Last week I touched on the details of an Order of Relief and Automatic Stay as they related to freezing the foreclosure process during a bankruptcy. This week I’d like to touch on an issue that affects nearly everyone considering filing for bankruptcy protection; creditor harassment.

Perhaps the most uncomfortable aspect of overwhelming debt is the harassing phone calls and threatening letters that accompany late payments and overdue balances. Collection agencies are relentless and it’s highly unlikely they will listen to or care about your unique financial situation. Because these collectors are compensated by commission, meaning they keep a predetermined percentage of the amount collected they have zero incentive to work with the debtor or to ensure that the debt they are attempting to collect is valid. Repetitive calls from aggressive collectors can be extremely stressful and overwhelming during times of severe financial burden. Not to mention many of the activities conducted by some collections agents are downright illegal.

If you are considering filing for bankruptcy you’ve probably already encountered your fair share of unscrupulous debt collectors. The constant harassment and threats may have even contributed to your decision to file bankruptcy. The bad news is, as the old cliché goes, it gets worse before it gets better.

Once collection agents catch wind of your intention to file bankruptcy the harassing calls and letters will intensify. Their goal is to get you to pay some, if not all, of the collection amount before you are able to file your bankruptcy. A person in the process of preparing a bankruptcy can expect collection companies to use just about every trick up their sleeve to get you to pay. Some of their threats and tactics are even illegal but many collections companies persist on the assumption that you, the debtor, won’t have the time or financial resources to challenge their actions in court. However, there are a few things you can do to stop creditor harassment prior to filing.

Know Your Rights

The Fair Debt Collection Practices Act (FDCPA) protects consumers against unfair collections practices. Under the FDCPA you have the right demand collectors stop calling you by writing what’s called a “cease communication” letter. A cease communication letter will tell the creditor you are no longer willing to discuss the debt with them and under the FDCPA they are no longer legally allowed to contact you except to inform you of actions they are taking to collect the debt or to cease collecting the debt. However, they can not contact you daily to threaten or harass you into paying them money. The letter must in written form, must be dated and it is a good idea to mail it certified to ensure confirmation of delivery.

Some unethical or just unconcerned collection agents might still attempt to contact you after receiving a “cease communications” letter. If the collections attempts persist, you have the right to demand the creditor validates the debt. The FDCPA provides that no debt is automatically considered valid, and therefore gives the consumer the right to obtain proof of said debt and dispute the amount, etc.  If a debtor disputes a collection attempt and requests validation the creditor has five days after the initial conversation to send a letter to the debtor with the amount of the debt; the name of the creditor; and a statement that provides the consumer 30 days to dispute the debt before it will be considered valid. If the debtor disputes the debt or amount within the 30 day period the collector is then obligated to obtain verification of the debt. If the creditor refuses and persists in collection attempts the consumer has a right to sue and/or the debt could be excused by a court.

Collections Attempts After Filing Bankruptcy

Once you have filed for Chapter 7 or Chapter 13 bankruptcy protection collection activity should stop. The Automatic Stay provides that all collections activity cease while your case is in bankruptcy. This includes phone calls, letters, lawsuits, and wage garnishments. Occasionally a stray collections agent will call attempting to collect on a debt. You simply need to inform them you have filed for bankruptcy protection, provide them with your case number and attorney’s contact information and hang up the phone. You do not need to answer any collection agent’s questions or discuss the debt with any person other than your attorney.

Deciding to file for bankruptcy is a major decision that an individual faces.  A hasty decision is never a good idea.  It is usually always a good idea to talk with an attorney so that the individual contemplating bankruptcy has a better understanding of the process, regardless of whether or not that person decides to actually hire the attorney.  You can learn more about all the people involved in a bankruptcy.

The first question that individuals usually ask is how can I afford an attorney if I am filing for bankruptcy?  According to http://www.bankrate.com/brm/news/debt/20070615_bankruptcy_cost_lawyer_a1.asp, there are five ways one can reduce the cost of a bankruptcy attorney.  First, a debtor should add attorney payments to the bankruptcy case.  Debtors can stop making payments on certain debts, such as credit cards, in order to pay for a bankruptcy lawyer.  Second, look for reduced fees and pro bono attorneys.  Many attorneys have free consultations.  Third, limit the scope of the legal representation.  Limited scope of legal representation allows an individual to go to an attorney and have the attorney represent you on only part of your case.  Fourth, another possible route is free legal help.  An individual should ask if their local Bankruptcy Court has a pro se desk.  Finally, there are other resources out there that can be used to help an individual through the bankruptcy process.

