You are a Minnesota lawyer and maybe you practice in real estate, divorce, or estate planning work, and you meet with a client who has legal issues you can handle, that’s why they call you, but then the client talks about overwhelming debt. All of sudden, your brain freezes, you are not sure what to say or how to handle that issue. Chances are, if the client has overwhelming debt issues, it consumes their life and stresses them out. You excel in your area of law but don’t even know where to begin with a debt problem.I can remember when I first started practicing law, not being sure of what to do with someone like this. Is bankruptcy the answer? I wasn’t sure. I was not confident about what the solution was for the client. I remember meeting with my first client almost 20 years ago and he did have an overwhelming debt problem. I stumbled through the consultation and never really did give the guy any meaningful advice he could hold on to. Why? Because I didn’t know what his choices really were.
If I could go back and write that gentleman a letter and apologize I would! Funny how you don’t remember the stellar legal advice you give but you can certainly remember the less than stellar legal advice you gave. There is a reason why they call this the “practice” of law- because we certainly are “practicing.” After nearly 20 years “practicing” law, I have honed my message to a sharp point. I share this with you so you don’t have to take 20 years to catch up! Having high anxiety, like I do, helps you get to the point much quicker.
So, let’s get on with it shall we? When you meet with your client regarding a legal issue and out plops on the table and overwhelming debt problem too, how do you advise the client on how to resolve the overwhelming debt problem? Do you do what I did years ago and not give the person anything meaningful to resolve the problem because you don’t know what the solutions are? Of course not, that is why you are reading this article right now.
Instead, you give your client the basics on how to resolve an overwhelming debt problem and refer them to an experienced and nice Minnesota bankruptcy law firm, if appropriate. What does this look like? Let’s use an example. If Larry from Minneapolis, Minnesota comes to an Attorney in Minneapolis to discuss a will, but he tells you he has $65,000.00 in credit card debt, what do you tell Larry? You are an estate planning lawyer not a Minneapolis Bankruptcy Lawyer. You know that leaving behind $65,000.00 in credit card debt is not good, but how do you begin to tell Larry how to resolve his credit card debt problem? Here is what I tell my clients their choices are on how to resolve a debt problem.
4 METHODS TO SOLVE AN OVERWHELMING DEBT PROBLEM
1) DO NOTHING
What? Do nothing? That is right, I want to know what the worst case scenario is. With my high anxiety, I want to know what happens if I do absolutely nothing.
So, if Larry does nothing what can his creditors do to him? Well, we have outlawed slavery a long time ago. You cannot go to jail for not paying your debts. This is no joke! This is good to know for people like me. I am glad to hear, and Larry will appreciate knowing, that you will not go to jail if he doesn’t pay the $65,000.00 in credit card debt. Don’t mistake not paying your bills with disobeying a court order- which can lead to a civil contempt order and an arrest warrant for violating a court order. For example, if one of Larry’s creditors gets a judgment against Larry, the creditor is able to find out certain information from Larry. Larry can’t hide the ball in terms of what he owns, where he works, and where he banks at.
Creditors have the right to serve Larry with a court order for disclosure of all of this information. Let’s say Larry ignores the court order for disclosure, the creditor will ask the court to hold Larry in contempt of court for violating a court order for disclosure. The creditor will set a hearing so Larry can explain to the court why he should not be held in contempt of court. If Larry ignores that hearing too, the likely outcome will be the judge finding you in contempt of court and issuing an arrest warrant. Notice that Larry does not have an arrest warrant issued on him for non-payment of the money, he has an arrest warrant issued on him for failing to comply with a court order. Thus, the moral of the story is, if you owe money, you don’t have to pay it, but make sure you fill out and return any court order for disclosure!
What can creditors do to you other than serve you with an order for disclosure? Creditors have the right to obtain a judgment against Larry and, amongst other remedies available to the creditor, they can garnish Larry’s wages and levy on Larry’s bank accounts. Minnesota law limits how much a creditor can take out of Larry’s wages and bank accounts. In most instances, the creditor cannot leave Larry penniless.
In addition, there is a list of property exemptions in Minnesota Statute Section 550.37. To the extent Larry’s property is exempt, the creditors cannot attempt to seize it to satisfy Larry’s debts. However, if Larry has assets that are nonexempt, creditors may go after them and attempt to seize them from Larry to satisfy Larry’s debts. For example, let’s say Larry owns a home in Minnesota and he owns a condo in Hawaii. The condo in Hawaii has no liens against it and is worth $100,000.00. Larry’s creditors could seize Larry’s interest in the condo by foreclosing on their judgment which would be transcribed to the county in Hawaii that Larry lives in. Most of our Minnesota clients do not own nonexempt assets, but if they do, they have an asset the creditor can use to satisfy their debts.
