Bankruptcy Alternatives / Debtor's Options

Do Nothing FAQ

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Q. Is doing nothing really an option for dealing with debt?
A. Unfortunately, I found that had been the strategy employed by the majority of the clients who first visited. Some call it the ostrich method because people seem to stick their head in the sand and ignore their money problems. Most often this option should be avoided, but before rejecting it one should explore it. Sometimes this does emerge as the best choice. Please remember that "doing nothing" means doing nothing with the creditor, it does not mean that you should ignore the situation entirely and not be planning for a day when you will have to deal with the debt directly using whichever debt solution best fits your personal circumstances.

Q. What happens if I do nothing?
A. This depends on the creditors, you and whether the debt obligations are secured or unsecured.

Q. What is the worst they could do?
A. Take everything you own including your house, your cash, your car and if that doesn't satisfy the debt they can still come after you again.

Q. What is the best that could happen?
A. They leave you alone forever and you never pay a penny.

Q. That's quite a range, what is realistic?
A. If you have a creditor with a first priority interest in a secured asset you can be pretty sure that if you continue to do nothing you will lose that asset. In common cases this means if you do not make mortgage payments you will lose the house to foreclosure. If you fail to make car payments you will lose the car in a repossesion.

Q. Are there exceptions?
A. Yes. If the secured position involves a negative asset. I have also seen cases in some states where creditors sue on the note and guarantee, ignore the secured asset and go directly after other more liquid assets of the debtor get get debt repayment.

Q. What constitutes a negative asset?
A. Imagine a $100 piano that costs $300 to move, something where the creditor would loose money if they tried to sieze it. This might even happen with a house where the value dropped so far that renovations required exceed it's worth.

Q. How long will it be until I lose a valuable asset?
A. In some cases only a few months from the first missed loan or credit card payment. Other times I have seen many years go by.

Q. Credit Cards? I thought no one could take what I bought with a credit card?
A. While in most cases credit card companies have no right to take back goods you bought with a credit card you need to read the credit card agreements and know what they say. For example Sears cards can give Sears a secured interest in what you buy and I have seen them come after large items like appliances right down to smaller items like golf clubs and car batteries.

Q. What particulars of my debt situation will be good predictors of what creditors will do?
A. Before you become delinquent it's a wild guess. After you miss a debt payment or two you'll get a good idea of how hard you will be pursued. For mortgages, foreclosure laws vary by state.

Q. When would doing nothing be best way to deal with debt?
A. Doing nothing as a debt solution should be strongly considered in the following cases:

  1. Statute of limitations cases
  2. Where more time is needed to establish the correct course of action
  3. Where legal asset protection must be done before fighting a creditor

Q. What is a Statute of limitation?
A. Most states have laws establishing if a creditor does not bring an action to collect on their debt within six years of the last payment by the debtor they may not ever bring an action in court. A few states have statutes of limitations down to three years. My favorite "do nothing" client may have a debt they have already ignored for over five years. They are concerned about the debt but have not heard from the creditor. By doing nothing the debt will become unenforecable in a few more months.

Q. The debt just goes away after six years?
A. No, just the creditor's right to collect it in court. You still owe the money, it will even stay on your credit report for until seven years from the last debt payment. Collectors may still pursue you in hopes you do not know they have no legal way pursue you in court. The fact, however, is they have no interest in wasting their time. Once you make them aware of the fact that you know the statue of limitations has run out and you do not intend to make any payments on the debt they will likely leave you alone.

Q. How do they track time for the Statue of Limitations?
A. From the last transaction YOU made. This means any transaction, so be aware of debt collectors who ask you for a payment so tiny it might be easy to make. The small payment will not really make a dent in your debt and it may reset the Statute of Limitations clock back to zero. Note that transactions on the creditor side do not count to turn back the clock, so if they sell your account or charge it off these events have nothing to do with the running of the Statute of Limitations.

Q. When might someone need more time to know what to do?
A. Imagine a case where a client has lost a property to foreclosure and doesn't know if he will be pursued for the deficiency yet. The other options would be premature, wait for them to start collection activity unless your asset or income picture will be improving. Sometimes the debtors future remains too unclear to elect the right course of action. An example might be someone between jobs or someone still in the hospital accruing medical bills. In these cases the plan involves doing nothing for a short period of time just until the future gains clarity, not forgetting about the debt situation.

Q. Can you do pre-bankruptcy planning and asset protection?
A. If done right I would consider it malpractice not to do bankruptcy planing. If done wrong it could be illegal. Here again you need good debtor representation by a bankruptcy attorney.

Q. I've already missed three mortgage payments while ignoring my financial problems, do I have to continue a do nothing strategy?
A. No, from a do nothing start you may move to any of the numerous debt or foreclosure avoidance options, if its not too late. Of course, if the goal is losing the house keep it up. Seriously, in some cases people want to loose a home or have no ways left to avoid foreclosure, in those instances debtor need to evaluate foreclosure vs. bankruptcy.

Q. When is it too late?
A. It depends on each creditor, but especially with secured creditors, the sooner a problem gets dealt with the easier it can be solved; in most cases.

Q. I still haven't heard from the bank. Should I just continue to do nothing?
A. Ignoring a mortgage or credit card debt can be a very dangerous idea. First make sure you are working with an experienced debtor's attorney. If you don't have one you may want to consider a mortgage negotiation expert or credit card debt settlement professional. Second don't spend the money you should be saving.

