So you have amassed a significant amount of debt to a credit card company, or some other lender.  Maybe the debt is due to loosing a job; maybe it is because you are recently separated or divorced; maybe it is because you have become sick with a physically limiting disease.  No matter what the reason, you simply can not afford to stay current on the debt, and in fact have fallen behind on your payments.  You have fallen so far behind, that the threatening letters have come and gone.  The phone calls have actually stopped, as your creditors have come to the realization that you are simply not going to pay them.  It has gone so far, that you come home one day, go to the mail box, open it up, and find that you have been served with a complaint for breach of contract by one of your creditors.  So what do you do now?

            The first and most important thing to do is not ignore the problem.  So many consumers simply believe, or at least hope that if they ignore the situation, it will go away on its own.  This mistaken belief could not be further from the truth.  Should you fail to respond to a civil complaint, with in 20 days of receipt of the summon, the Creditor has the right, under Massachusetts rules of Civil Procedure to request the court enter a default judgment against the Defendant, due to the fact that the Defendant or Debtor either refused or failed to defend themselves and as such, has admitted everything in the compliant is true and accurate.  If this default judgment enters, then the Creditor will next request an execution be rendered, which will then increase the judgment by 12% each year, until the balance and interest is paid in full.  Additionally, the Creditor can use this execution to have a lien placed against your house, take your tax refund, attach your bank account and even have your employer garnish your wages and send a portion every week to the Creditor.

            So how do you, as a Debtor, ensure this does not happen to you?  The first thing you should do is seek the advice of a debt relief attorney.  However, if you choose to not do this, you will have three options.

            First, you can answer the complaint by denying some of if not all of the allegations and challenge the Creditor to prove each element of the breach of contract.  You can challenge that the Creditor even has standing (whether they actually own the debt they are trying to collect).  You can challenge whether the Creditor has the proper paperwork and that it has been filed appropriately.

            If you do not choose to challenge the case in court, you can try to negotiate with the Creditor and settle the matter for a lump sum of money, or even a monthly payment.  The key in doing this is to make sure that if you do settle the account, it is settled in full and no deficiency or uncollected part of the debt can be sold to yet another collection agency.

            Finally, if you are unable to settle the matter with your Creditor and don’t believe you can successfully litigate the matter in your favor; you can file a bankruptcy petition.  If you file a bankruptcy, whether it be a Chapter 7 or 13, any attempt to collect a debt against you MUST be stopped the second you file your bankruptcy case, pursuant to Section 362 of Title XI.  Presuming your bankruptcy goes through and you receive your discharge of debt, you will not be obligated to fulfill your previous obligation to pay back the Creditor anything, or at least anything more then your proposed Chapter 13 plan may require.

            The bottom line is this, if you receive a summon to answer a complaint, you must take a very proactive approach to resolving it, or a judgment and execution can and in all likelihood will follow you for the next twenty years.

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The Process

Before talking about the benefits, we need to discuss exactly what it involves to file for bankruptcy. While it is possible to do everything yourself and find out information using online resources, it`s a good idea to hire a bankruptcy lawyer because you need someone that knows what they are doing and will maximize your debt reduction and protection of assets.

Your first step is to write down all your debtors, how much you owe and how to contact them. After you put together your intent to file for bankruptcy, your lawyer will contact each of your creditors. They have the right to dispute the bankruptcy, but most of the time no one shows up.

When you go to the bankruptcy court, the Trustee looks over the debts to make sure they are all allowable and then a judge grants the bankruptcy. Depending on the type of bankruptcy you choose, that could mean dissolution of the debt completely or a payment plan to pay off the debts. After a period of about three months, the bankruptcy is discharged and you have a fresh start to credit and are mostly or completely debt free.

The Benefits

One of the first benefits you will see is that all collection calls and letters will stop. You can finally have peace of mind that when the phone rings there is no reason to be scared. There will be no more intimidating letters trimmed in red threatening you with legal action. All that is behind you now and they won`t be calling or contacting you again. If they do, your lawyer will contact them to cease and desist.

Perhaps the biggest benefit of filing for bankruptcy is you have a fresh start. You have the opportunity to start your financial life over and work on creating a more educated and efficient way to move forward. You have learned and won`t make the same mistakes that got you overloaded in debt.

This also means you can work on improving your credit score over time. Prior to your bankruptcy, your credit score was probably already bad, but now you can work on improving it. It will take very little time for all your discharged debts to leave your credit report and ten for the bankruptcy, but you can slowly begin to better your score as soon as the bankruptcy is discharged.

