How to deal with financial problems

[Zac]

Here are some observations from my own experience in 2009 of what happens when you stop making payments on unsecured debt:

(1) nothing happens within the first 60 days other than late notices on statements

(2) between 60 and 120 days, other accounts that remain current on may reduce credit limits or completely disallow further usage  (yes, that can mean any "convenience" checks you wrote will be returned NSF as they don't give prior notice of their intent to reduce or rescind credit lines)

(3) after 60 days, there will be calls from each creditor at least twice (usually more) a day to whatever phone number(s) they have on file or that you ever used to call them with (yes, they log the ANI data).  Later only (past 120 days?), third party collection agencies will call on behalf of the creditors.  But, they are only working on consignment and have not purchased the debt.  I think they just get a fee based on the accounts they are able to collect or settle.  The remaining accounts are returned to the creditor.  These people range from reasonable people to the completely outrageous.  Keep in mind they are paid to keep you on the phone and try to get to you.  Don't waste your time with them unless you have something substantive to discuss like a settlement.  In that case, keep the conversation short and to the point.  Provide only minimal information, preferably limited to what is available on your credit reports. 

(4) after 120-150 days (but usually closer to 180), some creditors will offer to settle for a fraction of the outstanding debt.  (beware of the 1099 if you go the settlement route--not a problem if your debts exceed your assets however)  The offers may (and usually do) get better as the debts age.  The most proactive of my creditors settled around 150 days for 20%.  Others waited until 180 days when the debts are supposed to be charged off.  Some other settled shortly after charge off.

(5) Settled accounts will show on your credit report as "settled for less than full balance".  However, accounts settled after charge off will still show as "charged off as bad debt" even after you settle.  The reporting may be negotiable, but I didn't bother since I didn't see any advantage to have more or fewer charged off accounts.  It is possible having multiple charged off accounts, particularly with substantial balances, may discourage other creditors from pursuing collections.

(6) Some creditors that did not settle had automated form letter sent with a law firm return address, but said "your account was not personally reviewed by an attorney".  I presume this is a cheap way for them to try to intimidate people with letters from lawyers. 

(7) Some creditors may sue.  If so, answer denying all claims and countersue.  Many courts will waive filing fees (often several hundred dollars) for those who have low income.  I don't see what you have to lose by contesting their suit.  At the very least, it will delay them from further action for a year or more. 

[8] Any accounts that you are unable to settle, you may as well send them a letter requesting validation since this will delay the process, often for months.  A single line letter will suffice:  include the account number from the collections notice and "I dispute the validity of this debt."  But, don't do this while you are still negotiating settlement as it can complicate matters. 

[Tinfoil Hattie]

For many of us who net less than $20k a year, owing a car is a *necessesity*, and not a choice.  But owing a car doesn't have to be expensive - you can find a decent beater for $500-1,000 bucks, and just get minimum coverage, liability-only.  Drive it only when necessary, combine trips/errands into 1 trip, and last but not least, drive in a safe and reasonable manner, and keep your license clean by avoiding doing anything that could get you pulled over and ticketed - this keeps your insurance costs at a minimum.

I was basically talking about people like myself who are not homeowners who have the option of moving somewhere with decent transportation if necessary.  Maybe I should have been more clear.

[2handband]

For many of us who net less than $20k a year, owing a car is a *necessesity*, and not a choice.  But owing a car doesn't have to be expensive - you can find a decent beater for $500-1,000 bucks, and just get minimum coverage, liability-only.  Drive it only when necessary, combine trips/errands into 1 trip, and last but not least, drive in a safe and reasonable manner, and keep your license clean by avoiding doing anything that could get you pulled over and ticketed - this keeps your insurance costs at a minimum.

I was basically talking about people like myself who are not homeowners who have the option of moving somewhere with decent transportation if necessary.  Maybe I should have been more clear.

That basically means living in an urban area. I don't mean to be insulting, but anyone who is peak oil aware and lives anywhere near a large metro is absolutely bonkers.

