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Ask Dave Kennett Your Own Question
Dave Kennett
Dave Kennett, Lawyer (JD)
Category: Legal
Satisfied Customers: 27689
Experience:  25 years experience in general law, including real estate, criminal, traffic, and domestic relations
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I am a good person. Ive always been reliable about paying

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I am a good person. I've always been reliable about paying my bills on time. Due to circumstances relating to the current economy, my husband and I have both lost our jobs. I talked with some of my debtors and tried to explain that I could no longer make the ageed upon monthly payments, but I wanted to pay my debt. They said they had already gone as low as they could......essentially, pay up or you'll be in trouble. When the choices came down to paying our mortgage, insurance, utilitly bills, IRS debt and closing in on our third year of not being able to pay our property taxes, medications (expensive with no health insurance) and food.........there simply was no money left to pay my agreed upon montly payments to these credit card companies. I stopped paying them. I have no received letters from two of them saying they are going to "charge off" on these. I understand this does not mean they have "forgiven or forgotten" the debt, but that a collection agency will now attempt to collect the money. I would like to pay these bills off, but no collection agency is going to accept $5.00 a month. Please help me, do I have ANY recourse at all? My husband and I have gone through our savings, our 401(k) is gone, we sold one of our two cars, (both over 10 years old) we have no family to borrow from. We do have a home with gobs of equity which for some reason, we can't access.
Our credit is worthless.
Thank you for listening.
DearCustomer- I completely understand your dilemma and you certainly are not alone in this bad economy. Your are correct that the real creditors do not care and if you cannot pay then you cannot pay and it is not a crime. Having payment plans with creditors almost never works unless the payment are high enough to get rid of the debt in a short period of time. The creditors just keep adding interest and you never get done with them. Since you have a lot of equity in your home you need to be careful not to get judgments against your house where the creditors could foreclose. So the only real alternative that will work in your situation is to seek relief in bankruptcy through a Chapter 13 plan that will allow the debts to be structured for pennies on the dollar and when you complete the plan all the debts will be discharged. Your mortgage payments will continue and your home will be safe. There simply is no other way to get rid of the debt and this would not be a complete bankruptcy where you would pay nothing. All of these other payment plans with creditors will never be successful and this situation will continue indefinitely. Generally with a Chapter 13 there is very little "up front" money required and the legal fees are also paid through the plan. That is the best option for your situation.
Customer: replied 4 years ago.

Dear Mr.Kennett,

Thank you for your response. I will be giving you a "happy face" grade for that response, but it really didn't help. Many people, including my husband and I, have discussed bankruptcy as an option to help us get out from under this wreckage. But we do not actually owe that much in credit card debt or unpaid medical bills. I don't have the exact figure in front of me, but it's less than $3,000. Not bad compared to some people we know. Our problem is the $15,000 we owe the IRS. They have a lien on our home but we have a monthly payment plan with them. While it is only $300 a month, right now, that amount is keeping our heads underwater but they refuse to go any lower. Don't think we haven't tried. The other real bugaboo is being 3 years past due on our property taxes. It is my understanding that a bankruptcy will not with these two issues in any way. So, we can see no point in going with that option. My plan is to contact my creditors and explain the situation and tell them what I CAN afford to pay them right now, let them know that I will increase the amount paid when I can and hope they can and will accept that. If they feel they must send me to collection, then that is what they will have to do. You can't get blood from a turnip and I'll just have to try and work out something with the collection agency. It is my understanding with these agencies is that if you say "I can only afford to pay you ten dollars a month" and they say they can't accept that, if you send them a check for the ten dollars and they cash it, that is a sort of "acceptance," on their part, of the amount. Do you know if this has any truth to it?

I WANT to pay my debts. I do NOT want judgements against our home. I really WOULD like to work on restoring what once was a perfect credit rating. But as I believe as you said, if you don't have any money, when you can not find a job...........what are we suppose to do? Just stand here and watch everything we have worked for all our lives to be taken away from us for no real fault of our own? It is beyond frustrating. It is painful, embarrassing, heartbreaking and somehow so incredibly unfair............especially when we see people from different, ah....."cultures," being handed free medical coverage, food stamps, vastly reduced rents or no rent at all, help with utilities and on and on. We are in our 60's and while we never thought we'd be on "easy street" when we hit retirement age, we DID think we would be able to retire and enjoy doing the things we love, which in our case is not jetsetting around the world, but working in the yard, taking care of our home, having the vegetable garden of our dreams, taking drives around our state and perhaps even splurging on a dinner out and a movie once a month which we haven't been able to afford for YEARS now.

We realize we are much better off than so many other people, so I'll end this by once again thanking you for your suggestion and I understand the only thing you can give us is your sympathy

While I'm sure you and your loved ones have been affected to one degree or another by this economic down-turn, I can only pray that none of you EVER has to experience these feelings of helplessness and hopelessness.


Linda Pedersen

Thanks for you information. I wasn't aware of the IRS or tax problems and you are correct that you cannot have these debts discharged in bankruptcy but a Chapter 13 is not the same as a full bankruptcy and it allows for reasonable payments. I really would at least talk to a lawyer about the possibilities of a Chapter 13. I have no way of doing an complete analysis from here but I think it's worth a try. I wouldn't pay the other creditors until you get something reasonable worked out. The general creditors can't do much about collections when the IRS and tax agencies have priority. Paying ten dollars doesn't mean the creditors accept anything other than having to give you credit for the $10. Once they add their interest and late charges it more than eats up the ten dollars so you might as well throw the ten dollars in the street.
Customer: replied 4 years ago.

Dear Mr.Kennett,

I feel like I am taking advantage of you as you seem to be "stuck" with me until I hit the smiley face and go away. When you say "don't pay" the general creditors until I have a reasonable payment plan, I do have those two letters saying my debt was being discharged, which actually was my original question as to what that meant. Your wrote " Since you have a lot of equity in your home you need to be careful not to get judgments against your house where the creditors could foreclose." This, as you can imagine, scares me and I wonder if you could elaborate just a little on this. You wrote that not knowing about the IRS lien or the past property taxes owed. And perhaps the amount we actually owe these creditors (approx $3000) has somehow changed your advice?

I asked my husband why we can't use the equity to pay off the IRS and get current on the property taxes and he said that we did a refi under some sort of Federal plan (we are paying 2% interest and the house will be paid off in less than 15 years) He said if we got into the equity, we would lose that interest rate and our house payment would increase. I argued that having those two major monkies off our backs would be well worth the increase of interest we pay to the current market low of 4%. I'm not a stupid person, but apparently my idea is not a good one for reason(s) I seem unable to comprehend.

I give you my word this will be my last question.

Thanking you sincerely XXXXX XXXXX for all your words of wisdom.......

Linda Pedersen

There is a difference between a debt being "discharged" and "charged off". The latter simply means the creditor took it off their books and probably sold it for pennies on the dollar to a collection company. "Discharged" is when a debt is completely wiped out in a bankruptcy and there is no further obligation to pay. My point was that you need to concentrate on the tax and other non-dischargerable debts since a bankruptcy will not make those go away. I can't give you advice as to borrowing money or not borrowing money etc. since that is not a legal question but rather a decision you and your husband have to make as to your personal financial situation.
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