Do Nothing FAQ

Q. Is doing nothing really an option?
A. Unfortunately, I find this has been the strategy employed by the majority of the clients who first visit. Some call it the ostrich method. 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 problem directly.

Q. What happens if I do nothing?
A. This depends on the creditors, you and whether the 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. If you fail to make car payments you will lose the car.

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.

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

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

Q. When would doing nothing be best?
A. Doing nothing 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 6 years of the last payment by the debtor they may not ever bring an action in court. 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 another year. 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 they will likely leave you alone.

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.

Q. Can you do pre-bankruptcy planning and asset protection?
A. If done right I would consider it malpractice not to do 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 other options, if its not too late. Of course, if the goal is losing the house keep it up.

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 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. 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 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.
   
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. Any loan is "called" or accelerated by a creditor.
   
3. You receive a foreclosure notice.
   
4. You have drawn down your savings for daily living two months in a row.
   
5. You have experienced a disastrous financial setback, such as having major surgery without medical insurance.
   
6. You are experiencing some of the "grief" symptoms discussed in the lifestyle section, from your debt situation.
   
7. You see trouble on the horizon even if you are current with everything.
   
8. 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.

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 11/22/04.