For most people, including Larry, his only real risk is garnishment of his wages and a levy on his bank account. Most people, including Larry, do not want to live with creditors garnishing 25% of what he makes. Most of us, including Larry, spend what they bring in each month on their bills. If you take 25% and give it to one creditor, the debtor usually is handicapped and cannot pay his/her other bills.
2) TRY SOME FORM OF DEBT CONSOLIDATION
Larry could turn to some form of debt consolidation to solve his debt problem but there are troubles with doing that. I always tell my clients that when you do any form of debt consolidation, you are a walking bill board that you are financially distressed and your credit score will go off a cliff. Many of our clients will try or have tried debt consolidation, in an effort to avoid discussion of the “b” word, but most live to regret it. Why? Have you ever been sold something by the “A” team and then once you purchased the service or item you felt like you were now dealing with the “B” squad?
So it is for many with debt consolidation companies. So many of the people you initially speak with make the debt consolidation plan seem like it will be the best thing you ever did. When you are desperately looking for a solution you want to believe it too. Truthfully, it would be what I would want to do too. We all would. My experience is people want to pay their bills and have a strong inclination to do so despite the myths about people who file bankruptcy- that they took the easy way out etc. Not true for the vast majority of people who have debt problems. We all want to pay our bills even when the forces working against us make it difficult to do so.
So it is that many people try debt consolidation plans. As stated above, debt consolidation injures your credit from the start. But that is not the real problem with debt consolidation plans. The real problem is creditors are not legally bound by the plans. If one of Larry’s creditors believes that he could garnish Larry’s wages and receive more than what the creditor is receiving in debt consolidation plans, than why would they participate in the plan? The short answer is they would not.
Would you agree to take $100.00 per month knowing that you could garnish Larry’s wages and take $600.00 per month? Of course not, and you would not either! So, after paying on the debt consolidation plan for 14 months, Larry’s employer gets served with a wage garnishment. Larry then calls the debt consolidation company and guess which team Larry gets? Do you think he speaks to the rah rah “A” team or do you think he speaks to the what do you need “B” team?
That is correct- he speaks to the what do you need “B” team. And then Larry feels this bad feeling in the pit of his stomach- oh and rage too for being promised this would be the best way to resolve Larry’s debt problem and it was not. That is when our phone rings. I feel terrible for these people.
3) File CHAPTER 7 BANKRUPTCY In Minneapolis
One of Larry’s choices is to do a chapter 7 bankruptcy. One of the myths associated with bankruptcy is it ruins your credit. Really? First, do you think that having $65,000.00 in credit will ruin your credit? You bet it will. Second, do you think debt consolidation ruins your credit? You bet it does. The fact is Chapter 7 bankruptcy improves your credit. WHAT? It is true.If Larry files a chapter 7 bankruptcy, multiple things will happen simultaneously. One, he will have solved a problem that has been around for a long time. Two, he will have less or no debt, so his credit score will increase. Third, with less debt, and a better credit score, banks are more willing to lend you money.
I know this seems strange but it is true- for most people knee deep in debt, a bankruptcy can only improve their credit situation. So many times, a client will ask me- Wes, can I get a car loan or a house loan after a chapter 7 bankruptcy? Can I rent an apartment? I usually reply with can you now? Usually the answer is hell no or yes with a much higher interest rate. Than what is the difference?
Being in debt is like being in a bad relationship- it gets tiring having the same conversations day after day. Being in debt keeps you tied to the past. If only we would not have done this or that or only if Ben would not have broken his arm playing baseball etc. Filing a chapter 7 bankruptcy stops these conversations and moves you own with the rest of your life sooner. Filing a bankruptcy means getting your life back. Why? Because you are pushing the reset button and moving on with your life.
4) File CHAPTER 13 BANKRUPTCY in Minneapolis
Why would anyone do debt consolidation when the government sponsors a wonderful debt consolidation program? We often wonder. In a chapter 13 bankruptcy, if your client has 100k in credit card debt but only pays 20k through a chapter 13 3 year plan, 80k of debt gets wiped out, or discharged, tax free, forever!
Not only that but creditors are barred from collecting from your client while in the plan, untrue in traditional debt consolidation plans. So, besides the other benefits of a chapter 13 plan, like stopping foreclosure sales and curing mortgage arrears, keeping vehicles from being repossessed, and your client not losing ANY assets, your client only pays based on what he/she is able to pay for a certain period of time, and that is it!
I am not sure I have ever spoken to a person who has tried traditional debt consolidation who didn’t think a chapter 7 or chapter 13 bankruptcy was a far better solution to their debt problem. With that said, flowers bloom at different times. Some people need to go down certain roads before they reach the promised land.
For more information, click here to visit us online at or contact me or a Minneapolis Bankruptcy Attorney from my firm at:
100 South Fifth Street #1900
Minneapolis, MN 55402
(612) 843-0527
info@kainscott.com
