A Hard Luck Story

Does any version of this story sound familiar?  John graduates from college with some federally-subsidized student loans.  John gets an entry level job making $55,000/year at a brokerage firm. John meets Lynn who herself is a college graduate.  She has no student loans (her parents diligently saved for her school) and works as a substitute teacher hoping to get a full-time teaching job.  John and Lynn marry.  With their combined incomes and small apartment, they manage to save enough money to buy a starter house.  It's a stretch but they manage and are optimistic their incomes will continue to rise.  Fast-forward five years, two kids, two cars, sporadic vacations, a vast array of home renovations aimed at making that starter home work, a downsizing at John's brokerage firm and some unexpected medical bills.  Never thinking things would not look up, John and Lynn use some of their credit cards for purchases, put off paying some of the medical bills and start drawing down their modest savings account.  Interest is accruing, bill collectors are calling, stress is climbing, a marriage is struggling and John's pride as a provider is fast crumbling.  As the owner of a professional debt recovery firm, we often make the calls and send the letters to individuals like John and Lynn.  The story we often get is a tale of bad luck, hard times and misplaced anger at the system and the situation generally.  Some collectors hear the story told with a scathing tone and just write it off as another HLS (Hard Luck Story).  They file the debtor as uncooperative, report the debt and continue on with the collection activities.

So what should John do?  Well, in my business and speaking for my own collection agency, if a debtor is principled and understands the debt is his, then we do everything we can to work with him.  The important point is obvious but worth repeating - life happens but you must not bury your head, get volatile and ignore your responsibilities to pay that which you legitimately owe.  A reputable collection agency will respond to a coherent tale (that checks out with some necessary diligence) and will be amenable to "working it out."

My advice to John and Lynn is to enact the following 5-point plan and move forward with a sense of personal responsibility and the goal of preserving their credit.

1.  Unless circumstances are so egregious and you have had legal counsel advising as such, filing for Bankruptcy should only be done as a very last resort.  People often do not understand the long-term impact that it has on their credit.

2.  Be your own financial and debt manager.  You can download free budget software spreadsheets from the internet (just Google “free budget worksheets”).  Do so and use it to detail your spending down to the last dollar.  This is easier than you think.  Take a month's worth of credit card statements, bank statements and receipts reflecting cash paid and tally it up by category (e.g., home mortgage, utility bills, car payments, food, entertainment, kid activities, etc.).  See where you can cut the fat and do without.  You need to free up cash to start paying down your debt so anything that is not necessary needs to be eliminated until your finances are cleaned up.

3. Start making deals!!!  Call anyone and everyone to whom you owe money - your mortgage lender, your credit card companies, your doctor and, yes, the bill collectors - and start working out reduced settlements and payment plans that equal a total monthly payment that you have now budgeted to paying off your debts.  Remember that if a debt is already with a collector, chances are the original creditor will not even speak with you so keep that in mind when trying to negotiate.  From firsthand experience, I can tell you that honesty and your attitude can make a big difference.  My agency has accepted zero interest low monthly payments over multiple years so long as the payor is keeping his word and paying it down.  One piece of critical advice - get the agreed-upon deal in writing before you make even your first payment.  A reputable debt collector will have no problem whatsoever papering the agreement and, in fact, should prefer it.

4.  Every month check in with your worksheet and make sure you are maintaining your budget.  You need to be applying a fixed amount every month to diligently making your payments in a timely fashion.  You now have agreed-upon stipulations of settlements that, if honored, will maintain your credit status so long as you are honoring the agreements.  I often recommend to debtors that, upon making a payment plan with us, they either set us up as a recurring payment using their bank’s free online bill payment service or mark their payment dates in their phone or paper calendar upon signing the agreement.  Don’t expect reminder calls!  You made the deal now make sure you calendar your payments in whatever fashion works best for your lifestyle.  And if a payment is going to be late, call the collector or company and acknowledge the late payment, explain the circumstances and confirm that the issuance of the payment will be forthcoming.  That way you can try and prevent your reduced settlement and payout plan from automatically terminating.   

5.  Now that you have taken control, budgeted yourself, reduced your overall debt and made payment arrangements with which you can comply, take a deep breath and give yourself some credit for taking personal responsibility and not running away from your obligations.  You may not have intended to get into debt and you certainly don't like the way it feels but you can help yourself by being proactive.  I actually have debtors write my agency thank you notes for helping them work their way out of their own dark HLS.  While it is true that the creditors are our clients, we do them a disservice by not working out solutions with debtors who are facing the music and showing they want to deal with their obligations within the constraints of their own reality.

And, on a final note, if you feel incapable of dealing with a situation for whatever reason, whether personal or financial, seek counsel.  Whether a spouse, parent, good friend, religious leader or neighborhood attorney, look for unbiased advice from a source who will not financially benefit from the solution.  Times are tough and, while we all have our own or have heard of another's HLS, with some discipline and knowledge, you can find your way out.


Laura J. Lowenstein, Esq., owner of Capital Resource Management, Inc., specializes in all aspects of collections and receivables management for physicians and small businesses ranging from personalized debt recovery plans to the filing and handling of litigation proceedings. For more information, email laura.lowenstein@gmail.com or visit www.crmcollect.com.