Indiana Bankruptcy Blog-Dealing with Collectors

          A great majority of the people who come in to see me at Halcomb Singler to discuss bankruptcy are stressed out over how to deal with debt collectors.  Many of these people don't know if they should tell the collector that they are considering filing bankruptcy, don't know what to do when the collector tells them that they have to pay x dollars by the end of the week "or else," or how they should handle collection calls generally.

FOR THOSE WHO HAVE DECIDED TO FILE BANKRUPTCY

       To those who have decided to file for bankruptcy (and hired a bankruptcy attorney), one common question is whether they should tell the creditor they are filing bankruptcy.  The answer to this is when you receive a call from a collector you can tell them you have hired a bankruptcy attorney and that you will be filing for bankruptcy.  My clients are often hesitant to tell a collector that they have hired a bankruptcy attorney that they have hired an attorney and are going to file bankruptcy.  There is no need to treat bankruptcy like a state secret.  Telling the collectors may even help reduce the influx of collection calls you are receiving on a daily basis.  If the collector wants to argue with you about this fact just hang up.

       There is no requirement that you get on the phone and contact all of your creditors to let them know that you plan on filing bankruptcy.  The reasons for this are: 1) your creditors will receive notice of your bankruptcy filing when your petition is actually filed and 2) the intention to file bankruptcy is much different than actually filing bankruptcy.  Specifically, the protections set forth in bankruptcy law do not come into effect until the petition is actually filed with the court, which won't happen until you have met with your bankruptcy attorney to review and sign the bankruptcy schedules.

TO THOSE TRYING TO AVOID BANKRUPTCY

        In the event that the folks I am meeting with are trying to avoid bankruptcy or do a debt settlement I tell them to try to work out payment arrangements with the collectors.  If this is the direction they want to take I remind them not to make promises they can't keep.  Collectors have a habit of saying no to that offer of $50.00 a month and demanding $200.00.  If you don't have $200.00 per month to pay toward that debt don't agree to it no matter how much the collector protests.  There is no point to agreeing to a payment you can't afford because it just creates additional stress in an already stressful situation.  Another, point that I cannot emphasize enough is that no collector should be given the ability to electronically debit your bank account.  The results of this can be disastrous if the collector debits too often, debits more money than agreed, or debits when not enough money is in the account and creates a pile of overdraft charges to go along with the other unpaid debts.

        There is another way to deal with debt collectors, which is to ignore them.  Just don't answer the phone if you don't know who is on the other end of the line.  If you have decided that you are going to file bankruptcy this is perfectly fine.  As stated earlier, your creditors will receive a notice from the bankruptcy court clerk when your petition is filed.  This strategy is best for those who are very nervous or scared to take calls from creditors.  I typically tell people if all it is going to do is raise their blood pressure to speak to a collector, then don't.  This approach is also helpful if the debtor is likely to cave to the collector's pressure and make a payment, give authorization for automatic debit, etc.

       The final point I want to make is so important I am going to yell it at you.

        IF THERE IS NO MONEY TO PAY DEBT COLLECTORS, THERE IS NO MONEY TO PAY DEBT COLLECTORS.

       People I meet with sometimes have a hard time understanding what I mean by this phrase.  What I mean is that you need to put the basic needs of yourself and your family before your debt.  For example, do not use the grocery or rent money to pay a debt collector because this just means that you will tap into another source of creditor to replace these funds.  Stop the bleeding by taking your available funds every months and paying your basic living expenses.  Then, take the funds left after the basic living expenses are paid and, if you are trying to avoid bankruptcy, pay to creditors.  If you are not able to pay all of your creditors with the money left over, pay some of your creditors.  You can only pay who you have the money to pay.  Those collectors who are not getting paid will have to wait or have to pursue some other avenue of collection, such as filing a lawsuit against you.  If you still don't have money to pay a creditor who has filed a lawsuit against you, you still don't have the money.  If the creditor is eventually able to put you in a position that you have no choice but to file bankruptcy even through you were trying to avoid it, such as through a garnishment, you file a bankruptcy.  I guess what I am trying to stress is that there is no situation beyond hope.  You simply take it day by day and do what you can.  Accept the fact that you don't have the money to pay everyone, come up with a plan, and see where the plan takes you.

        I hope that your plan is successful and that you won't need my assistance.  However, to those in central Indiana who need options to debt/settlement and/or bankruptcy, I offer a free consultation.  Contact me for an appointment and my firm will contact you to set up a time.

**This posting has purposefully ignored the Fair Debt Collections Practices Act.....I will try to write about this aspect of collections at some future date.