12 Jul 2016

Legal service aims to help low-income debtors avoid bankruptcy

Poor, elderly and loaded with more debt than they could ever hope to repay, clients of Maryland Volunteer Lawyers Service often view bankruptcy as their only way out.

“They carry so much shame about being in those circumstances,” said Susan Francis, deputy director of the pro bono lawyers service. “It has an emotional toll on them.”

What her low-income clients don’t always know, she said, is that bankruptcy may not only be avoidable but unnecessary. People who have no income or property, or who live on fixed incomes may be “judgment proof,” meaning they have no assets for creditors to collect or wages to garnish.

Spurred by a surge in requests for help, the lawyers service is launching a “bankruptcy bypass” program modeled on others around the country. It aims to create a formal process for the volunteer attorneys to let creditors know about a client’s financial status.

While some assets are protected by bankruptcy, “we see folks that have no assets or all the assets are exempted out, so there’s no reason to put

[them] in bankruptcy,” Francis said. “If they are on Social Security or Social Security disability, that income is in no way touchable, and it’s not a good option.”

The initiative comes at a time when consumer bankruptcies nationwide have fallen by more than 10 percent since 2011 through last year.

While the trend in Maryland mirrors that national decline, the share of Chapter 7 cases filed in the state by debtors on their own — without a lawyer — has been growing. Such “pro se” filers accounted for more than 19 percent of Chapter 7 bankruptcies in Maryland in 2014, surging from 7 percent in 2009, according to U.S. Bankruptcy Court. In Chapter 7, nonexempt assets are liquidated and the proceeds distributed to creditors.

That growth signals that for many in lower income brackets, the recession is not over, say Francis and other attorneys who work with clients who tend to be elderly renters with an older vehicle, if any, and little in the bank. Typically a crisis— becoming ill, losing a spouse or a job, or getting divorced — triggers the financial troubles. Debt, often from medical bills, typically ranges from $20,000 to $50,000.

“People are just in over their heads,” said Wayne Clarke, a longtime attorney who began taking pro bono bankruptcy cases when he started a solo firm in Ellicott City in 2011. “I realized some of these people are collection-proof. You can sue them and get a judgment and even a lien, but it’s not going to help. They don’t have any money. Why put them through the stress and expense of bankruptcy?”

For Elkridge resident LaMona Linder, 77, constant calls from bill collectors were making it hard to sleep or keep food down.

The mobile home park tenant had lost her full-time job as a car counter for a traffic consultant in 2008. Linder, who divorced years ago after raising her children full time, began relying on credit cards for gas and other expenses while job hunting. But it seemed no one wanted to hire someone in her late 60s with limited experience.

Soon she had between $10,000 and $15,000 in credit card debt and struggled to make minimum payments. She tried to patch together bill payments for four years, but most of her income from Social Security went to rent and utilities.

“I couldn’t pay the credit cards, and I didn’t have money to live on,” said Linder, who furnished her home with discarded pieces she restored. “All day long the phone would ring with credit card companies to pay the debt. They threatened they were going to sue me. … I told them I couldn’t do anything. I would try to explain I’d lost my job and didn’t have enough money to make good on the debt. They didn’t want to hear that.”

Clarke, who took Linder’s case, offered an alternative. He would write to her creditors and document her finances.

“I tell my clients that when debt collectors call them, tell them, ‘Don’t call me,’ and give them my number, and usually they go away,” he said. “The last thing they want to do is waste time.”

Representatives of the banking and credit industry say a balance needs to be struck between helping people who genuinely need it and enabling those with means to avoid debt. Programs such as the bankruptcy bypass can save time and expense, however, if clients are properly screened and their situations documented, industry experts say.

Read more about it here: http://bsun.md/29vQnm3

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