"Slim Chance"

[RobRedSox13]

OK so I know this question has been asked plenty times before, but I need to have some advice on this specific scenario. It's my girlfriend ... here's the background. She is single, 20 years old, has no job and hasn't for about 5 or 6 months. She isn't collecting unemployment, so has no income except for food stamps and whatever her friends, family, and I do to help. She has a $200 per month car payment on a car she owes $6,000 on still and its worth maybe $2,000. Maybe not even that. She has a $600 per month apartment lease which she is stuck in for about another 10 months. She also has about $5,000 in credit card bills and almost as much in medical bills. Her credit is rock bottom and she is now facing repossession on her car. We've talked a lot about possibly her going through bankruptcy, and she finally went to see an attorney and he told her, based on all of what I wrote above, she had a very slim chance of successfully filing for bankruptcy. Now, this attorney gave her a free consultation so I'm skeptical as to whether or not he is a good source for credible information and am wondering if it would be worth it for her to get a second opinion or possibly more. To those that have experience with this type of situation, do you think she should be able to file and will it benefit her. It just seems like she has no way out and that this really is the last resort. I would really appreciate any help that can be given. I love this girl and will stay by her side through thick and thin, I just need some advice so I can help her do what is best for herself.

[lillymarlene]

Hi Rob, Welcome. I'm sure others with more experience may have more ideas, but at this time I'd say she shouldn't file. She is presently unemployed with no income, and outside of her car, there probably isn't much that her creditors could take. Then, too what if another large medical bill happens after she files? (She would be on the hook for it.) I think your girlfriend should wait until she gets a job, and then maybe file, if she still is unable to pay off her creditors.

Then, also most attorneys (at least around here) give free consults. This can be a good source of information.

[bcohen]

I would also say that she should NOT file for bankruptcy at this time. Bankruptcy is intended to provide relief from creditors when one has assets to protect, and expects an improvement in their circumstances. It sounds to me like your girlfriend has nothing to lose by not filing--i.e. she has nothing which can be seized/liened/garnished by creditors--and may incur other debts such as medical bills in the future. If she files now, then she CANNOT discharge any more debts that might arise for another 8 years. Believe me when I say this--a LOT can happen in 8 years!

Also, it should be noted that bankruptcy will not allow your girlfriend to keep her car or apartment if she is unable to pay for these things. If she at least makes enough money to pay the rent and utilities, then she should quit paying everything else and focus on that. If she can't even pay the rent and utilities, then she should tell the property manager this fact that she is unable to pay and vacate the apartment. That way, she can avoid having an eviction on her credit report, which will make it difficult to rent another apartment in the future when things improve.

If you live in the same city, and have been in a relationship long enough to know that it will work out, maybe you should consider living together, as that will keep costs down for both of you. That way, instead of paying 2 apartment rents, 2 electric bills, 2 gas bills, 2 sewer and garbage bills, etc, you will only be paying one of each. It does not cost much more for 2 adults to live together than it does for 1 to live alone. Just make sure you take care and don't have any additions to your family!

[RobRedSox13]

Thank you so much to both of you for your great advice. I really appreciate it. Maybe you two are on to something. To follow up, I do have another question. And this may be difficult to answer as I'm not sure if it would be based on state laws or not. But let's say she doesn't continue to pay her car payment. And it is repossessed. From what I understand to be true she would be liable to continue to pay for the car plus any other fees as a result of the repossession itself. Is this true? The finance company/dealership threatens to take her to court if she doesn't pay up and I wonder what the outcome of that would be.

Also, as far as the apartment goes. She is under a one year lease and only just a few months into it. We have talked about her moving in with me but would she not have to continue paying her rent or a lump sum to break the lease? Because she certainly doesn't have the money to be able to afford that.

I'm sorry to take this kind of off topic as I realize this is a bankruptcy forum, but it seems to me somebody here certainly would have more knowledge of the topic then I.

[shark66]

Thank you so much to both of you for your great advice. I really appreciate it. Maybe you two are on to something. To follow up, I do have another question. And this may be difficult to answer as I'm not sure if it would be based on state laws or not. But let's say she doesn't continue to pay her car payment. And it is repossessed. From what I understand to be true she would be liable to continue to pay for the car plus any other fees as a result of the repossession itself. Is this true? The finance company/dealership threatens to take her to court if she doesn't pay up and I wonder what the outcome of that would be.

