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• I don’t recognize the name of the company that’s suing me – Who are they?

Many large creditors don’t bother attempting to sue you to collect what’s owed. They often sell or assign your debt to smaller organizations that only collect debts. In some instances companies try to collect debts that they have no right to enforce, so it’s important to have your case analyzed by an attorney.

• Do I have to file an answer or appear at the date and time stated?

In a debt collection matter, if you don’t file an answer or appear, the court will render a default judgment against you. This is essentially an order from the judge stating that you’ve lost the suit and the debt collector can now take your property to satisfy the debt. While in most instances you don’t need to appear or file an answer, doing nothing is generally not the best choice for the reasons set out below.

• What can the creditor do to me if they win the lawsuit?

The most common debt collection method is garnishment of wages. Most creditors can take about 25% of your take-home pay for as long as it takes to satisfy the debt, attorneys’ fees, and accrued interest. Another popular tool is the seizure of money in your bank account. If you have had money taken from a bank account, contact an attorney right away, because there’s a chance you can get a big chunk of it back. Less common collection methods are liens against your home or car, attachment of tax refunds, and others.

• How do I file an answer?

Some creditors will include a blank answer form with the summons and complaint for you to fill out. If they haven’t, you can get a one from the court’s website, or contact my office for one. Take it to the clerk of court and pay a filing fee of about $100-150. It is strongly recommended that you consult with an attorney prior to drafting your answer because the debt companies will use your answer against you if it’s not prepared in a specific way.

• What’s the benefit from filing an answer?

The greatest benefit is that, sometimes – especially when the answer is prepared by an attorney – the debt collector just stops the lawsuit. They want to collect the most money with the least amount of work, so your answer indicates that you’re not going to let them walk right over you. Another benefit is that filing an answer will give you time to either negotiate a settlement, or get your bankruptcy ready.

• Should I fill out the “Optional Information Sheet” included with the summons and complaint?

No, the creditor will just use this information against you. However, if you are presented with a similar list of questions that are not designated as optional or voluntary, you may need to answer and return them promptly or you could face a contempt of court citation. If you’re not sure which one needs to be returned, call my office for help.

• Should I still respond if I’m pretty sure that I do owe the debt?

In addition to the other benefits that come from filing an answer listed above, there are other reasons not to just give in if you’ve been sued. Even if you did incur the debt, it may be old enough that the creditor no longer has the right to sue you for it. Additionally, creditors will often try and collect additional fees and interest from you that they are not entitled to you. Because a judgment stays on your credit report for several years, it’s in your interest to resolve the matter before the end of the case.

• Can I stop a wage garnishment once it’s started?

Only a bankruptcy, loss of employment, or dramatic reduction in income can stop a garnishment.

• Can a bankruptcy help me?

It’s not too late to file bankruptcy even if you’ve been sued, have a judgment against you, or are being garnished. Bankruptcy can stop your creditors from calling you and seizing your money or property, wipe out debt, and give you a fresh start. The sooner you seek help from an experienced bankruptcy and debt resolution attorney, the better.

This document is designed for general information only. The information presented herein should not be construed to be formal legal advice, and does not create an attorney-client relationship. Please contact an attorney before making any legal decisions.

As a result of recent financial turmoil, many people who bought their homes expecting the value to go up have seen exactly the opposite. What are your options for getting out of a home that’s worth less than what you owe on it?

My Home is Underwater – What do I do?

When you owe more on your home than it’s worth, trying to get your financial life back on track can be a tough to do. Holding onto a home on which you’re significantly underwater is not only a bad investment, but it can also compromise your ability to fulfill your other responsibilities. Fortunately, with the help of an experienced professional you can take advantage of one of several options which will allow you to put the consequences of the recent recession in your past. While each of these options will likely have a negative impact on your credit, in many circumstances this will be a reversible and worthwhile price to pay to get out of a bad loan.

Just Walk Away

A limited number of states have laws, called anti-deficiency statutes, which provide that if your home is surrendered, the lender can’t sue you to recover the difference between what you owe and what the home eventually sells for. These are states that have decided that lenders, and not consumers, should bear the greater risk of a market downturn. There are a few downsides to walking away, however. The laws do not protect you from the negative impact that a surrender will have on your credit. Additionally, mortgage lenders in anti-deficiency states can very slow to take legal title to abandoned properties, leaving you responsible for HOA fees, property taxes, and premises liability. Additionally, the lender’s delay in retaking the property may lengthen the amount of time before you can qualify for financing to buy another home.