There are credit cards that accept people soon after bankruptcy and you will be more likely to get a car loan because you have no other debt. The interest rates will be high, but you can get credit. Pay your bills on time, create and use a budget and you`ll start to see you credit score begin to rise. When the debts are taken off and eventually the bankruptcy, your score will be more than respectable.

Just be careful not to get into the same trap as before. Use online law resources to know your rights as a debtor and how to best take advantage of the bankruptcy.

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In response to this question, where clearly the Debtor’s income was protected, and there was no reason to believe based upon the question that any assets would be attached, Ms. Orman responded: “It’s fruitless to try to talk your way out of this; the card issuer has every right to expect repayment. To regain control of her debt, have your mom keep paying at least the minimum due on the monthly credit card bill. On-time installments are vital for protecting her FICO credit rating. That’s important because if her score is at least 700, she has a good chance of being able to transfer the entire balance to a new card with a lower interest rate. Many card issuers offer zero percent interest for the first year when you move your balance to their card. At CardTrak.com, click on Credit Cards, then choose Balance Transfer to find issuers offering the best deals. But only sign up for one card—multiple applications made at the same time can actually hurt her credit score.”

I would like to say that I cannot believe that Ms. Orman would give such bad advice, but in all honestly I can believe it. I have watched her show on and off and read a few of her articles, many of which drive consumers to the same advice. So Ms. Orman’s great advice is basically, try to make payments that you can’t afford at the expense of possibly not paying for medical bills or food, in the hopes that some other unsuspecting creditor will extend this woman more credit to transfer the balance and pay a lower interest rate for 6 months. This is yet another example of why you should speak to a qualified consumer debt attorney who understands the legal ramifications of different courses of action, rather than a talk show host or even just friends.

Had this Debtor come to me, I would have reviewed her situation in a bit more detail before handing out any advice. In all fairness, I understand Ms. Orman did not have that luxury, but even still if I believed the Debtor to be judgment proof, presuming she had no assets that could be liquidated by the Creditor, I would have advised her of several options, none of them though would have been to make minimum payments. Trying to save your FICO score at 81 years old, just to abuse the system by taking out a new credit card, is absurd!

This woman could possibly file a Chapter 7 bankruptcy and discharge her debt. If she did this, her income would be protected. Another option would be to obtain third party funds and settle the debt for a small lump sum. She may, frankly, stop paying and wait to go to Court and even be able to challenge the validity of the debt. However, Ms. Orman did not feel it necessary to inform her reader of any of these options.

It just goes to show you why it is always better to speak to a licensed professional attorney who has an obligation to tell you about all of your options, then a talk show host or author who is more concerned with selling her books then looking out for the true interest of those who rely on her advice.

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When people hear the word bankruptcy, they often say to themselves, “what is it?” Many people believe that the concept of debt relief is a new or modern topic, and often times, people view the term as a dirty word or with a negative connotation. The truth of the matter is simply the complete opposite. In fact, the idea of filing bankruptcy is as old as the United States of America itself and a very interesting historical topic when viewed in its full context.

Taking a broad look at this topic, debt has been an issue for centuries. In the distant past, it was a crime to not repay creditors, and as a matter of fact, in England in the middle-ages there were debtor’s prisons for those who were found guilty. The standard procedure back then was; if you couldn’t pay your debts, the King would throw you into jail. Debtors would then stay in jail until they were able to repay their creditors, which of course stopped them from being able to work to pay off the debts.

Luckily, things have changed a little bit over the past few hundred years, throughout England and everywhere else, including the United States of America. Looking back to the beginning of our country, bankruptcy was such a hot button topic when the Revolutionary War ended, that the right to file for bankruptcy protection was incorporated into the Constitution. In fact, it is first seen in Article I, Section 8, Clause 4 therefore, as early as 1801, we had bankruptcy laws in the United States of America. The concept of bankruptcy was so important to our Founding Fathers that they gave congress the power to create bankruptcy courts and regulations in Article I and Article III of the United States Constitution, the earliest legal document in our country’s history. The Founding Fathers thought the right to bankruptcy was so important that they provided for it at the beginning of the Constitution, rather than burying it in the end of the document.

Debt relief is something that our Founding Fathers knew was going to be part of the economy. It has been a part of our economy for years, it is not just something new in the last few decades when people started getting and using credit cards, but rather it has been around since the inception of our country. Had the idea of debt relief been so appalling to those drafting our very first set of laws, it would not have been made a part of the Constitution. If it was not so important, the Federal Government would certainly have removed it from the laws and not sponsored it again and again. Congress would certainly not have amended the rules in 1978, or again in 2005 to add more complexities and protections to the law of bankruptcy, under Title 11 of the United States Code.

