posted
Just got a notice in the mail that one of the contractors who owed us thousands of dollars has declared bankruptcy.
Am I the only one who thinks this is way too easy? Now don't get me wrong, I realize it stays on your credit report for seven or ten years and all that, and that sucks. I have had negative credit ratings in the past and I know how hard it is. Amazingly, though, I found a way to pay all my debts and recover my credit rating.
But, this notice just rubbed me the wrong way. In essence, here is what it said.
Joe (not his real name) is declaring bankruptcy and he has no property or assets
His debts will be discharged, including what he owes us
If I disagree that my debt can be discharged, it's my responsibility to file a lawsuit challenging that. If I don't file it by a certain deadline (March 30) then I'm agreeing that my debt has been discharged
I may not call Joe, email him, send him a letter, go see him in person or contact him in any way from now until forever, and if I do I will be subject to fines and penalties
If I have a problem with any of this, I should get an attorney.
So, he doesn't pay me what he owes me. If I want to try and get my money, then I have to hire an attorney and jump through hoops to try and prove he does owe and that the debt shouldn't be discharged. If I don't play by the rules, I'm the one who will be fined and penalized. WTH? I'm the one being wronged here. And yet, the letter spent a bunch of time telling me about Joe's rights and telling me that I don't really have any, and if I want to try and prove that I do have some, I have to pay for an attorney to do that. And, it's pointless anyway, because Joe has no property.
Which is false, Joe has a house and a car and business assets and a bunch of other things, but according to this letter the property he maintains still is exempt.
So I just take the $5000 plus I'm owed, and just forget about it.
People who think bankruptcy is a good option are probably thinking that if the giant corporatins and credit card companies don't get paid, so what? I'm neither, that $5000 was taken directly from my family. We already paid our employees for the work done, we already bought the materials. Not only are we not getting paid the labor we're owed, but the material and payroll expenses just came out of our pocket.
Her debt? About 25,000 (not including mortgage...this was credit card debt!!!!!!) Approx. value of her house? About 27,000.
She keeps the house and pays no bills.
I thought it would have been more fair to take her house, give her the two grand difference and let her go rent an apartment. But hey, that's just me.
She has no bills, no dependents and is steadily building up more debt. She's going to find herself in a tough spot....she can't declare bankrupcy for another five years.
It's not fair at all.
Sorry, Belle, that really sucks. My husband's family owns a contracting business that he works for, and they deal with crap like that a lot too. I say fight it out.
Posts: 6367 | Registered: Aug 2003
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posted
I agree, Belle. I think it IS too easy. Bankruptcy should be something that perhaps allows debts to be temporarily deferred without interest, perhaps -- not wipe them out entirely.
I'm sorry you got the raw end of the deal. Posts: 32919 | Registered: Mar 2003
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posted
Can't argue with you there, Belle. Is there any wonder that bankruptcy rates continue to skyrocket? Why not when you're only in bad credit for 7 years? In the scheme of things, that's not very long.
If it helps (I know it doesn't, but I like to tell positive stories when I know them)...I know a woman whose father was forced into bankruptcy 30 years ago. Economy problems coupled with some law changes causing his business to collapse. He declared bankruptcy much to his own shame, since he simply could not pay the bills and had a family to feed. Still, he felt honor bound to pay off his debts. So he paid what little he could each month, even to companies that told him he didn't owe them anything due to the bankruptcy. This woman shared recently with us that her father had finally paid off the last of what he saw as his debts just last year. There are good people out there.
Posts: 5948 | Registered: Jun 2001
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posted
I'm kind of confused about bankrupcy anyway.
My mentality:
If you're in debt they can't take you to jail for it, even if you don't pay.
They can hound you alot, though.
They can sue you for it, but that amounts to the statement above.
They can keep raising the interest and trying to make you pay more.
They can charge it as bad debt and ruin your credit somewhat.
Bad debt isn't as bad for your credit as bankrupcy.
What I think I would do is pay what I could while still getting my other bills paid. When they called to bug me, I would say "You'll get what I can give when I can give it. Good-bye." (I've dealt with creditors before, by the way.) Then I would proceed to pay off the principal, even if they charged it off, and even if it took me a long time. I don't think I'd feel too bad about the interest, but that's just me.
Posts: 6367 | Registered: Aug 2003
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Unfortunately I don't see the system changing anytime soon.
Why?
Because the big business people are already first in line to be paid off, so they won't spend money to fix a system that favors them.