And as long as she doesn't have a job, or hit a lottery, any judgment the creditor would obtain is downright worthless. One can't drain water out of a stone.

Also, as far as the apartment goes. She is under a one year lease and only just a few months into it. We have talked about her moving in with me but would she not have to continue paying her rent or a lump sum to break the lease? Because she certainly doesn't have the money to be able to afford that.

And what exactly can the landlord do if she just packs up and walks away? Apart from keeping her security deposit, that is? Sue her? See my previous response..

I'm sorry to take this kind of off topic as I realize this is a bankruptcy forum, but it seems to me somebody here certainly would have more knowledge of the topic then I.

Good luck to us all.

[lillymarlene]

If she cannot pay the rent, she should somehow try to "break the lease," maybe as bcohen suggested, go to the building manager and tell them she is leaving. Of course her landlord, may still try and collect something, but it would be worse if she just stayed put, and couldn't pay. Then as far as the automobile goes, I could be wrong, but I've never heard of anybody having to pay for a car after repossession.

Then even if somebody does take her to court and wins, it seems that she is fairly "judgement proof." She has no assets to take, and no job where the wages can be garnished.

[RobRedSox13]

I understand what you're saying, but isn't it possible for a judgment to be made and her wages garnished when she does eventually get a job. And then she will be right back in the same position of not being able to pay any other bills. Am I thinking correctly or is there something I am missing? It seems to me bankruptcy would be the only way out of that situation.

[bcohen]

...Let's say she doesn't continue to pay her car payment. And it is repossessed. From what I understand to be true she would be liable to continue to pay for the car plus any other fees as a result of the repossession itself. Is this true? The finance company/dealership threatens to take her to court if she doesn't pay up and I wonder what the outcome of that would be.

Also, as far as the apartment goes. She is under a one year lease and only just a few months into it. We have talked about her moving in with me but would she not have to continue paying her rent or a lump sum to break the lease? Because she certainly doesn't have the money to be able to afford that...

The truth of the matter is that with regard to the car loan and credit cards, most collection agencies, junk debt buyers, and original creditors will not sue unless they see information on the credit report which suggests that the person could pay but is refusing to do so, or that there are assets such as real estate or vehicles which could be seized or liened to satisfy a judgement. Furthermore, even assuming that one of these creditors did decide to file a lawsuit, it would be much farther in the future--usually several years after default. Companies like to wait so that the balance can grow, and the debtor's circumstances might improve. She can always file for bankruptcy protection in the future if someone sues--and the creditors know this!

What the creditors will do is "blow up" your girlfriend's phone with lots of robo-dialed collection calls. If the calls get annoying, she can send a FDCPA letter asking that no further calls be made, or alternatively change her number to an unlisted number. If she has a cellphone, she should probably quit paying it and let the company cancel it. A landline is cheaper and better.

With regards to the apartment, she is best off to go to the manager office and make it clear that she has lost her job and depleted her savings, and can no longer pay the rent, and that she will be out by such and such date. The management company would rather have a person leave voluntarily--and agree to leave the apartment clean and in good condition--than have to go through the hassle and expense of filing an eviction lawsuit, dealing with potential damage to the apartment, and so on.

They may agree to let her out of the lease as long as the rent is current up until she leaves. If not, they still have a legal obligation to minimize their damages, i.e. to re-rent the apartment as quickly as possible, and then the only amount she'd potentially owe is for while the apartment sits empty. In any case, this will be a collection account, and will be sold/assigned to a collection agency. This will not be nearly as bad for her as having an eviction on her credit report, which will not go away even in case of bankruptcy (though the balance owed will be zeroed out upon discharge).

[mountanddo]

I happened to be in both of these situations but can only tell you what happens in MN and it was about 20 years ago so that might have some bearing too.

My ex and I bought a used car from a dealership. It had a three day warranty on it. It so happened that on the fourth day I was driving it and it was below zero. I didn't know much about cars at the time but was driving it for like 20 minutes and the heat still hadn't come on. All of a big clouds of smoke started pouring out of it. Apparently the car was overheating and the dummy light that told me that was burnt out so I really had no idea what was happening. The result was a cracked head. The dealership said that dashboard lights were not something that had to be working in order to sell the car and so sad, too bad for you. At the advice of my boss at the time he told me to go drop it off back at the dealership and refuse to pay for it. Well...they essentially repossesed the car and sent it to collections.

