How To Stop Your Creditors Cold!

If you're afraid to answer the phone because your creditors havebeen calling every night; and you're worried that one of them isgoing to call your boss and tell him you're a deadbeat; andjust trying to pay off your bills leaves you almost nothing forfood - it time you thought about bankruptcy!

With a small amount of money, a lawyer (and even he's notnecessary a lot of the time), and a careful evaluation of yourassets (what you own) and your liabilities (what you owe), youtoo can make a new start with the help of the Federal and Statebankruptcy laws. But don't rush into this without carefullydetermining which is the right way for you, for there areseveral different ways to stop your creditors cold, and choosingthe wrong way can result in your losing much more than you mightotherwise have to.

Straight Bankruptcy Usually Costs Less, and It's Quick!

If you have very few assets, and lots of debt, and not enoughincome to pay the debts off, even on an extended plan (moreabout that later), then you will probably have to file straightbankruptcy. You must file the proper forms (or "schedules")which you can purchase from any really good office supplystationery store in your nearest city, especially one in adistrict where there are lawyers' offices.

Bankruptcy is not a very complicated court action, so don't betoo afraid of it. You will need to know which district you livein for Federal Court purposes; look in the telephone (whitepages) under U.S. Government - Courts, and locate the U.S.District Court in your nearest city. Probably that court hasjurisdiction; but check this out by phoning the Clerk of theCourt and asking him, giving him you home address. You willhave to fill out several "schedules" or lists of your creditors:creditors having priority, creditors having security, andcreditors having unsecured claims without priority. You mustlist every creditor, for any one that is not listed can stillsue you and collect, even after the bankruptcy! If you don'tknow if a debt is secured (backed up by a related asset, likerefrigerator bought on an instalment loan) or unsecured (madeonly on your personal reputation, with no related asset), askthe creditor. Include as a creditor the name of anyone for whomyou co-signed a loan or note, and anyone who co-signed for you.

What Will You Have Left?

Will you be put out in the cold without food, clothing and ahouse to live in after your creditors get paid? Not at all -because most State bankruptcy laws allow some of your assets tobe "exempt" from being used to pay your creditors! You mustcheck the specific laws of your State, but usually, the houseyou live in, the tools of your trade, your personal clothes(within reasonable limits) and certain specific basic homefurnishings are all not taken away from you. In fact, in thistotally absurd world we live in, many States now permit you toalso keep your TV set(!), because, apparently, they regard it asa necessity for life!

Where to File

Once you have all the forms filled out and notarized, bring themto the Clerk of the U.S. District Court in your district, alongwith $50. You don't have to notify your creditors - the Clerkdoes that, while also reminding them that now that you havefiled bankruptcy papers, they may not press you for any moremoney, but may come to your hearing.

Usually your creditors don't show up, since by that time youhave filed bankruptcy, you have very few nonexempt assets leftthat they are interested in. Whatever assets you do have thatare not exempt (if any) must be sold under the Court'ssupervision. Any money thus realized is added to whatever cashyou may have had at the time you filed (if any) and the totalamount (which might be, and often is, as low as $50 or $750 isdivided up by the trustee appointed at your hearing and yourcreditors get paid on a pro rata (proportional) basis to the amount you owe them. If your assets add up to an amount that,for example, only allows each creditor 3 1/2 cents for everydollar of debt you owed them, then that 3 1/2 cents is all hegets!

About three months after you have filed, you adjudged"bankrupt". and you can start over again to incur, pay bills andestablish a new credit record. Be careful, however, abouttalking to your old credits at this time. They may offer tohelp you out by extending new credit, and manoeuvre you intosigning "reaffirmation" of your old debt! Ready anything yousign very closely, and don't agree to repay any debt that youhave already discharged through your bankruptcy!

Lawyers for Complications

There are some people who should definitely hire a lawyer tohelp them through their bankruptcies, especially people who haveassets like real estate that they want, somehow, to keep. Asidefrom real estate, if you have been accused by any creditor offraud, you should also have a lawyer handle your case. If youdecide you don't need a lawyer to handle your bankruptcy, youare still responsible for filling out all of the formsaccurately and completely, and every bit as carefully as if alawyer had done them. Leaving out a creditor's address from aschedule, or forgetting a loan you co-signed can bring lawsuitsagainst you even after your bankruptcy. So be careful, and ifyou find the bankruptcy process is too complicated, do see alawyer!

