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DON'T BE HAMMERED BY YOUR DEBT

DON'T BE HAMMERED BY YOUR DEBT

Friday, August 25, 2006

Debtor Responses And The Myth of The Bankruptcy Threat

Unlike collection agencies, my office does not call debtors. Instead, debtors call my office. They either call once they receive an attorney demand letter or if they don't call then, they call once they are served with a lawsuit, or if they don't call then, they call once a judgment has been taken against them. In most cases, the debtor doesn't even show up in Court and a judgment is taken by default in their absence. The defendant debtor learns of the judgment through a letter they receive from any number of local bankruptcy attorneys who pay college students to go through the court records daily and make a list of everyone who has a judgment taken against them. The debtor would then receive a letter from a bankruptcy attorney saying, "Michael Herrin's client just took a judgment against you. I can help you get out from under that judgment by filing bankruptcy for you." Regardless of when, eventually the debtor calls my office.

When the debtor calls my office, invariably I hear only one of four things.

First and rarest, I want to pay the debt in full. Believe it or not, that is the least often statement heard. It does happen, but not as often as the remaining three.

The second statement I hear when a debtor calls and the most used statement is, "I know I owe the money, but I can't pay it all and I want to make arrangements.'" I then have to explain to the debtor that the time for making "arrangements" (typically the debtor thinks a payment of $20, $50 or $100 per month for the next 72 months is arrangements) may have been available from the original creditor and or from any collection agency the creditor utilized, but that the time for making "arrangements" passed the instant their debt was placed with my office for suit. That is not to say that I don't make arrangements with judgment debtors. I do. I make arrangements for full payment broken into reasonable amounts. I have a schedule based on dollar figures that I break debts down into, typically not running out more than six (6) payments . The only way I will enter into payment arrangements based on that schedule is if I receive payment in full in my office as of that day. By that I mean that the debtor has to make arrangements for either the automatic draft of their checking account with all drafts set up and scheduled that day for the next number of months the payment schedule lasts or the debtor has to set up pre-arranged automatic drafts of the debtor's credit card for the next number of months the payment arrangements last.

The third statement I hear when a debtor calls is, "I know I owe the money, but I simply don't have any money to pay." I have a stern, but reasonable response to that statement. I do not argue with the debtor that they do have the ability to pay a debt once they have told me they don't have that ability. I explain to the debtor that I have a duty to my client, the creditor, to reduce that debt to a judgment and that I will take the steps necessary in Court to accomplish that. Most debtors do not object to a debt being reduced to a judgment after they have acknowledge they owe the money, but simply cannot pay it. I also tell them candidly that once it is reduced to judgment, I will take whatever action is necessary and proper to try to collect the debt. That simply means that once the debt is reduced to a judgment, I will attempt to garnish bank accounts, garnish wages, have the Sheriff take possession of personal property, have the Sheriff take possession of automobiles and put a lien on any real property the debtor owns. That discussion more times than not results in the debtor finding some means to pay the debt.

The final statement I hear when a debtor calls is the one threat that some debtors think they have; the one arrow in their quiver. "If you don't forgive this debt, I am going to have to file bankruptcy." I suppose the debtor makes that statement thinking that the creditor will immediately accept penny on the dollar to satisfy the debt out of fear that the debt is going to be wiped out in bankruptcy. My response is usually surprising to the debtors who call. I keep a Rolodex of the attorneys I consider the very best bankruptcy attorneys in the City of Memphis next to my telephone. When a debtor tells me that they are thinking about, planning on or will have to file bankruptcy, I immediately refer them to at least two (2) reputable and stellar bankruptcy attorneys, complete with names, telephone numbers and addresses. The result is usually a dramatic shift in the conversation as to how payment can be made.

Bankruptcy is simply not a threat to a debt collection attorney.

First, very few of the debtors who threaten bankruptcy will actually file. There are a number of reasons that they will not actually file bankruptcy.

Bankruptcy is expensive. Filing fees are hundreds of dollars and while bankruptcy attorney fees can be spread out over the life of a bankruptcy plan, the filing fees have to be paid up front.

Bankruptcy is complex and time consuming. A good bankruptcy attorney cannot file bankruptcy without reviewing all of a debtor's financial records and documents. This requires the debtor to actually put all of those documents regarding all of his assets and all of his debts together and to actually be able to present a true and accurate picture of his financial position. This requires proactive effort on the part of the debtor and is not easy. Bankruptcy is time consuming. The process of putting everything necessary together to just file bankruptcy is time consuming. Attending the required bankruptcy hearings is time consuming. Meeting with your bankruptcy lawyer is time consuming.

Finally, bankruptcy is like a nuclear bomb on the debtor's credit. Bankruptcy will stay on the debtor's credit report for ten (10) years. This has know become common knowledge among the American consumer.

Therefore, when the debtor threatens bankruptcy, I know that there is a greater likelihood than not that this is an idle threat and that the debtor will not actually proceed to Bankruptcy Court.