Around the same time said ex ended up in jail for his upteeth DWI. I was living in an apartment that we could barely afford when he was around and working let alone by myself. I moved out with 3 months left on the lease and they sent it to collections. Landlords couldn't care less if you can pay for it or not and a sad story isn't going to get you out of a lease.

The only thing she could do is let the car be repossesed, break her lease and they probably will send both to collections. Find the money to file Chapter 7 so as soon as she gets a job she can file and get the debt dismissed. I assume that she is actively looking and needs to work. She eventually will need to file if she can't pay off the debt. The sooner she can come up with the cash to do that so that when she does find a job she can immediately filed the better.

[shark66]

Let's not forget that even if her wages were to be garnished one day, the maximum that can be taken is 25% after taxes...and even that might not fly in every set of circumstances, depending on the state laws...

She's collection proof at the moment, no need for her to file right now, but stopping payments on anything that she can't afford would be a prudent course of action regardless...

My $0.02 only...

Good luck to us all.

[bcohen]

Well, mountanddo, a lot has changed in 20+ years then!

First of all, any person--even a private owner--selling a car (or any other item) is legally required to disclose any known defects at the time of sale. In most states, a dealer is held to an even higher standard, and must perform a stringent inspection of the vehicle in order to assure that there are not any safety problems, or operational defects. A used car dealer could not get away with selling a car that must have obviously had a defective head gasket or other engine/cooling system problem, and then claiming that the warning lights don't have to work, so therefore this is your fault. If they tried to sue for a deficiency balance under those circumstances, the consumer would win unless he failed to show up and let a default judgement happen.

Second, although I don't doubt that there was a time when apartment complexes would refuse to let someone out of their lease in the event of economic distress, a lot of management companies and private landlords no longer think that way. I know that in the apartment complex where I live, they will let a person out of their lease upon request, and NOT file an eviction suit as long as the person has paid the rent up until they leave, and don't damage the apartment. I know this is true, because I was in the office picking up a package, and a man came in and explained to the manager that he had lost his job several months ago, could not pay the rent anymore, and needed to move.

The manager told him that it is the company's policy to let a person out of the lease, because they would rather mitigate the losses for both parties and re-rent the apartment to someone who can pay, than try to squeeze money out of someone who can't. She explicitly told the man that as long as he left by the end of the month, and the apartment was clean and in good condition, the company would not seek a judgement against him so that he could rent another apartment in the future when his life improved. BTW, this is a medium-sized apartment complex with 82 apartments, and it's owned by a fairly large company which owns many other properties here.

I think that in this terrible economy, your girlfriend might have similar success with her apartment complex. If she truly can't continue paying, is willing to leave quickly, and has not damaged the apartment, I can't see why they'd want to spend money filing a lawsuit against her which will do nothing but damage her chances of obtaining housing in the future. It's not like she's going to magically be able to pay an inflated judgement with interest and attorney fees if she couldn't even pay the rent on a monthly basis.

[JackBondLove]

Here's the deal on whether to file for BK now or in the future.

[1] Does she expect to get new debt in the future? From the looks of things, I don't think she'll be getting any consumer debt for quite some time. Except for the chance of hitting a bus (i.e., and incurring all the injuries and "pain & suffering" of everyone there), the only possibility of running up a big new debt is medical expense - something that, so long as the current POTUS gets reelected, will no longer be an issue in 2014.

[2] Does she expect to get a better paying job? My own feelings is that we are in a jobs vortex, and it's not really going to get any better, but certainly it is a possibility. In her state, are the garnishment rules such that her expected future wages, she would have to worry about any garnishment? And probably most importantly, does she ever expect to get a job paying the median? It doesn't sound very likely - and even if she could, she could always file BK before getting the job (although she would have to do so before even getting into that job market.) Of course, her situation could change in a marriage, but then again, a marriage can always be delayed to do any proper financial moves such as BK.

[3] Is it possible for her to get some type of windfall, such as an inheritance that is in cash (as opposed to an IRA)? As soon as she would get that cash, if there were a judgement against her, it would be confiscatable. Of course, in that case, she may be to buy exempt assets such as a house or caror perhaps other stuff (up to the levels of exemption.)

