Keep creditors at bay during bankruptcy filing

To Her Credit columnist Sally Herigstad
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for, and also wrote for MSN Money, and, and has guested on Martha Stewart Radio and other programs.

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Question for the expert

Dear To Her Credit,
I am filing for Chapter 7 bankruptcy. I have retained a lawyer, but have not finished all the paperwork yet.

Now I am being sued by a creditor through a local law firm. I was served a default judgment order that needs to be answered by the end of this week. I called my lawyer, but she is on vacation until the week after. I contacted the attorney that is handling the credit card suit after I retained my lawyer to let them know I was filing bankruptcy, but I am now faced with wage garnishment. -- Marthina

Answer for the expert

Dear Marthina,
Your lawyer should not have left you in the lurch while she went on vacation. According to Professor Jason Kilborn at The John Marshall Law School in Chicago, your lawyer should have either filed your case before she left or put you in the hands of someone who could.

Having to fend off creditors while you get together the paperwork to file for bankruptcy is an all-too-common problem. "This comes up all the time," says Kilborn. "I would hazard to guess that the great majorities of filings are emergencies."

Kilborn says, "There's not a heck of a lot you can do. The only thing that's really going to stop this creditor is a bankruptcy filing."

Once the papers are signed, the actual filing should only take about two minutes. The lawyer doesn't even have to go to the courthouse. Wherever your lawyer is, she should be able to do it from there or she should have a colleague who can deal with emergencies while she is gone. Kilborn would be surprised if your lawyer doesn't have a paralegal or someone who can take care of it. In his opinion, it's outrageous for a lawyer to abandon his or her clients and go on vacation without tying up loose ends first or making sure you are taken care of.

In the meantime, nothing's stopping you from trying to discourage creditors. "One thing she can do is call up whoever is harassing her and explain, 'I have spoken to a lawyer and I have a bankruptcy in progress; none of your efforts are going to be successful,'" says Kilborn.

Most creditors, if they hear that -- and believe it -- are not going to pursue you anymore.

There are some, however, who may try even harder. If they are far enough along that they think they can garnish your wages quickly -- before your bankruptcy is filed -- they may try. It's tricky, though. If they take too much, the court may rule what they receive to be a "preference" and make them return it. If they get less than $600 from you, they'll probably be able to keep it. Kilborn says, "If the collections agent knows what they are doing, they may well be able to grab $500 to $600, and it's a lot more than they would get otherwise."

Be aware that when you talk to collectors, they'll say anything to try to get in front of the line to get paid before you file for bankruptcy. "It's going to be a game of chicken," says Kilborn.

My best advice is to severely limit any conversations with collectors. Other than telling them you are filing for bankruptcy, nothing you say will help at this point. Collectors will say things that upset you, and they may even get you to say things that are not in your best interest. If you decide to call them, keep it short. Or write a letter instead.

Your situation shows the importance of getting the paperwork in and filing once it is determined that bankruptcy is the only option. I hope your lawyer or someone acting in her stead can get your case filed quickly so you can be protected from further actions of creditors, and that you can soon be on the road to financial recovery.

See related:  Bankruptcy protects against wage garnishment, How wage garnishment works -- and how to avoid it, Know your rights: Fair Debt Collection Practices Act

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Updated: 12-14-2018