[cabacaba]

We are certainly living in times of financial distress, so I hope to begin a list of practical things a person can do that doesn't cost them any money which will save them money and also how to handle ongoing credit problems.  Here we go:

1.  There is no "moral" obligation to repay your debts.  I know this will get get a heated response, bc we were taught differently, but here's why I say that.  As a lawyer, I can tell you when you incurred your debt, the bank on the other end assumed your were not going to repay it.  That's why they had you, for example, give a mortgage on the house.  The mortgage is drafted on the front end with the assumption you won't pay as expected.  Thus, this is all business.  It's a math problem.  You can either afford your note and mortgage or you can't.  If you can't, walk away.  Do not throw good money after bad.  Do not feel morally obligated to pay a bank.  The bank feels no moral obligation to keep you in.  Same is true for credit car companies.  There is no moral obligation to pay.  They will not have any moral obligation about suing you. 

2.  Don't worry about your credit score.  You will end up paying lots of money to creditors to try to protect a credit score.  This is ass backwards.  If you have money saved and less debt, you will eventually get better credit.  You cannot get better credit by bailing water out of the Titanic.  Don't go down with the ship.  Get on a lifeboat as fast as possible and get away.  This means, quit paying anything towards debts you cannot afford.  It may mean filing bankruptcy.  When you stop paying, you do a couple of things.  You save money to pay bills that you must pay, like light bills, heating bills, gas, groceries etc.  Further, you may actually save a few dollars.  Do not keep your savings in a bank, as it can be garnished.  Keep it at home like your grandparents did.  Start paying for things with cash, not credit.  When you quit paying on debts you cannot afford, you start the statute of limitations for them to bring a suit.  If they fail to bring suit in the right amount of time, then they are forever barred from suing you.

3.  Quit fearing being sued.  Even if they get a judgment, it's probably unenforceable against you.  The old saying is, one can't get blood from a turnip.  If you are a financial turnip, don't worry about the suit.  The best they can do is try to collect the judgment by garnishing bank accounts or repossessing property.  If you don't have money in the bank, which you shouldn't if creditors are chasing you, then they can't garnish anything.  If you don't have a car or trailer etc for them to reposses, then they can't take anything from you.  Even if you do have a car, if you owe on it, they won't take it bc there will be no equity in it.

4.  File bankruptcy.  It's a math problem, not a moral problem.  Bankruptcy was designed to give people a fresh start, you may need one.

5.  Hang up the phone.  You don't have to listen to creditors rant and rave. 

6.  Get over the idea that you own things.  You don't own things, they own you.  Sell anything you don't use or DONT need.  You don't need two tvs.  You don't need old antique cars, clothes, books, whatever.  Sell everything for whatever you can get out of it and put the money away. 

7.  Again, get over the idea of having things, for they have you.  Cancel anything you don't need.  You don't need the newspaper, you don't need the t.v., you don't need the ultimate cable service, direct t.v. etc.  Simplify your life, your thoughts, you will feel better and save money.  Get rid of these things and get the thing you need, more time with yourself and your family.

8.  Do not eat out!  Your kids do not need to eat out.  They do need to eat with you and spend time with you. 

I'm sure there are a lot of practical ideas out there, so, please add in.  In the end, changing and adapting are really just changing your thought process.  You don't need anything to be happy.  You are unhappy bc you feel like you need something.  Babies laugh and smile bc they are held by another person.  You can too.

Great Post!

[Tinfoil Hattie]

That basically means living in an urban area. I don't mean to be insulting, but anyone who is peak oil aware and lives anywhere near a large metro is absolutely bonkers.

That's something to consider.  Don't Dermot and Matt live in or near metro areas?

[Hardondee]

GREAT post, Seahorse. 

[metaforge]

3.  Quit fearing being sued.  Even if they get a judgment, it's probably unenforceable against you.  The old saying is, one can't get blood from a turnip.  If you are a

Again, each state may have different laws, so I will answer generally, bc I think most states will have similar laws.

Thanks for the great answers, SH.  Yes I definitely appreciate it's going to be different depending on state, but those general responses were a big help.