Loan Modification

If you expect your home to recover its value in a reasonable amount of time but are having a hard time making payments, it’s probably worth attempting to modify the loan. Every loan modification is done on a case-by-case basis so the results vary dramatically, but possible outcomes include forgiveness of missed payments or moving them to the end of the term, reduced interest rates, reduced payments, and very rarely a reduction of principal. Start by calling your local HUD office for free or low cost assistance, as they may already have agreements worked out with lenders and are familiar with the process. If you decide to attempt a loan modification, you’ll need to be patient and persistent. A common complaint is that the lenders frequently lose paperwork or requests the same information multiple times, so be sure to keep detailed records and copies and keep at it.

Short Sale

In a true short sale, you sell your home for less than what you owe on it and the lender agrees to forgive the difference. This is different than what many realtors and lenders have been calling a short sale – a transaction in which the sale of your home for less than what’s owed is approved, but the lender retains the right to sue you to collect the unpaid balance on your loan. This major distinction makes it very important that you find a realtor who has a strong background in short sales, rather than someone who is just marketing themselves that way. Getting the wrong type of short sale can be worse for you than doing nothing at all, and an experienced realtor will know what sorts of offers are most likely to get accepted by the bank.

Deed in Lieu of Foreclosure

A deed in lieu involves the voluntary surrender of property to lender, thus avoiding the expensive foreclosure process and a time consuming and effort intensive short sale. Most lenders won’t even entertain this option unless you’ve had the home on the market for some time and you can show that you can’t afford to keep paying. Because a deed in lieu results in the lender avoiding the legal costs of foreclosure, they may be willing to offer you a small amount of money to vacate quickly and keep the property in good condition, sometimes know as a “cash for keys” program. As with all of the options listed here, you’ll want to have this process overseen by an experienced real estate professional or attorney to make sure that you don’t remain liable for the deficiency.

Chapter 13 Bankruptcy

Chapter 13 bankruptcy is a powerful tool which, in some instances, can allow you to both keep you home and dramatically reduce the amount you owe on it. The first benefit to Chapter 13 is that it will stop a foreclosure, even if you’re very close to the sale date. Second, Chapter 13 provides you with an opportunity to get caught up on missed payments over a period of three to five years. Finally, you may qualify for what’s known as a Lien Strip. In a nutshell, if your home is worth less than the first mortgage, certain additional encumbrances like a second mortgage or line of equity secured by the property can be “stripped off” – that is, you’re no longer responsible for them. While bankruptcy is a time consuming endeavor, the protections provided by the court often make it a smoother process that those listed above.

Chapter 7 Bankruptcy

Chapter 7 is designed to give you a “fresh start,” in that it provides a discharge of your debt in as little as a few months without the repayment required in a Chapter 13. This means that you can walk away from your home and most of your debt without worrying about being sued months later. That said, a Chapter 7 may also help you to keep your home by improving your ability to pay your mortgage (as you won’t be paying those huge credit card bills anymore), or by giving you some leverage with the bank in your negotiations over a loan modification. Chapter 7 is most appropriate when you have a significant amount of debt in addition to your mortgage. While Chapter 7 bankruptcy likely has the greatest negative effect on your credit score, it does give you the most comprehensive benefit and provides the quickest path back to home ownership under many forms of financing.

Important Considerations

Lenders are not in the business of letting you off the hook easily, so you’ll want to make sure you have an experienced advocate on your side. This will help you avoid the unpleasant surprise of a debt collection lawsuit months after you thought you were done and ready to get on with your life.

Also keep in mind that each of these tools may have some form of tax repercussion. Forgiven debt (but not debt discharged in bankruptcy) is treated as income for tax purposes and may result in a liability at the end of the year. While Congress has passed legislation under which, for a limited time, the debt forgiven on a primary residence is not treated as taxable income, the rules surrounding the application of this legislation are very specific rules, so be sure to consult your CPA or attorney.

