record the original with the county recorder or county clerk’s office. Record the declaration as soon as possible, preferably before the debt collection law firm records its judgment in your county of residence.

The homestead declaration will protect the equity in your home, up to the statutory amounts.  For example, a single individual may keep up to $75,000 in homeowner’s equity.  Low income families can protect even more equity.  The funds must be applied towards another home, with a homestead declaration, purchased within six months of the sale of the former home.

There are other advantages to having the homestead declaration recorded. For instance, if the creditor attempts to sell the property of the judgment debtor, when a homestead declaration has been recorded, the court must presume that the homestead exemption applies.

I have other blog postings and a legal guide on Avvo.com to help you deal with other aspects of a money judgment, such as wage garnishment. Wage Garnishment Legal Guide. Please do this immediately, as it may only be a few days before the debt collection lawfirm records the abstract of judgment in your county.

Robert Stempler
www.StopCollectionLawsuits.com