The second most frequently asked question is how much do attorneys charge to file a bankruptcy?  According to http://www.ehow.com/about_5318883_much-do-attorneys-charge-bankruptcy.html, each attorney has a different way of charging for a bankruptcy.  Some will charge by the hour and some will charge a flat fee.  However, some will ask for a retainer with the rest of the payment to follow.  In addition to attorney charges, additional fees come about in a bankruptcy that you need to be aware of when choosing a bankruptcy lawyer.

According to http://www.bankruptcylawnetwork.com/2007/06/29/how-do-i-pay-my-bankruptcy-attorney/, most bankruptcy attorneys will offer the option of paying fees in installments, and in many cases an attorney can advise the prospective client how to restructure debt payments in anticipation of bankruptcy in order to free up enough money to pay the fees.  The best tip is to look for a bankruptcy lawyer who offers a free or low cost initial consultation, and get the attorney’s advice.

 Bankruptcy is one of the most difficult decisions an individual ever has to make.  Before making a decision on whether or not to file for bankruptcy, an individual should talk to an attorney and explain his or her situation.  According to http://www.daveramsey.com/article/the-truth-about-bankruptcy/ <http://mail.ssrl.com/exchweb/bin/redir.asp?URL=http://www.daveramsey.com/article/the-truth-about-bankruptcy/> , bankruptcy is not something that he would recommend any more than he would recommend a divorce.  Few people who have been through bankruptcy would report that it is a painless wiping-clean of the slate, after which they just start fresh.  Bankruptcy is listed as one of the top five life-altering negative events that a person can go through along with divorce, severe illness, disability, and loss of a loved one.  Bankruptcy leaves deep wounds both to one’s credit report and to one’s psyche. 

            According to http://www.debtconsolidationcare.com/avoid-bankruptcy.html <http://mail.ssrl.com/exchweb/bin/redir.asp?URL=http://www.debtconsolidationcare.com/avoid-bankruptcy.html> , there are seven reasons to avoid bankruptcy.  One, an individual’s credit is badly hit if that person files for bankruptcy.  Two, an individual may lose their property.  Three, not all of an individual’s debts can be eliminated.  Four, creditors and lenders of an individual may repossess property.  Five, bankruptcy has an adverse effect on an individual’s other finances such as buying a house, renting a home, or buying a car.  Six, an individual may not qualify for a secured loan for at least 2-4 years.  Finally, not all retirement plans are protected, if an individual files for bankruptcy. 

            Remember, there are a lot of benefits to filing bankruptcy, if a person has no other option.  However, a person who is contemplating filing for bankruptcy has to consider the negative effects of filing for bankruptcy. 

            According to http://www.financial-edu.com/why-should-you-avoid-bankruptcy.php <http://mail.ssrl.com/exchweb/bin/redir.asp?URL=http://www.financial-edu.com/why-should-you-avoid-bankruptcy.php> , there are four good ways to avoid bankruptcy.  One way to avoid bankruptcy is to do debt consolidation.  Another way to avoid bankruptcy is through individual voluntary arrangements which enable an individual to reach a compromise with their creditors and avoid the consequences of bankruptcy.  Third, an individual could use counseling services from many free organizations for effective debt management.  Finally, an individual has the option to sell off everything, including their valuable assets, to pay off their various debts.

Just like individual debtors, a corporation can file for bankruptcy as well.  Just like an individual, a corporation must weigh the pros and cons of filing bankruptcy.  According to http://www.ehow.com/way_5717286_procedures-corporation-filing-bankruptcy.html, filing for bankruptcy on behalf of a corporation is different from filing as an individual, even though a corporation is treated as a separate legal entity under corporate law.  The financial and tax consequences of bankruptcy for a corporation can be complex and hard to predict.  Before a bankruptcy application is finalized, these consequences need to be taken into account.  