With the phonebook filled with page after page of lawyers, how do you choose the best one for you? 

The first question asked by many people considering filing bankruptcy is whether they even need an attorney. While a complete answer to this question is beyond the scope of this entry, The Administrative Office of the United States Courts offers the following guidance: “While individuals can file a bankruptcy case without an attorney or “pro se,” it is extremely difficult to do it successfully. It is very important that a bankruptcy case be filed and handled correctly. The rules are very technical, and a misstep may affect a debtor’s rights. For example, a debtor whose case is dismissed for failure to file a required document, such as a credit counseling certificate, may lose the right to file another case or lose protections in a later case, including the benefit of the automatic stay. Bankruptcy has long-term financial and legal consequences – hiring a competent attorney is strongly recommended.”

Once you’ve determined that you want the help of an attorney, keep in mind the following points when selecting a lawyer to help you through this process:

Don’t wait to talk to someone

Even if you haven’t missed a payment, received a creditor’s call, or decided that bankruptcy is right the best choice for your family, there are a number of ways in which you can benefit from meeting with an experienced bankruptcy attorney. First, a good attorney can tell when someone doesn’t need to file bankruptcy and will give you suggestions on other ways to address your debt that you may not have considered. Second, an attorney will help you avoid the common mistakes made prior to filing bankruptcy that cause problems and cost money down the line. Additionally, the more time an attorney has to work with you prior to filing the case, the better your bankruptcy will be. Finally, once you’ve hired an attorney the vast majority of your creditors will stop calling you, which can be a huge relief.

Price should be just one of many factors you consider

If you’re contemplating bankruptcy, the last thing you want to do is spend more money than you have to. However, resist the urge to base your decision-making solely on attorney’s fees. The primary reason is because price can be misleading. Some firms will advertise a very low price that either doesn’t apply to very many clients, or fails to include some services which are essential to the bankruptcy process.

Another way that price can be misleading is that in bankruptcy, paying a little more upfront for quality work generally winds up saving you a considerable amount at the end of your case. Hiring the cheapest attorney you can find may result in cutting corners, outsourcing the vast amount of work to non-attorneys, or a rushed or sloppy bankruptcy petition.  A poorly prepared bankruptcy almost always results in the client surrendering hundreds or thousands of dollars worth of money or property to the trustee that you would have otherwise been able to keep.

When choosing an attorney, keep in mind that you’re not buying a product, but a skilled service. Not all bankruptcies are created equal and you can only file for chapter 7 bankruptcy once every 8 years, so you’ll want make sure it’s done right the first time. A useful question to ask yourself is: Who do I want handling one of the most important legal matters of my life?

Treat the initial consultation like a job interview

You should go into the initial consultation with an attorney with two goals in mind: To learn about your options for dealing with debt, and to decide whether the attorney with whom you meet is the best fit for the job.  You don’t have to hire the first attorney you talk to, and probably shouldn’t if you feel pressured to do so.

Bankruptcy is incredibly cooperative, so it is of the utmost importance that you find someone you feel comfortable with and who communicates well. On this point, you should remember that the attorney you meet might not be the person that you communicate with most often. Ask who does the majority of the work on your file – this might be an associate attorney, a paralegal, a receptionist, or data entry personnel – and speak with them.

You may want to ask how many cases the firm filed in the last month. While a big number may sound impressive, it may also indicate that the firm is places more of an emphasis on volume than precision. Ask how the firm can provide you with the personalized service you need.

What other work do they do? While a law office practicing only bankruptcy and debt law is not always going to provide the best experience, a firm that offers a multitude of different services may not have a sufficient emphasis in the unique area of bankruptcy law to give you the best experience. Look for an attorney with genuine interest in helping people with their debt rather some someone who has simply added a bankruptcy desk to existing practice because there seemed to be money to be made. Affiliations with organizations such as the National Association of Consumer Bankruptcy Attorneys or the American Bankruptcy Institute can indicate a genuine interest in and higher level of dedication to bankruptcy law.

You’re the star of the show

In the end, remember that whether you have a mediocre bankruptcy attorney or a really good one, your lawyer can’t do anything without your full participation and cooperation. If you make the decision early on to be the best client possible, you’ll find the whole process to be much easier and maybe even enjoyable.