The second great myth of the bankruptcy threat is that the creditor will receive nothing in payment of his debt out of the Bankruptcy Court. This myth ignores one of the first rules of the debt collection lawyer; a skilled debt collection lawyer must be a skilled bankruptcy lawyer. A combination of a skilled bankruptcy lawyer and the current creditor friendly bankruptcy laws will not in most cases result in a creditor's debt being zeroed out. The general result of bankruptcy is that a debt will be extended out over a longer period of time than the creditor would normally accept with little or no interest being paid.

A diligent creditor's lawyer will carefully examine a bankruptcy debtor's assets at a 341 First Meeting of Creditors, object to any bankruptcy plan that does not adequately fund repayment of their client's debt and continue to track the bankruptcy with the knowledge based on experience that some full fifty percent (50%) of Chapter 13 bankruptcies will ultimately be dismissed before the debts are discharged based on the debtor's failure to comply with Court rules or failure to make scheduled payments. When that occurs, it is key to be one of the first creditors to be aware that the debtor is no longer protected by the automatic stay of bankruptcy.

Thus, the threat of bankruptcy is not actually a threat, but simply a different arena of debt collection in which any competent debt collection attorney must be skilled and experienced.

15 comments:

Anonymous said...

So do you ever hear that you have filed suit on a debt that is past the SOL? I have a law office that did just that.

Anonymous said...

Doesn't make any difference at all, the expired SOL is not a bar to being sued, it is an affirmative defense. TN law doesn't make it illegal to sue on a time-barred debt.

As for the 'creditor friendly' bankruptcy law, it's turning out to be not so friendly after all - it's backfiring on them more than they want to admit and the filing rate is spiraling back UP !

Michael Herrin said...

Actually Rule 11 of the Tennessee Rules of Civil Procedure would cover this situation and if an attorney knowingly filed suit on an account barred by the statute of limitations, he or she could be subject to sanctions by the court.

Anonymous said...

Voltare said it best.
"If you want to stop all of the wars,the first thing you must do is get rid of all the Lawyers!"
Lawyers are the emotional and monetary blood suckers of our society. They perpetuate their own evil by having their children become lawyers as well. And what's worse than this is they lie to the genral population and become politicial figures in our community who profess how great they would be working for us.
Remember Calvin Coolidge once said "The world is filled with over educated derilicts, the majority of them are Lawyers."
Anonymous

Christen said...

What happens if one declares bankruptcy after a judgment has been obtained? I've made arrangements with a creditor on a hospital bill, seeking a judgment, and they've agreed they will not place liens or garnishments (they did this over the phone, however, and told me they would not bill me or furnish me with anything in writing), but I may still need to file Chapter 7 bankruptcy.

Anonymous said...

This is interesting and may explain why a collection attorney did not believe us when we told him if this proceeded, we would be forced into bankruptcy. We offered several times to settle for an amount we could afford to pay, and each time it was rejected. About 2 weeks ago, he got his summary judgment, even though there was fraud on plaintiff's part in the lawsuit (being pro se, we did not know the all rules of civil procedure, which was more important than the truth apparently) According to a witness the day before the "hearing" - there was even more fraud than we knew about - but judge said too late - had to have a deposition in 2 days before - how possible???)). Can't appeal - have to put up 1.5 times the judgment. If we were rich, we could. Seems like justice in this country is only for the rich. We will be filing BK Tuesday. I think I figured it out though. The guy (commercial landlord) has several "companies" and they are the same ones that charged the bogus charges. I think he wanted it to be as big as possible (about 4 times original debt), so that he could write it off as "uncollectible" for tax purposes, and would this make more money than we offered. What I am wondering now is: if he "dummied up" figures for services that never happed, etc - and then used all that to increase the amount of a judgment that he knew was going to be uncollectible - is that not tax fraud????

Creditwrench said...

There is another response he forgot to mention and that is what response he will make when a U.S. Marshall steps into his office with a summons and complaint for violation of the Fair Debt Collection Practices Act. I've seen all manner of silly responses lawyers and debt collectors make when the U.S. Marshall comes calling. I've seen them respond by attempting to tell the federal court that the FDCPA don't apply to them because they have a judgment against the plaintiff. I've even seen attorneys file responses without having authority to practice law before the federal bar. I've seen them claim they can't be sued under FDCPA or FCRA because they are merely representing their client who was the plaintiff in the local court meanwhile hiding the provable fact that the true plaintiff was some 3rd party debt collector acting on behalf of the real creditor and hiding behind their name. I've seen many lawyers lose in federal court because they misrepresented the legal status of the debt meaning that they filed a lawsuit on a debt that was outlawed under the state statute of limitations and even got a default judgment in the case which only served to prove their guilt. I've seen them sued in federal court for filing false and phony affidavits, sometimes even notarized by notaries who just went out and bought a rubber stamp but never applied for notary status. I've seen them sued for just about everything under the sun and I have yet to see a plaintiff who ever lost a case if they had kept careful records and presented their cases properly. So yes, I'd like to see how this attorney responds when he gets sued in federal court. It isn't a question of if he gets sued, it is only a question of when. Maybe he already has. I don't know about that.

kim hartley said...