There are two main forms of corporate bankruptcy.  There is a Chapter 7 bankruptcy where a trustee is appointed by the court to supervise corporate assets, liquidate the assets, and distribute money to the corporate creditors.  In a Chapter 11 bankruptcy, the corporation submits a plan for reorganization of its operations.  According to http://www.corporationbankruptcy.net/, many businesses choose a Chapter 7 corporation bankruptcy when they will shut down the business or “go out of business” and liquidate all their assets.  One result of a Chapter 7 corporate bankruptcy is the loss of jobs for the company’s employees.  Sometimes a company makes this choice based on hardship within the company; other times the company’s creditors make the choice to file a Chapter 7 corporate bankruptcy. 

What happens to the stocks of a corporation, if the corporation files for bankruptcy?  According to http://www.sec.gov/investor/pubs/bankrupt.htm, a company’s securities may continue to trade even after the company has filed for bankruptcy under Chapter 11.  In most instances, companies that file under Chapter 11 of the Bankruptcy Code are generally unable to meet the listing standards to continue to trade on NASDAQ or the New York Stock Exchange.  However, there is no federal law that prohibits trading of securities of companies in bankruptcy.  Regardless, investors should be cautious because buying stock in companies that have filed a Chapter 11 bankruptcy can be risky.

I’VE BEEN SERVED WITH A LAWSUIT, WHAT SHOULD I DO?

In Arizona, you have 20 days to file an Answer to the Complaint in the Court where the lawsuit was filed.  Consult with an attorney who is knowledgeable in Consumer Rights Litigation and Bankruptcy as early as possible to give yourself time to plan ahead.  Maricopa County Justice Court Flowchart.

• A lawsuit is commenced when the creditor files a Complaint with the Court
• The debtor can admit or deny the allegations in the Complaint by filing an Answer with the Court.
• If no Answer is filed or if the allegations are admitted, the judge will issue a judgment which is an Order establishing the creditor’s legal right to collect money from the debtor.
• Collection of a judgment is commenced when the Court issues a writ of Garnishment.
• If the writ of garnishment is served on your employer, the employer must withhold 25% of your net wages from each paycheck which is sent to the creditor.
• If the writ of garnishment is served on your bank, the bank must turn over your money on deposit to the creditor.

So, don’t ignore a lawsuit.

You do not want to allow a creditor to obtain a judgment against you; however, the impact of a judgment can be minimized by filing bankruptcy.  Consult with a knowledgeable attorney as early as possible even before you are served with a lawsuit.

STEP #1, ANSWER THE LAWSUIT:

The Federal Trade Commission insists on the importance of filing an answer to preserve your rights (FTC).  If you fail to file an Answer which denies the allegations and raises legal defenses to the Complaint, the Court will grant the creditor a judgment which will include interest, costs and attorney fees.  Even if you owe the creditor money, you may have a dispute over the amount owed or the amount of its claim for interest, costs or attorney fees.  Filing a properly worded Answer will slow down the process and give you some additional time to prepare for filing bankruptcy or minimizing the exposure to your assets before the creditor obtains a judgment.  Court Forms.

STEP #2, MOVE YOUR BANK ACCOUNT OR STOP DEPOSITS INTO YOUR BANK:

Pre-bankruptcy estate planning is the most valuable benefit from consulting with an attorney before filing bankruptcy.  Once the creditor has a judgment the creditor will attempt to find your assets and execute the judgment.  Perhaps the creditor already knows where you work and where you bank.  Has your creditor called you at work to request payment before a lawsuit is filed?  Have you used a check on your bank account to pay the creditor in the past?  If so, then the creditor knows where to go to get your money.  Move your bank account. If the creditor does not know this information, you may be ordered to appear at a “judgment debtor examination” which is a deposition conducted by the creditor’s attorney to ask you questions under oath about what you own and where you keep your assets, including bank accounts.  After the judgment debtor examination, during which you must testify truthfully, you might think it wise to move your account or stop making deposits into the bank account.  Use a check cashing service to cash your paycheck and use money orders to pay your bills.

A bank cannot turn over to the creditor a bank account which is exempt.  If you receive funds which are exempt, such as Social Security or Worker’s Compensation Benefits, those funds must not be co-mingled with other non-exempt funds.  Keep those funds in a totally separate account which the bank has labeled as your “Social Security Account” or “Worker’s Compensation Account” and the bank will not touch those funds in responding to the writ of garnishment.  However, if these funds are co-mingled with non-exempt funds, the entire amount is non-exempt.