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So you’ve gone through the long and arduous process of filing for bankruptcy, and now it’s almost over. Now all you’ve got left to do in order to discharge your debts is taking a post-bankruptcy counseling course. Even though such courses are mandatory, and they may seem like a pain, don’t approach post-bankruptcy counseling as something akin to a defensive driving course. If you approach the courses with the right mindset, you may really learn how to turn your financial life around. Here are some tips:

1.      Be sure you take a financial literacy course from an approved agency.

This is perhaps the most important aspect when shopping around for post-bankruptcy courses, as many are not approved and won’t count toward the requirement. Each state has different requirements for post-bankruptcy education, so it’s especially important if you elect to take an online course that you find out if the class is approved in your state.

2.      Weigh the pros and cons of taking an in-class or online course.

While it may seem like a hassle to attend an in-class course, there are advantages of learning about financial literacy in person. On the other hand, online courses that count toward the post-bankruptcy counseling requirement are readily available and are self-paced. If you have way too many personal responsibilities such that it would be incredibly inconvenient for you to take an in-class course, then an online platform is likely the best option. Still, if you can make the time, the material you learn will likely stick with you longer in an in-class course.

3.      Apply what you learn in class once the course is over.

Of course, this may seem like an obvious tip, but it’s incredibly easy to slip back into the old habits that may have lead to bankruptcy in the first place. While it may seem difficult to learn skills like setting long- and short-term financial goals, drawing up a budget, and learning about investing, you’d be surprised how effective debtor education courses can be if you implement what you’ve learned. Don’t believe it? Check out this article which reviews a study demonstrating these courses’ effectiveness.

4.      Don’t forget to follow proper procedures once you receive your certificate!

Of course, even if you become a personal finance expert once you finish your course, it won’t count if your respective Bankruptcy Court doesn’t receive your certificate of completion. Once you’ve received your certificate, meet with your attorney to ensure that your certificate is sent properly and on time in order to complete your bankruptcy proceedings and discharge your debt.

Now, even though you’ve taken a debtor’s education course, there’s still a lot more to be learned about personal finance. Once you’ve developed the skills through both theory and practice, you’ll be well on your way to not only clearing debt but to accumulating wealth as well. Good luck!

By-line:

Jemima Lopez is a freelance blogger and writer who writes for Zen College Life, the directory of higher education, distance learning, and online degrees. She welcomes your comments at her email: lopezjemima562 @ gmail.com.

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Attorney Michael Goldstein of our law office discusses what a Meeting of Creditors is in a Chapter 7 or 13 Bankruptcy Proceeding.

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You do have a right though under the Federal Truth in Lending Act to find out who owns your mortgage.  In addition, you have the right under the law to learn of their contact information and also request proof that they hold the right to your mortgage.  This is actually very important in the event that you decide to try to negotiate a loan modification, short sale, or other debt relief or foreclosure prevention strategy.  As such, if you are considering any sort of workout with your lender, you may want to seek the advice of an attorney in your state to make the proper requests.

For more information on this topic and other consumer debt matters, contact Attonrey Michael Goldstein.

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Many consumers are facing serious debt problems, where their day to day expenses simply can not be met, without cutting corners.  Interest rates on credit cards from basic purchases, such as kids clothing, and weekly trips to the supermarket as well as an inability to meet basic heating, electric and phone bills are forcing many people into bankruptcy.   Many consumers in debt have found a possible alternative to filing a bankruptcy is to cut costs, without cutting essential life necessities, such as you might be able to do at the grocery store, and shopping mall, through the use of a new concept called, “extreme couponing”.

            There are no shortages of alleged “experts” out there who will tell you how to use coupons.  The concept has really hit the main stream.  There is the Learning Channel’s Extreme Couponing show.  Recently, I was even watching CBS’s “Two Broke Girls” television show and they were making a joke about getting “free money” by using coupons.  However, the real trick seems to be not to buy things that you would not normally need or purchase, but to do so, when you have a coupon that makes it less expensive or even at no cost, which your family can actually use.

            There are many ways that coupons can save consumers money, locating the highest savings and combining those discounts with in-store promotions.  Additionally, consumers who are using credit cards may want to consider limiting the use of certain cards and increasing the use of others with great rewards programs.  By combining these various saving strategies, a consumer can drastically reduce their monthly expenses. 