I am being sued for credit card debt by Capital One that I just could not pay after getting laid off from my job. I followed everything you said to do and never got any verifications of any kind from the attorney. I did however receive papers for Interrogatories. This about 7 pages long and is a bunch of gibberish. Next day I received from the court a day to appear. My question is if I decide not to go, am I in contempt of court and then find then at my door with a warrant? This really seems like a win/win for the plaintiff and a loose/loose for me. Can you please respond before my court date which is Feb 16th 2010
Thank you,
Regrads

Anonymous said...

This is the funniest blog I've seen in a while. Filled with misinformation and fear-mongering. The person who wrote it clearly is trying to prey on the fears of the uninformed debtor.

1) If you owe money, NEVER talk to anyone on the phone. NEVER. Ever. Period. No exceptions.

2) If they sue you, file a response to the lawsuit, denying that the debt belongs to you. 99.9% of these worthless snakes will slither away at the first sign that you will take up their time. They will move on to the next case and forget about you.

3) Never, EVER talk to anyone on the phone about a debt. Get it? NEVER. Get it in writing, and respond in writing...after you have carefully considered what you are going to write.

4) DON'T talk to anyone on the phone about your debts. Have I written that enough?

Anonymous said...

This is the funniest blog I've seen in a while. Filled with misinformation and fear-mongering. The person who wrote it clearly is trying to prey on the fears of the uninformed debtor.

1) If you owe money, NEVER talk to anyone on the phone. NEVER. Ever. Period. No exceptions.

2) If they sue you, file a response to the lawsuit, denying that the debt belongs to you. 99.9% of these worthless snakes will slither away at the first sign that you will take up their time. They will move on to the next case and forget about you.

3) Never, EVER talk to anyone on the phone about a debt. Get it? NEVER. Get it in writing, and respond in writing...after you have carefully considered what you are going to write.

4) DON'T talk to anyone on the phone about your debts. Have I written that enough?

Anonymous said...

Regarding the impotent "threats" of bankruptcy: I note that the entire emphasis was aimed at Chapter 13, where there is, indeed, bargaining. But Chapter 7 is the last arrow in the quiver, the death knell for the "competent" collections attorneys.

Jaknik said...

Re: The impotent "threat" of bankrupty. Obviously, it is Chapter 13 the author is speaking of, while leaving out the very potent Chapter 7 solution. When push comes to shove, Chapter 7 is last arrow in the quiver, and it's deadly. As for it being a "nuclear bomb", it's not that much different than the standard seven years for a bad credit history. In fact, Bankruptcy 7 folks can get back in the game in a variety of ways, restoring good credit. One upside is that companies, firms, lenders can view the bankrupted a better credit risk, since they no longer are underwater with unpayable debts.

Touchet said...

This is hilarious, because I am about to do just that--file chapter 7. I warned them too when they tried to tack on 5000 in fees yo a 10,000 dollar hospital bill on someone making only 22 k a year. What choice do I have? For icing on the cake, I am gay and live in a state that doesn't recognize my partnership. So all those expensive filling cost are nothing. Let's see, do I pay a scumbag lawyer who won't accept payments over time 5000 dollars, or do I pay a scumbag lawyer 2000 dollars and come out 14k ahead. As far as credit, it's already ruined, no issue there what so ever. By the time it gets to court, it already ruined your credit.

Anonymous said...

There is a special place in hell for collections lawyers. Taking family cars because they couldn't pay the hospital bill. I hope you fall on hard times someday and someone just like you comes knocking.

Anonymous said...

I was sued for medical debt in VA. The debt was for an ER visit to MCV (a state hospital) and physician's fees, billed separately. Visit was in 2010. I got a letter from a local lawyer on the debt, but ZERO warrant in debt papers were sent to me. Also, nothing was served. My state student aid was seized. A $10,000 bill was paid via an $800 student grant, and I requested (and received) a letter from the hospital saying that that had been satisfied. The $10,000 was not granted a judgment in court, but the physician charges (around $760) were. I got nothing informing me of a court date, and the address they had was my current PO Box.

Now the collection Atty has turned over the debt to a collection agency that is offering me a 25‰ discount.

One issue: I had completed an application for a year of complete medical coverage through a program the hospital has, and the hospital acknowledged receipt of the original application but says that they needed additional info they didn't get, for approval. I sent it, but standard mail, and have no proof the supporting info was sent. The physician fees would have been covered by the program, as well. I had been in that program the year before that and the year after.

What should I do now? A collector is trying to get me to pay a debt in 2016 that is from 2010, based on a judgment, neither the court date or result of which I was never notified, not even after the judgment was granted.