The threat of a lawsuit being filed is often what causes the first call to my office. Some collector has said he will take 25% of your wages, or will serve a lawsuit, or even will send the account to collection, and the hearer panics. Can I file bankruptcy today? the caller asks.

Remember high school civics, and the Bill of Rights’ promise of due process? Due process, at its simplest form, means that you get legal notice and a right to contest the claim of any creditor before they take your property. So, the only way the average unsecured creditor can take your wages or your assets is to file a lawsuit, serve it on you (notice) and provide an opportunity for you to resist the suit. In short, you will see this kind of creditor coming after you long before they have a legal right to take anything from you.

The unsecured creditors who can take your money without suing you are your bank and the taxing authorities. Your bank has a right of offset under state law: it owes you the return of your money on deposit and you owe it on a credit card or other loan. The bank may take the money in your account to satisfy your debt to it.

The IRS also has a right to levy on your account for unpaid taxes. The Internal Revenue Code has requirements about giving you notice of your tax debt, but the IRS does not have to file a lawsuit to collect its money.

So, in my book, the bank and the IRS are the creditors that have real powers to snatch your money on short or no notice. The collector for a credit card company wants you to think they have immediate and horrific tools to collect their bill, but it isn’t so. It’s just so much easier for them to collect if they gloss over your right to due process.

My colleague Brett Weiss echoes my experience with those in financial trouble: they wait far to long to see a bankruptcy attorney. Many have long since passed the point where they can hope to pay off their debt. They have invaded or neglected their retirement savings in a futile struggle to keep up with their debts. The minimum payments have only postponed facing financial reality.

Those lobbyists and legislators who argued that too many people took the easy way out of financial trouble via bankruptcy clearly never met real debtors who would rather be anywhere else than talking with me about admitting financial failure.

An amazing number of clients are willing to spend the last penny in the bank making payments before declaring bankruptcy.

Those that say that consumers take bankruptcy too lightly simply haven’t talked to anyone in financial distress.

I can report that the “do not contact” letter works, at least with my creditor, ATT. I wrote earlier about my billing dispute with ATT and how I sent a letter citing California’s Rosenthal Act to ATT telling them not to contact me at home.

California’s Rosenthal Act gives consumers many of the rights they have against third party collectors under the Fair Debt Collection Practices Act against the original creditor as well.
Since the first phone call from ATT’s collector, NCO, we have heard nothing about this debt. In my letter, I invited ATT to have someone with authority to settle the matter call me at Moran Law Group to discuss. I have heard nothing at work.

They have also stopped calling at home. I’m cautious about declaring victory, but my bill, now consolidated ATT local service and long distance, doesn’t show the bill for the cancelled service. I just may have won.

See the beginning of this saga.

My blood boils when I read tripe like this pitch from a lender promoting a debt consolidation loan: it’s not a loan, says the headline, it’s a way out of debt. I’m sorry, but that’s baloney.

About sixth grade, I learned that 3+7 and 5+5 both equaled 10. No matter what order the numbers came in, they still totaled the same sum.

Likewise, a consumer is no better off if, instead of having five accounts of $2,000 each, they have one account of $10,000. They still owe $10,000. As my colleague Kurt O’Keefe wrote, you can’t borrow your way out of debt.

My clients, to a man (or woman), want to pay their debts. They are looking for any alternative to bankruptcy. But to call more borrowing a “way out of debt” is like consulting the Humpty Dumpty for financial advice. He, at least, was open that words ” mean just what I choose them to mean”.

The elderly are a growing percentage of bankruptcy filers. The reasons are myriad: health care costs, inadequate retirement savings, and financial entanglements with family. The trend to market home equity loans as a way to live better makes it less likely the mortgage is paid off when retirement arrives.

The question, “Should I file bankruptcy?” is usually most easily answered for the elderly. Younger clients with a significant remaining working life may have options for avoiding bankruptcy. Those options are not generally available for those at the end of their working lives. Incomes will not increase over time. Minimum payments on credit cards are calculated to pay off even small balances over 20-40 years! Seniors don’t have 40 years.
The stress of being in the bill collectors’ cross hairs is less tolerable for the elderly, even if nothing they have would be available to satisfy a judgment.

Discussing money with a senior generation is not easy, but it needs to be done. I’ve seen a number of cases where it is not until there is a crisis that adult children learn that their parent has been living with unmanageable debt. Too often, the senior has stinted on food or medication in order to make the minimum payments on credit cards.

The rational choice may be bankruptcy and a debt free old age.