Banks, Credit Companies, Credit Card Companies now, are listed as top people to be paid off during a bankruptcy.
Small businesses like yours are not.
The only way you can get on that list is to get a lawyer and fight for it. Of course, it won't take long for the $5000 in debt you have to right off is surpassed by legal bills.
Just remember, the letter you recieved was written by the bankruptee's lawyer--who is getting paid. (Yes, lawyers get paid 1st) It will definately be slanted toward his clients favor--You can do nothing. He has no money.
I understand the reasoning behind the idea that homes can not be sold to pay off bankruptcy debt. We don't need to be driving people into the streets.
However, I would prefer a system that would confiscate and sell the home, giving a set amount ($100,000?) to the bankruptee to buy a new home. The rest would go to paying off the debt.
This would cut into the land boom. Right not people like Ken Lay and OJ SImpson are buying mutli-million dollar homes. These homes are safe from legal foreclosure for debt. They can live like kings while those they owe money too must suffer.
Posts: 11895 | Registered: Apr 2002
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posted
We can write it off, and we will if we never collect.
We do have one other recourse and it's one we already started pursuing - we can file a lien on the homes that he didn't pay us for the work we did on them.
This is our legal right, and we have filed on the largest one. Those people now have to pay us before they can move into their house, because you can't get a certificate of occupancy until the home is lien free.
The only reason I feel okay about doing it in this case, is the homeowners didn't pay the contractor all that they owed him, because he didn't finish the house. Imagine though, if they did pay him, and then the scumbag contractor didn't pay his subs, then the folks have to pay twice, because with the contractor declaring bankruptcy, going after the house is the only way we can get paid.
The closing attorney told my husband's lien attorney (we have a guy that does nothing for us but file liens, does that tell you anything about the contracting business? It's a nightmare) that there are over $100,000 in liens against that house right now.
*shakes head*
The lesson here, kiddies, is to make sure that when you hire a contractor he is paying his subs on time. Even reputation can't totally protect you, this was one of the highest sought-after building companies in the state. They routinely built homes that sold for more than a million bucks. Not the type of company you thought would suddenly go belly-up and disappear without paying their subs.
Posts: 14428 | Registered: Aug 2001
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You have to remember that the entity holding the mortgage or deed of trust has first claims on the house as a means to pay off the home loan. It is absolutely critical that this be respected, otherwise home mortgages at such low rates will absolutely go away.
Here's a link that explainscreditor priority in bankruptcy, and one for chapter 13. I don't really see support for your claim that credit card companies are given special treatment. Secured loans are given priority up to the value of the collateral because, after all, that's what a secured loan is. Any excess owed amount is considered unsecured.
Homestead exemptions (used by OJ and Lay to protect some assets) in Texas and Florida are quite large. In most other states they are not.
Don't feel too bad about filing the liens, and make sure you file on all of them. A person hiring a contractor needs to be aware of such risks - since they're the ones getting the benefit of the work you've done, there's no reason you should be the one stuck with the bill.
I remembered an article I read months ago when the last round of Bankruptcy legislation was up to bat. Several credit card companies were pushing to get on the preferred payment arrangement. Now that you mention it, I think that was shot down though.
Posts: 11895 | Registered: Apr 2002
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posted
Belle, sometimes people declare bankruptcy because a debtor skipped out on THEM first.
I'm not saying that's the case here, but there's a real domino effect sometimes and it can hit small towns especially hard. The G.C. owes the plumber who owes the electrician for a different job, who in turn owes the local catering company for his daughter's wedding... One business goes bust and the whole town can suffer.
If I were you, I would at least explore my options with a lawyer so that I completely understood what the likely scenarios were if I asked for my money versus just accepted the judgement. Informed is better.
Anyway, having been through it, there is such a thing as the debtor "reaffirming a debt." When that happens, that debt is removed from the bankruptcy procedings and they agree to pay off the debt at a specific rate. Your lawyer could give you more details. But as I understand it, if your guy agrees, he can take that debt off the bankruptcy and you can make a side deal with him that he pays it off over time. This is a good time to try that because he'll be feeling pretty flush cash-wise after the bankruptcy since most of his money that went to debt-service in the past few months will now go back to him. If you're allowed to, try to put a lien on the property as part of your assurance of getting paid. He may have to agree to that since he's already filed bankruptcy. Not sure how that works but if you have actual property installed at his place (water heater, etc.) the other thing you can do is just ask for all your stuff back.