            The best way to learn to coupon effectively is to start perusing the Sunday news papers advertisement section for coupons, as well as reviewing a few of the many websites out there that allow you to print coupons for free.  However, you must go into it with realistic expectations.  It is unreasonable to expect to save 95% on your each coupon shopping trip, or even more absurd is expecting to make money while getting your food and other products for free.  However, you can get some great buys.  For example, let’s say you go to your local food market and they have a deal, buy two boxes of cereal normally $2.50 per box for the price of one.  You also have two coupons each for $1 off a can of soup.  You now can buy both cans of soup, normally for $5.00, but only spend $0.50 for both.   Taking this example even further, if the store has a double coupon policy, that could make your $1 off coupon worth $2.  In this rare example, you could actually get your soup, and then have enough money back to eat some cake too.

            Finally, in order to save the most money and cut your spending as much as possible, you must be diligent and very detail oriented.  What I mean by this is, if a product rings up higher than advertised or the cashier misses one of your coupons, let them know, and make sure you get your deal.

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1. Credit card bills are out of control:  Many people have found themselves in the unfortunate position of owing more money to their MasterCard, visa, discover and American express then they will ever be able to pay back.  This is not to say that the consumer was irresponsible, or went on spending sprees.  Many times it is due to outrageous interest rates, or the temporary loss of income which led the need to use a credit card much more frequently then one traditionally would do so.  If this is the case, all of that credit card debt, would be considered unsecured, and can be discharged in a chapter 7 bankruptcy case.
2. The loss of a job or severe illness – Similar to the #1 reason for filing bankruptcy, that is, credit card balances being too high, the loss of a job or being sick for a prolonged period of time may be making it very difficult to stay current with normal living expenses.  Unfortunately not being able to pay your bills, tends to lead to abuse or at the very least over use of one’s credit cards.
3. Fallen behind with mortgage payments – In such an unstable economy as we are seeing, when a consumer looses their job or can not earn money for a period of time, very large bills such as mortgage payments, tend to fall by the waist side.  The problem is that once you miss a couple of these payments, it is very difficult to catch up on your own.  The bank in fact does not need to accept partial payments and can accelerate your mortgage and demand full payment if you miss even one month.  A chapter 13 bankruptcy can save a consumer’s home, if mortgage payments are in arrears.  Under this section of bankruptcy, a consumer can pay back their missed payments stretched out over sixty (“60”) months interest and penalty free.  Often this option is far better then trying to modify a loan, where there is no certainly guarantee in the modification, but there is one with a Chapter 13 repayment plan.
4. A foreclosure is scheduled – The natural consequence to falling too far behind on mortgage payments is that the bank can take a consumer’s home back, by selling it at a foreclosure sale.  If a sale is scheduled, filing a bankruptcy will enact something called the automatic stay, which will stop a foreclosure sale dead in its tracks.
5. A repossession of a vehicle is scheduled – Just as the automatic stay, pursuant to 11 U.S.C. § 362 will stop a foreclosure sale; it will also stop a repossession of a car or any other collateralized property.
6. The value of a property is less then the mortgages owed – Many homeowners and investment property owners have found over the past few years that as real estate values have declined, the fair market value of their properties is far less then that of their mortgages.  In some situations, an equity line, or second mortgage may be wholly unsecured, due to the fact that if a foreclosure sale ever did occur, the bank would not get all their money back.  If this is the case, there is a provision in a Chapter 13 bankruptcy, where you can strip an entire second mortgage from your property, and if you have an investment property, you can cram down the value of the mortgage to its actual market value.
7. A loan modification was denied – Many consumers have found themselves in a bad situation due to attempting loan modifications.  Often times, they have been advised to stop making mortgage payments, so that a loan modification can go through.  Additionally home owners who were in trial plans, but were subsequently denied, have been told that due to their lower temporary payment, they are now in default.  If this has occurred, the chapter 13 reorganization plan will allow the homeowner to catch up over time.
8. More time is needed to negotiate with a mortgage company – In some situations, homeowners has fallen behind a significant amount and is trying to workout a loan modification, however, the process is taking too long, and foreclosure sale is scheduled.  If this is the case, filing a bankruptcy and enacted the automatic stay is enough to buy the additional time to complete the modification.
9. A divorce has increased debt load, while decreasing income – Just as when a consumer looses a job or becomes sick, when two people get divorced, household income tends to decrease substantially.  In addition to this, often times the total debt load is not separated equally, and one spouse can not pay everything but themselves.
10. Remove a lien or attachment from your real estate – Just as a second mortgage or equity line can be stripped off a property as secured, a judicial lien can also be stripped from the real estate if it can be proven that no equity exists in the property to satisfy the lien.

The forgoing top ten list was drafted by Attorney Michael Goldstein, who practices debt relief and bankruptcy law in Massachusetts.

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