#303 Bankruptcy – Your Promise to Pay
Candid Conversation Memo
#303 Bankruptcy – Your Promise to Pay
Bankruptcy, Your Promise to Pay –
In this CCM, you will be exposed to several points of view for consideration.? Some points are worth repeating. The legal and moral repayment of your debts will be discussed, so you can see more clearly a few options you may want to use. First, the filing of personal bankruptcy should be a very rare occurrence in society, and be only used as a final resort to ‘clean things up’ if necessary.
Debts that are overwhelmingly heavy, clearly beyond one’s ability to ever repay should be subjected to bankruptcy consideration. However, even heavy debt loads should be managed by you and restructured with your creditors according to the repayment capacity you’ve identified in your Tunabudget Worksheet Plan. After all, you promised to pay your debts, and you are doing the best you can.
Share and discuss your plan with creditors to clearly show them your ability and willingness to repay your indebtedness according to your current financial condition. Why would they not listen? It’s better than having their debts (lender’s assets) be legally discharged from repayment altogether, right? Continue to regularly update and share your Tunabudget Worksheet Plan with your creditors as conditions change (i.e., quarterly, semi-annually). Make every effort to completely satisfy all your indebtedness with every creditor over time. They will see how long it will take via your plan, so show them how it will take time.
Justify your plan, footnote it, or whatever it takes to be transparent. It is possible the creditor will see your plan more like a bankruptcy repayment plan, but without the bankruptcy part. If that is what it is, then fine. That’s what it is then. Creditors, if they receive your credible plan, they should do a loan modification, change in term agreement, etc., regardless of how weak the numbers are. Your intention is to eventually repay your loans in full, without having debt discharged in bankruptcy. It could be that you effectively have a bankruptcy plan without filing to file bankruptcy, because it is all you can do. Avoid having to file bankruptcy if possible. The creditors will be able to see your plan will likely pay them more money than if you had to file bankruptcy and force the same plan, or worse, on them.
Negotiate Changes to Debt Repayment Terms Using Your Tunabudget Worksheet Plan –
Your Tunabudget Worksheet Plan will show each debt owed, together with all the required repayments (under liabilities). It will show everything that would end up on a bankruptcy petition anyway, because it will be 100% accurate to the best of your ability. While the regular monthly payment amount is listed in the Monthly Payment column, as you pre-spend future paychecks, the actual amount you can pay will be less.
When you communicate to the creditor what your regular payment is, showing him you know that amount, but that you can only pay a lesser amount, per the plan, the creditor will likely accept the same. For example, the regular monthly payment amount may be $100, but your budget, pre-spent paycheck by paycheck, will only allow a total of $50 per month. Feel free to show the creditor the entire plan, and that the $50 revised payment amount is the maximum you can pay. In a bankruptcy petition, the creditor may be forced to take the reduced payment anyway, or have it completely legally discharged to $0 if it is unsecured credit.
It is also possible the creditor may give you push back and ask for more than the $50 because you are paying optional or voluntary religious contributions that even exceed the $100 payment amount. Be prepared with an answer. In the US you have the right to exercise your own religious worship however you choose. If you’re desirous to pay a full 10% tithe to your church, for example, put it in the Tunabudget Worksheet Plan too, and be proud of it. Tell the creditor that you have every intention of paying a full religious contribution, take it or leave it. It’s your right to worship however you choose. When creditors see your plan, they will be able to see that your plan is not only reasonable, but it is supportable and even documented.
Creditors need to understand these conditions before they’ll decide to modify the terms of your debt(s). You have not only stepped up to all your obligations, you have prepared the right solution to your problem. This is not the creditor’s problem, it is yours, and you are responsible to come up with repayment solutions through your own Tunabudget Worksheet Plan. And you are bringing the lender your solution, even if it’s on a best-efforts basis. And, you did it at little or no expense of the creditor (reduced collection expense). That, any creditor will love.
As another reminder, you will want to update your plan and send it to each creditor at least quarterly or semi-annually. Always extend your plan out at least a year, together with a current signed personal financial statement on the lender’s financial statement template.
What Does ‘Promise to Pay’ Actually Mean? –
You understand what it means when a Promissory Note says that you ‘promise to pay,’ don’t you? It means you will make payment on a financial obligation at a certain time and manner. What does it mean to you? It means the loan was legally entered into with a binding contractual obligation between you and your creditor, that is enforceable under the State laws governing the contract. It was made in good faith to you, with trust and integrity between the parties.