Keeping Your Assets Instead

If you've fallen behind in paying your bills, but you don't wantto declare straight bankruptcy, you may want to clean up yourfinancial mess instead through Chapter XIII of the FederalBankruptcy Laws. Also known as the Wage Earner Plan, ChapterXIII differs from straight bankruptcy in two most importantways: you must pay off the entire amount of your debts (no 10cents on a dollar here), and within a 3 year period. but thegood part is you are not declared "bankrupt", so no one everknows that you needed relief under any part of the FederalBankruptcy Acts.

The major advantage of the Wage Earner Plan, besides not beingrecorded permanently on your credit record, is that you get tokeep all your assets, exempt and non-exempt alike (assuming youstill have any left!). This is quite important, if, forexample, you have a good paid-up car, or expensive householdfurnishings or a boat or other valuable assets that you want tokeep. Under Chapter XIII, you can get your current debts"stretched out" to three years, which may well result in lowertotal monthly payments than you are currently paying, and aslong as you pay off your debts in accordance with the agreementfiles with the Court, month by month, no creditor will be ableto sue you to try to seize any other of your assets, and forcetheir public sale at disadvantageous prices.

Even if they have begin to sue you, once you file for reliefunder the Bankruptcy Act, either under Chapter XIII or underChapter XI, straight voluntary bankruptcy, they can't touch you!They are immediately restricted to getting from you only whatthe referee or trustee will give them and that only after thecourt proceedings have been completed. Often, if the creditorthreatens to sue you, the most effective thing you can do tostop him (besides paying the debt!) is to tell him frankly that,if he sues you, you have no other recourse than to declarebankruptcy. This will often make your creditor willing tonegotiate the debt, and you may be able to satisfy him by payingthe debt back, but over a longer period of time (with smallermonthly payments) than you originally contracted for. Creditors know well that if you file bankruptcy, the chance oftheir getting payment in full on their overdue account is verylow, so it is in their interest to try to ease your creditburden at least for a while.

Make Yourself "Judgment-Proof"

If a creditor goes ahead and sues you, and gets a judgmentagainst you, he can then get a court order directing the sheriffto seize your personal property, sell it and pay the creditorthe amount of your debt. However, if you have no valuableassets, there is nothing for the sheriff to seize, and you arewhat is generally called "judgment proof", or in other words,can't be made to pay the debt. Because they know this is likelyto happen, street-smart debtors often hide their possessions, ormove them out-of-state, before the sheriff (or marshal) arrives.This is, of course, illegal. The creditor's next move is totry to "garnishee your wages, which he does by getting a courtorder directing your employer to set aside part of your wages orsalary every pay period and turn the amount over to him. However, he can only do this if he knows, or can find out, whereyou work. But even if your wages are garnisheed, there arelimits on what a creditor can take! Laws vary from State toState. In some states wages cannot be garnisheed at all whilein others only small amounts are exempt from garnishment.

If you have no job, and no visible assets, or you live in aState where your wages cannot be garnisheed, your creditorsactually have very few ways of ever collecting on that judgment!

Harassment and Other Creditor Tools

Before your situation gets bad enough to need bankruptcy relief,and before your creditors actually sue you, they will try tomake you pay up using informal techniques, rather than formalcourt orders, as this is far less expensive and time-consuming. First among these informal attempts may be turning their billsover to a collection agency which may then begin harassment, bycalling you often and at odd hours by telephone, by trying totalk to your employer about your debts, and/or by threateningyou with legal actions, etc. Many of these techniques that theyuse are illegal! Yes, a creditor or agency can write youletters, call once a day seeking payment, try to bring legalaction against you, but he is forbidden by law to harass you orinvade your privacy, or use deceptive means to get you to payyour bills. He may not use foul and abusive language over thetelephone, tell anyone beside you the reason for his phone call,insist on payment for a product or service that you claim tohave a legitimate grievance about, nor issue false threats (suchas saying that he is going to drag you into court to collect$35, when in fact his agency's policy is not to file suit onaccounts of less than $100, because of the high legal costsinvolved). He may not inconvenience you (by calling you at workwhen you are not easily able to receive calls), or invade yourprivacy (telling your employer or your neighbor that he istrying to collect a debt from you).

There are books that provide detailed additional information onpersonal bankruptcy, and include sample letters with which youcan try to arrange "stretch-outs" on your own with yourcreditors before bankruptcy is necessary. Some include samplebankruptcy forms filled out that you can use as a model. Sincethe accurate filing of all your debts and assets is soimportant, it's a good idea to follow their detailedinstructions closely, with or without a lawyer, so that once youget your creditors off you back, they stay off!