Bankruptcy Alternative: Just Don’t Pay
Some people want or need an alternative to Chapter 7 bankruptcy.
Meet Henry Hudson and his wife Beth. They came to see me several years ago. Their alternative to bankruptcy was a two part plan: just don’t pay, and “call my lawyer.” Here’s why.
Henry and Beth were elderly, he was retired, she was working a little. They had credit cards they couldn’t pay, about $40,000.
They could file Chapter 7 bankruptcy and clear those debts. But they didn’t want to. They owned an investment that had lots of sentimental value, and if they filed Chapter 7 bankruptcy, the court would sell it. The creditors would only get 10 cents on the dollar or less, if it was sold, but the emotional loss to the Hudsons was more than they were willing.
“Call my lawyer!”
When the bill collectors call, tell them to “call my lawyer.”
So I told them, just don’t pay. (They were already about five months behind when they came to see me.) And start taking the calls! When they call, tell them “call my lawyer!” We’ll see if that get’s them to leave you alone.
Henry and Beth paid me $700 to rent my fierce reputation, plus $100 a month. We met in person every three or four months. Years went by. I told them, if the bill collectors leave you alone too long, they are too late. That’s called the statute of limitations.
How Long is the Statute of Limitations?
Original creditors, like the credit card companies, have five years to take you to court. If they wait longer than that, they are too late. (That’s in Virginia; other states can be more or less.) For debt buyers, people like LVNV, Midland, Portfolio, it’s probably only three years, arguably two. (The three years was based on Opinion of the Attorney General 10-028. The current Virginia Attorney General appears to have deleted it.)
Finally, years later…
Finally, years later, Henry got court papers from one the biggest credit cards, around $8,000. We had met just two months before and I told them I thought time had run out and everybody was SOL (Statute of Limitations.) Now there’s court papers.
We File Chapter 13
Chapter 13 is a payment plan through the bankruptcy court. In Chapter 13, you don’t put your property at risk (unless you want to sell it) because you are paying your debts. Henry and Beth file a plan to pay their debts in full.
Pay in full? Yes, but not $40,000 that would have been payment in full when we first talked. Pay in full all the debts that were not SOL. Turned out only one $700 recent credit card was not too old under the Statute of Limitations. Including the one that had filed the warrant in debt.
So that $700 card got paid in full; and the other debts were just gone.
This Doesn’t Always Work
We were helped that Henry and Beth did NOT owe money to Discover. Discover is very quick to sue. Their cars were paid for. And they were renters, not home owners. That means their credit report did NOT show any debts actually getting paid.
It’s My Job to Suggest the Best Plan for You
As a lawyer, I’m a fiduciary. I’m required by law and legal ethics to give you the best advice I have. Even though I’m a bankruptcy lawyer, sometimes a non-bankruptcy solution works best. And when it does, I tell you.
For most people, bankruptcy works.
But when “just don’t pay” will work better, I’ll tell you so.
PS More on the statute of limitations
The Washington Post just had this interesting article, about how debt collectors can try to get around the statute of limitaitons.