Any failing on your part to make payment may be considered a breach of trust or being dishonest. The creditor has legal recourse against you if you default or fail to pay per the written terms. The lender will seek remedies or damages through civil litigation against you. It also means that you will repay the obligation, period, regardless of how long it takes. Have you ever heard of and applied the word ‘ownership’ to all your financial obligations? Or the word ‘honesty’? Who are you anyway, if you think you can walk away from your obligations
Are you a person of your word? But you say you can’t repay right? Okay. The debt level may be heavy but you should not give up until you’ve used your Tunabudget Worksheet Plan to see what you can come up with. It may be that you’d be making token payments for the rest of your life, and never really get anywhere. That’s what bankruptcy is for, to clean up such dilemmas. But, short of that, let your plan repay what it can, over a reasonable but extended term. You don’t want to shaft a creditor, any creditor. It’s called doing the best you can. Something you’re willing to live with. In the end, your character, integrity is on trial. Your Tunabudget Worksheet Plan will help you clearly see what your ‘best efforts’ means.
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You Have to Repay Your Debts, Until… –
Accounting rules and regulatory supervision requires certain treatments of unpaid debts. Financial weaknesses and delinquency will determine how long debts can be ‘kept on the creditor’s books.’ And prudent creditors will exercise their remedies to collect on their receivables well before they have to charge or write-off your debt. And, even if they did write it off, that does not mean the debt is still not legally owed, and that you don’t still have repay. You do.
You have to repay your debt until it is paid in full or otherwise satisfied, resolved, or considered by the bank as being uncollectable and they stop pursuing collection. Of course, an approved bankruptcy plan will legally affect your loans too. You should make every effort to repay all your indebtedness, and show that repayment on your plan, even if it takes a lifetime to do so. You have to decide on the repayment amount, be it $50/month, or more.
But, what if It’s Not Really Possible to Repay? –
Now, realistically, if a reasonable, supportable, and documented plan fails to meet the creditor’s expectation for repayment (because you’re unable to do so), the creditor may exercise its rights to pursue its legal remedies or maneuvers against you. And, it is possible you may have to file a bankruptcy petition to protect certain assets. But, in most cases you should be able to present your plan and come to a reasonable solution and avoid bankruptcy.
Every debt should be included as part of the repayment plan, even if the repayment amount is small. At some point, debts will be either restructured and repaid, or they will be written off and collection remedies pursued. Thankfully, even the worst nightmare debt crisis scenarios also come to an end one day. This is not something you need to fret over to the point where you give up on yourself, your spouse, your children, and everything else that’s precious to you. When you feel overwhelmed, go into the ‘best you can’ mode and leave it at that. Go get some fresh air and sunshine on nice walk. It’s free, right?
Doing Your Best, Being Honest in the Repayment of Your Debts –
Yes, the fight will end one day. Until then, your Tunabudget Worksheet Plan may still include some amount of repayment even if it is just $10.00 per paycheck. It’s called doing what you think is best, with all things considered, if you so choose. It may be best to not ‘settle’ debts as the deficiency may be treated as taxable with the IRS, meaning that you will have a tax liability to pay on the amount forgiven from the settlement. A bankruptcy petition may need to be filed instead.
Don’t be surprised that the proposed debt repayments under your Tunabudget Worksheet Plan, are close to that of a bankruptcy plan if the lower payments are similar to that under bankruptcy petition. That’s why creditors will likely accept your plan in the first place and save the legal fees and costs in pursuing collection. If a bankruptcy filing is ever needed, it will likely be needed only in the rare instance of cleaning things up. Debts can be legally discharged from having to be repaid. Although a discharged debt can no longer be pursued by the creditor, you still must deal with the moral side of debt repayment via your promise to pay.
Some people, post-bankruptcy, where there is no legal obligation to repay, feel a moral obligation to repay, especially when their financial condition has improved to where they can repay discharged debts in full. And, they do. While the creditor can’t request repayment, if the creditor receives payment, it can at least accept it. It will be booked as a ‘recovery’ on their charged off loan. That is certainly one way to fulfill your promise to pay too. Therefore, if you decide, not the creditor, but you, if you decide to send in funds towards your legally discharged debt, the lender can still be repaid.
On discharged debts, you will not be contacted by the creditor for collection under any circumstances. Maybe you will send in a minimal amount, or the entire amount as some people do if you are able to. At the end of your life, just say that you can look back and that you did the best you could, because you are an honest person.
CANDID QUESTIONS
o?? Are you honest?
o?? What is the best way to figure out how to best cover your living expenses and communicate with your creditors when you need to modify your repayment terms?
o?? Are you willing to prepare a Tunabudget Worksheet Plan to pre-spend your entire budget and determine your best-effort modified debt repayment plan?
o?? Will you now be more careful to do everything possible to avoid debt, pay with cash, and save for a rainy day?
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