Q. What money?
A. Lets presume a mortgage payment of $800. The first month you only had $600. You didn't know what to do so you did nothing. The next month $1600 is due you only have $1400, now you are really scared so you do nothing. To make matters worse, you spend the $1400 you had on other things. The third month you have $800 for one payment but three are due. This cycle goes on, sometimes for years. I have seen clients come in after not making mortgage payments for two or three years and have no money saved. For more on this read "Who to pay when you can't pay everyone".

Q. Why will I need money?
A. Many debt workouts need cash. The further in arrears you get the more cash it might take to avoid a foreclosure. It's easy to dig a hole you can't get out of and it's sad because most times it could be avoided.

Q. How can I avoid it?
A. Follow these steps:

  1. BEFORE you miss a payment contact the creditor. Let them know what's happening and why. You will be surprised, but they will most likely be understanding and offer constructive suggestions. This advice works best with short term problems like someone out of work because of an operation where things will return to normal after they recover. I would not try this in cases where little or no hope exists to cure the situation such a case where the main wage earner just left to start a life sentence in prison and no one else in the household holds any job skills.
  2. If for whatever reason you are not making payments, save as much as you can.
  3. As soon as you are over your head, consult with an experienced debtor's attorney.

Q. When should I be calling an attorney?
A. When the FIRST of the following occurs:

  1. Any payment gets more than two months late.
  2. You used a cash advance from a credit card to pay another credit card.
  3. You needed a credit card to pay for basic living expenses like food because you had no cash or money in a checking account.
  4. Any loan is "called" or accelerated by a creditor.
  5. You receive a foreclosure notice.
  6. You have drawn down your savings for daily living two months in a row.
  7. You have experienced a disastrous financial setback, such as having major surgery without medical insurance.
  8. You are experiencing some of the "grief" symptoms discussed in the lifestyle section, from your debt situation.
  9. You see trouble on the horizon even if you are current with everything.
  10. You think perhaps you should.

Q. I know I should see an attorney, but I'm so ashamed and embarrassed by my situation I can't talk to anyone about it.
A. That's like saying I can't go to the doctor because I'm sick. Debtor's attorneys deal with these situations every day. They should be very understanding of both your financial and psychological problems. Their job is helping people exactly like you.

Q. What if they make me feel stupid?
A. Use someone else. Just because you speak to one attorney doesn't mean you will have to use them. Talk to a few and go with the one who makes you feel comfortable based on their experience with these matters as well as how they relate to you personally.

Q. How do I go about finding the right attorney?
A. First decide what type of attorney you need. A bankruptcy attorney, a workout attorney, a civil litigator or some other specialty might be right for your situation. I prefer to deal with a specialist. Attorneys who advertise they handle personal injury, divorce and a list of ten other items will likely end up doing a worse job on your bankruptcy than someone who spends most of their time doing bankruptcy work for debtors. Simmilarly, most bankruptcy attorneys have little or no experience with debt workouts.

Q. Can you help point me in the right direction?
A. Yes, we can perform a personal debt evaluation for you and then either work out the problem for you or refer you to a local attorney from your area we have selected based on our criteria and interviews.

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Debt Consolidation / Debt Settlement Program - Consolidate your credit card and unsecured personal debt with a program to settle balances for 30-50 cents on the dollar. Make monthly payments toward the total settlement over a period of years. Free initial consultation. Learn more and see if your situation fits the program online.

A Guide to Borrowing Money with Bad Credit - Including informational articles on obtaining a home mortgage, auto loan, credit card or unsecured personal loan.

Credit Cards For People With Bad Credit - Read either informational articles on obtaining any type of bank card or credit card with bad credit, including a definition of what is bad credit or look at a complete set of FAQs dealing secured credit cards.

Credit Repair and Credit Rebuilding -Credit repair and credit rebuilding article. Topics include how to repair your credit and warnings about credit repair scams. Links to other credit repair sites and professional credit repair services plus my own Free Guide to Help Repair and Rebuild your Credit Report. For more credit help try 14 Do's and Don'ts To Raise A Score Fast or the Credit Score FAQ.

Who to pay when you can't pay everyone - An article addressing cash allocation for debtors.

How to Get money when you need money - Examines WHEN you really NEED money and how to get money even with bad credit for an emegency or financial crisis.

Stop Home Foreclosure Help - Articles to better understand the foreclsoure process and how to avoid a foreclosure including an interactive tool to analyze your own situation and point you in the right direction to keep your home, a list of various ways to halt a foreclosure, a list of 10 mistakes to avoid when facing foreclosure and foreclosure myths.

Personal Home Budget Analysis - An interactive tool to learn where your money REALLY goes. Input your income and expenses, the program will automatically determine if you have accounted for all you have spent. When you have discovered all your expenses you will be know the details of any overspending. Use this information to help plan and keep a monthly budget or change spending to avoid further debt or bankruptcy.

How to Stop a Forelcosure Auction & Foreclosure Workouts
Rescuing Homes From Foreclosure Nationwide

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Nothing contained herein should be construed to constitute advice for your personal circumstances. This is intended as a peripheral exposure to the various options available, but by no means is this a comprehensive or exhaustive analysis of the bankruptcy laws or their alternatives. Whether or not you should file a Chapter 7 bankruptcy, Chapter 13 bankruptcy, or any bankruptcy, will vary depending on your personal circumstances and should only be undertaken after careful consideration, analysis and after consultation with an attorney experienced with such matters. These pages may contain information and rules peculiar to the Commonwealth of Massachusetts.

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The most recent update of this page occurred on 12/22/09.