I had to stretch, I admit,  for X in my Bankruptcy Alphabet.

An OEX under California debtor/creditor law is an Order Of Examination that is issued when a creditor has a judgment.  It’s a tool for the creditor to find and collect his money.  The OEX allows the judgment creditor to eXamine the judgment debtor about his assets.

Where it is OK to ignore a summons and complaint served on you, assuming you concede the truth of the debt, it is not OK to ignore an OEX.

Power of the OEX

Remember, the first letter in the term, O, stands for order.  It is an order, from a judge, for you to appear to be examined about your finances.  Ignore it, and the sheriff may be on your door with a warrant for your arrest.

The warrant has nothing really to do with the debt you owe, and everything to do with ignoring a court order.

What’s relevant in a California  bankruptcy is the power of the OEX to create a lien on the debtor’s assets that impacts all assets and has a life of a year.  Many California bankruptcy lawyers forget this lien in scheduling the secured claims in the bankruptcy and in avoiding liens that impair exemptions.

Often, it is the thought of having to appear in court to answer under oath about bank accounts and employment that brings an individual to a bankruptcy lawyer.

2004 Examination in Bankruptcy

Bankruptcy has its own, all-powerful order of examination created by rule 2004.  The rule authorizes the bankruptcy judge to issue an order allowing any party in interest to examine any other party with respect to the issues in the bankruptcy case.  Most commonly, it allows a creditor to require the debtor to appear and testify more extensively than may have been permitted at the first meeting of creditors.

This post has been brought to you, as they say on Sesame Street, by the letter X.

Thanks to my partner Renee Mendoza who suggested OEX without hesitation, for this help, as well as so much else in the practice of law.  Jay Fleischman, New York Bankruptcy Lawyer, proposes that X is Xenocracy. (Huh?)

Image courtesy of Leo Reynolds.

“Being sent to collections”

I was counseling a small business with lots of vendor debt.? We were looking for a strategy that could keep them in business.? When I suggested that management sort their payables into vendors they needed and wanted to keep, and those they could live without and wouldn’t pay going forward, I heard the familiar refrain:? “but they’ll send us to collection!”

So?? Where is “collection”?? What is so bad about a corporation being there?? It isn’t painful…

Let’s think: ?? “collections” is little more than an accounting category including debt that isn’t paying or isn’t likely to pay without something more.

Collectors, whether business or consumer, rely on the same weapons.? Their job is to “motivate” the debtor to pay up, because the alternative approaches for the creditor are expensive, timeconsuming, and uncertain.

My pitch to this business was premised on the idea that 1) there wasn’t enough money to pay everyone; 2) they had multiple sources for the product they needed; and 3) the survival of the business was at stake.

It is certainly unpleasant to face the fact that you can’t pay everyone you owe.? But that risk and that result comes with being in business, for both the debtor and the creditor.

Individuals face the same dilemmas when there isn’t enough money to go around.? I try to inculcate in consumers the same view as I pitch to businesses:? this is only money we are talking about and both sides to a credit transaction know that payment isn’t assured.? That’s why credit comes with a cost, to cover that risk.

Business sometimes requires that we make decisions and take actions that we wish we could avoid.?? It comes with the territory.

This group of clients left with a plan to focus on the big picture, reduce the overhead, and trim the cash outflow dealing with the past.? My hope is that there is a future for them as a result.

When I tell a bankruptcy prospect to stop paying the credit cards and the bank lines of credit, they look at me as though I’d suggested they jump into shark infested waters.

“But they’ll start calling me”, they wail.? “I’ll be sent to collection“, as though “collection” was a real place, with manacles dangling? and water dripping down dungeon walls.

The inevitability of? tangling with a debt collector was put in question in Lessons on debt collection, published in the San Jose Mercury News.? The interviewee was a former president of the California Association of Collectors.

Truths about debt collection:

• Only 6 % of consumer debt is turned over for collection
• The rate of collection on those accounts is 13%, down from 17% two years ago
• One half of 1% of the people turned over to collection are sued

The weapons of a debt collector are mostly psychological:? all a phone call can do is attempt to move you to write a check.? If you don’t, the collector has to either continue psychological warfare, give up, or sue.? As the article pointed out, lawsuits on consumer debt are relatively rare.

What is critical is that you don’t let your priorities be distorted by collection calls.? Be clear about paying the important bills first. Don’t let a credit card collector on the phone convince you that it is more important to pay him than paying taxes or family support.? Tax agencies and custodial parents can summon the power of the government to take your money if you ignore those debts.

My pitch to clients is to move beyond worrying about the debt collector and start looking for big picture remedies.? I want a plan that improves the client’s balance sheet, not necessarily their credit score.

More

14 Steps for Negotiating with a Debt Collector

My Universal Formula for Settling a Debt

The Truth About Being Taken To Court

Image courtesy of Flickr.

In the tug o war of which creditor to pay, why is it that credit cards win over taxes and child support?

I’m accustomed to clients who pay creditors rather than provide for their own health care, emergency fund, or retirement.? That’s taking care of commitments to others before self.

But I haven’t figured out why embattled debtors choose to pay the credit card collectors instead of child support and taxes.? Yet that was just what this week’s client had done:? $10,000 in taxes and $24,000 in support for a child went unpaid, while he chipped away at credit card debt.

To a bankruptcy lawyer, this is insane, since both family support and recent income taxes are priority claims, not dischargeable in bankruptcy.? To an outsider, it’s still insane, since the IRS can simply take all the money in your bank account, without suing you first.? And your child is dependent and yours, not to mention that failure to pay child support is the one debt that can get you jailed.? Those are the creditors to fear.

I have two theories of why people choose to pay credit cards instead of taxes or support.

1. Terror of the Telephone: the credit card companies call, and call, and call if you don’t pay.? They invade your personal space at home, and they confront you with your financial shortcomings incessantly.? It’s hard on the nerves and the ego.
2. Credit Report Obsession: fixated on credit reports and credit scores, clients focus on the immediate “damage” that credit card delinquencies can inflict, and set aside the more lasting damage that tax liens and wage intercepts can cause if you ignore the feds and the child support authorities.

Credit card companies can’t take your money without suing you first, so they have to use fear and shame to get you to distort priorities and pay them first.

We need to get that word out.

Image licensed under Creative Commons, courtesy of Javier Kohen.

Liz Weston, L.A. Times financial writer, walked a room full of bankruptcy attorneys at the Sacramento Valley Bankruptcy Forum through the impact of various credit events on your credit score last weekend.

She recounted how, after meeting some debtors as she worked on stories, she no longer saw debtors as deadbeats. She saw the challenges in their lives and the soundness of electing bankruptcy.? Her candor about the change in her world view was refreshing.

Having written a book on credit scoring, she naturally was caught up in the interface with bankruptcy.? But I as one who is frustrated by the fixation of those drowning in debt on their credit score, I wanted to stand up and shout:? Ruin your credit score, not your life!

The financial media sounds a drum beat that one’s life and worth is wrapped up in that credit score, something we don’t fully understand and based on credit reports which are notoriously inaccurate. ? Life will end, we’re told, if our credit score declines.

That fear keeps American consumers struggling to pay debt that they can never, in this life or the next, repay. ? They appear to consider a lifetime of minimum payments rather than a fresh start in bankruptcy to preserve their credit score.

As Liz pointed out, the credit score is dynamic: ? it is constantly changing, and heals over time. ? My call is to fix your balance sheet. Get rid of dischargeable debts. ? Save for retirement.? Live beneath your means. ? Don’t walk the financial tightrope.

Image courtesy of terwilliger911,? pursuant to a Creative Commons license.