Posts: 22497 | Registered: Sep 2000
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posted
Dan, yes, I think it was shot down. Very annoying (edit: that the bill was even tried, not shot down), since credit card companies set rates and fees with current bankruptcy priorities in mind. Who else thinks they wouldn't be in a rush to lower their fees if that was passed?
Besides, there's no way they should profit from their careless offering of credit. They've created a huge social problem in this country and the should share in the costs.
Belle, quick thought - if the contractor was runnign off a construction loan and received funds specifically based on the plumbing being on-site and installed, you may have a superior claim than others. If the bank hasn't given the money to the contractor for the plumbing, then that money is still available somewhere. Definitely file your leins - if filed before the mortgage they will prevent the mortgage from going through, which should provide good incentive for the homeowners to pay you.
Good luck - debt collecting was the hardest part of my business, especially when acting as a subcontractor.
quote:the other thing you can do is just ask for all your stuff back.
This definitely varies state to state. In most cases, unless specifically secured with the delivered merchandise, failure to pay does not automatically entitle the merchant to take the merchandise back.
In fact, a creditor with higher priority (such as the bank) can likely sell the water heater against what its owed, since its part of the house securing the construction loan.
Very messy situation - lawyer is a must. Just make it clear to the lawyer how much is at stake so the fees don't get to big. I had a bad experience (in my younger days) with a $1,000 legal bill for a $2,000 dispute. Very annoying.
posted
Dag is right, Bob. We can't take it back. Even though we paid for all the plumbing fixtures we can't just go to the guy's house and take out the stuff that we paid for. Our only legal recourse is filing a lien, which must be done within six months of the last time you worked on the property. It's been 5 and a half, during which time we were waiting for the GC to pay us.
The lien was filed by our attorney today. So we did get in before the deadline. Our attorney told us to quit worrying, we were pretty much guaranteed of being paid, and we don't pay him because he gets his fees from the homeowners - part of the lien specifies that legal fees have to be paid by the homeowner as well. By the way, they were notified twice by certified mail that they had to pay us in full or a lien would be filed, so it's not like this got sprung on them. We started the process a month ago.
There is some provision whereby the closing attorney can set aside our lien and still close the house, but since we can add finance charges (up to the maximum allowed by law) to the lien, if they wait to pay us it only gets more expensive with time, so most people settle up at closing.
There have been cases though, that our attorney's worked on, where people just ignored the lien, for years and years, and in one a man died without ever paying the lien off. When his son tried to sell the house to liquidate the estate, the amount of the lien was more than the market value of the house, because it had about 10 years of finance charges and legal fees on it!
Everytime you renew the lien (which is each year) you add finance charges and legal fees to it, and it can grow very quickly.
Most people who don't intend to sell their houses just forget about it, figuring that the company will give up and quit renewing the lien. And that happens, but you take a chance that somebody might have an attorney that just automatically renews them every year.....and at some point you will have to pay up. Or your heirs will.
I hate that it's necessary but it's part of doing business. I had a friend who bought a house and the cursory lien search didn't reveal anything, only for a certified letter to arrive at his door a few months after closing telling him there was a lien against the property and he had to pay up. He did, and then tried to sue the attorney that had done the title search, but didn't get anywhere. It was a huge mess. If you're going to buy a house, I'd suggest hiring your own attorney to represent you and do all these searches for you, don't trust whoever works for the mortgage company or the closing attorney to have your best interests at heart.
Posts: 14428 | Registered: Aug 2001
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posted
Wow! I never thought of that. I thought a title search came with a title warranty or something on that order that basically said if they failed to find a problem and it cropped up later, the insurance had to pay.
And how is it even possible that a lien wouldn't show up on a title search. I mean, how cursory would a search have to be to miss a public document filed at the county court?
posted
Human incompetence, I guess. Thing is, I believe it's ultimately the homeowner's responsibility to ensure there are no liens, and if one is missed the homeowner has to pay unless he has some arrangement with the company that did the title search.
Now, I know that he tried to get them to pay, and wound up pursuing a lawsuit, it's possible he could have won, but it may have cost him more than paying the lien did.
I can't wade through all that legalese, it's why we got an attorney instead of trying to do the liens ourselves. We did one a few years ago, and forgot to renew it by the deadline and lost it. Now we'll never collect. *sigh*
This guy's job is to do nothing for us but file liens and send letters to the homeowners and keep all liens current. We checked him out and he has really good references, a lot of other contracting companies have had good success and a lot higher collection rate since hiring him.
Posts: 14428 | Registered: Aug 2001
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