As others have mentioned, she is judgement proof. The only problem a judgement could entail is that she would not be able to have a regular bank account (since it could be confiscated), so she would need to cash checks at Wal-Mart of wherever, and walk around with pre-paid debit cards and cash. There is a cost to this, but in the over all scheme of things, not really that much. The only possible way that she could lose the ability to the inevitable BK.

[JackBondLove]

My ex and I bought a used car from a dealership. It had a three day warranty on it. It so happened that on the fourth day I was driving it and it was below zero. I didn't know much about cars at the time but was driving it for like 20 minutes and the heat still hadn't come on. All of a big clouds of smoke started pouring out of it. Apparently the car was overheating and the dummy light that told me that was burnt out so I really had no idea what was happening. The result was a cracked head. The dealership said that dashboard lights were not something that had to be working in order to sell the car and so sad, too bad for you. At the advice of my boss at the time he told me to go drop it off back at the dealership and refuse to pay for it. Well...they essentially repossesed the car and sent it to collections.

Wow, a 3 day warranty! I have some relatives that are in the used car business (independent, recent vintage cars), and they always give a 30 day warranty - they say they can't sell a car otherwise. I also have an old colleague who was in the used car business (who dealt in the beaters, and to whom I would dump my old beater before buying a new car!), and he explained how the business works. He basically would buy beaters (like mine), have a mechanic do any work that really has to be done on it, and then try to get someone to buy the car with a down payment that is right about at what it cost for him to get the car from a guy like me (or at auction), and finance the rest from his own pocket (which really wasn't a loan at all to him, since it was all his profit to begin with!) at the legal maximum of 36%! I don't think he even dealt with getting a credit report on anyone since he figured that anyone buying from him would have to be in pretty bad shape! All he needed was a pay stub (or Social Security check, etc.) that proved that the buyer could make regular payments. He figured that as long as the car was running, the buyer would continue to make the payments - and that if the car were to stop running, he would just repossess it, fix it and sell it again. He never, ever pursued a deficiency judgement in court (when I asked him about this, he said, "are you kidding?")

A side note is that this guy got into the used car business on the side when he was forced to live on $600/mo (as an engineer supervisor in the late 80's!) after a really bad divorce!

[HHM]

To sum up, Bankruptcy is in this person's future, just perhaps not yet.

As for the attorney saying a "slim chance" of a successful bankruptcy...that just seems nuts. Perhaps the discussion centered around saving the car or keeping her in the apartment, then that advice would make sense (she has no income), but she could certainly do a chapter 7.

I, personally, don't buy the "generic" argument that was made in this thread about the risk of medical debt. Unless the person is under treatment now, that is just a bogus excuse, because the risk is so very very low (especially for a 20 y/o). You CANNOT make decisions based on what if's, you might as well argue that "why file bankruptcy because the Mayan's a few thousands years ago, predicted the earth would end this year", the reasoning is just as specious. It is s recipe for "head in the sand" mentality.

In any event, in a situation like this, you need to assess the psychological state of the person. The reason I mention this is that when in comes to finances, there are only 2 choices; increase income, decrease expense. Clearly, increasing income is the harder of the 2 options. Sometimes, (a lot of the time, actually), filing bankruptcy can be the catalyst to get life on track because it is something proactive that the person CAN do to help their situation. That action can have innumerable benefits on a persons state of mind and outlook; which shouldn't be overlooked. Being judgment proof is merely a fact, NOT A COURSE OF ACTION. And at age 20 y/o, hopefully not an aspiration.

[mountanddo]

I, personally, don't buy the "generic" argument that was made in this thread about the risk of medical debt. Unless the person is under treatment now, that is just a bogus excuse, because the risk is so very very low (especially for a 20 y/o). You CANNOT make decisions based on what if's, you might as well argue that "why file bankruptcy because the Mayan's a few thousands years ago, predicted the earth would end this year", the reasoning is just as specious. It is s recipe for "head in the sand" mentality.

Same with the arguement that the debt is too low to file bankrupctcy. You have to judge filing on what your present situation is. Garnishment, if at 25% is the same if you owe 20k or 200k.

If she moved in with you would you be able to cover the car payment until she finds a job? $200 is a pretty reasonable payment. Of course in the long run paying on a car that you owe 6k on a car worth 2k doesn't make much sense. However if she needs a car it might be the cheapest easiest way to keep one. You could try to sell the car outright and get a beater but then you might have more than $200 in repairs if you get a lemon. You'd have to judge if the car is a good running, reliable car and if she had put any repairs into it lately.