One other question if you don't mind...

If it does get to the point where a creditor sues you, gets a judgement, does all the discovery/garnishment stuff, etc.  can they also be awarded attorney's fees in the judgement for the costs associated with coming after you?

In general, based on your answers so far, I am going to have a hard time with your #3.  I can understand if you have no assets and no job, can't get blood from a turnip - totally agree.  But if you have a job and do have some assets, sounds like based on your answers, it is real likely that if you get sued and lose, they are going to have you by the balls.  Especially if they can also be awarded attorneys fees.

Would you agree?  Again granted many may not go to that length & rather just settle, but seems scary to risk your assets & your employment cashflow that they won't come after you hard.

Thanks again.

[Seahorse]

Metaforge, it gets down to how much the debt is and what type before one can know what to do and how to handle it.  Generally, there are ways to negotiate down a debt if its not worth filing bankruptcy over. 

But, attorney's fees and court cost are usually awarded in a judgment.  Attorney's fees are not usually allowed for post judgment collection efforts. 

[2handband]

That basically means living in an urban area. I don't mean to be insulting, but anyone who is peak oil aware and lives anywhere near a large metro is absolutely bonkers.

That's something to consider.  Don't Dermot and Matt live in or near metro areas?

Nobody's perfect.

Look, I don't really expect a fast, hard crash. But I can't rule it either... and if it happens, it's gonna be a bloodbath in the city. Count on it. If you're in the big city get the hell out. NOW.

[DNVRLIZ]

So, if you dont have ANY assets, except a 20 year old car, and you dont have a job and dont own your house, you just do nothing??

[Big Scotsman]

So, if you dont have ANY assets, except a 20 year old car, and you dont have a job and dont own your house, you just do nothing??

If you understand what is going on around you, you're going to be in a much better situation than 95% of the population.

Survival is 90% mental.  There forget that.

[Seahorse]

So, if you dont have ANY assets, except a 20 year old car, and you dont have a job and dont own your house, you just do nothing??

DNV, why worry?  How wll they collect a judgment against you?  Do you have money in the bank, then you might consider withdrawing it to prevent it from being garnished.  Also, changing your phone number and address will make it more difficult for creditors to find you.

[2handband]

You can't get blood from a turnip. They can't possibly collect what you don't have, now can they?

[feelingweird]

As always Seahorse, TOP NOTCH post.

Have to comment on this one as it struck me very strongly..

"Use it up, wear it out, make it do or do without".

If only the majority of America would abide by this simple and practical advice, what a different world we would live. I try my best to instill this in my children, but it is so hard. The prevailing thought process in this country is still SOLIDLY behind the NEW, BETTER, BUY IT NOW philosophy. Even knowing what I know, I STILL tend to run to Home Depot before I check craigslist or the free boards...

Robert

[metaforge]

As always Seahorse, TOP NOTCH post.

Have to comment on this one as it struck me very strongly..

"Use it up, wear it out, make it do or do without".

If only the majority of America would abide by this simple and practical advice, what a different world we would live. I try my best to instill this in my children, but it is so hard. The prevailing thought process in this country is still SOLIDLY behind the NEW, BETTER, BUY IT NOW philosophy. Even knowing what I know, I STILL tend to run to Home Depot before I check craigslist or the free boards...

Agree, great post SH & thanks for the answers.  I guess the creditors have to make the call on turnip/no-turnip when deciding whether to settle or sue, just like a debtor has to guess on the tenacity a creditor will come after them with.  Perhaps a corollary to your #3 should be if you have some scratch, keep it on the down low.  I dunno how you hide a W2 job though, so if you've got a decent income, sounds like they're gonna find that easily & go for the garnishment angle.

Robert, I do agree with you and find myself doing the same things you mention.  However, I do think the tide is turning in general, at least involuntarily if not voluntarily.  My bet is that there are a lot of people who maybe are embracing that mantra now, but only after having run up a big credit card debt, mortgage debt, etc. in the past and they're trying to deal with it. That situation makes a thread like this even more valuable.