“The mortgage company told us that we weren’t allowed to file for bankruptcy. They said it wasn’t an option,” the young widow explained.
She didn’t realize what this meant. We might have a case, or at least an issue to run with, which is usually enough. But it was too late.
“I just remember the phone never stopped ringing. Collections people. I still have anxiety whenever the phone rings.”
3 years later, the tension lingers on. I ordered another drink. I think the bartender was happy to have something to do; he dinner crowd wouldn’t arrive for hours.
“And you never talked to a lawyer?” The question was rhetorical.
“No, my husband thought it would be a waste of money. He didn’t see why we should pay a lawyer when nothing could be done. He owed the money, so it’d make no difference.”
After 4 long years of collections calls and fighting to survive, Maria decided that moving out was the least-bad option. Her husband’s depression debilitated him the point that she could no longer justify his actions, or her own.
“And when did he kill himself?”
“He killed himself 3 weeks after I moved out.”
In the world today, honorable people allow themselves to suffer financial ruin because they honestly believe it’s the honorable thing to do. And they have no choice but to be honorable, right? In the wake of the financial crisis, many people, almost 10,000 by some estimations, took this principal to its (il)logical conclusion via suicide. The result is privation visited upon their families for the sake of avoiding conflict or, even worse, for the sake of keeping up appearances.
“Victory is always possible for the person who refuses to stop fighting.”
– Napoleon Hill
The creditors’ most effective weapons against your client are not lawsuits, liens, or judgments. No, their most effective weapons are between your client’s ears: emotions, particularly fear, intimidation, guilt, embarrassment, and shame.
Fear and Intimidation: “we are bigger than you and have more resources to commit to collecting this debt.”
Guilt: “aren’t you an honorable person who lives up to your agreements?”
Shame: “Don’t you think you should do the right thing?”
Embarrassment: “We don’t want this to get nasty and end up in court. Then it’ll be public knowledge.’
Creditors do this for one reason: it almost always works.
The most difficult aspect of these cases, and the aspect for which attorneys are the least capable, is managing these emotions and expectations.
The Debtor’s Attorney: the Creditor’s Secret Weapon
If you are not equipped to fight the battle you’ll have against your own client’s emotions, you have no business representing them. In debtor/creditor situations, and most other civil litigation, frankly, the legal merits of the case are largely irrelevant. Meanwhile, as a lawyer, you are always in the mode of Cover-Your-Own-Ass. Admit it.
So you sketch out to your client the worst case scenario: huge legal bills, losing the case, judgments, collections, losing the house, filing for bankruptcy, the Sheriff towing the wife’s Jaguar out of the driveway. This feeds your client’s fears. You are doing the creditor’s job for them.
“The opportunity to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself.”
– Sun Tzu
Your client just wants all of this to go away, and thanks to you, avoiding the worst case scenario is all that matters. As legal counsel, you are duty bound to explain all of the possible outcomes, including the worst case scenario, and Lord knows no lawyer wants to talk about the likelihood of different outcomes fear of malpractice liability.
But by maintaining your professional and ethical standards, you make your client, who is already an emotional basket case, even more terrified, which does your adversary’s work for them. So what do you do?
To win the unwinnable case, you have to help your client neutralize the adversary’s emotional weapons. Let’s discuss the two most important pieces of non-legal advice you can give a client in financial trouble.
DON’T FEAR. PREPARE.
“Find out what you’re afraid of, and go live there.”
– Chuck Palahniuk
Being prepared to lose everything is one of the most effective means of preventing bankruptcy. The true value to the client in being prepared to file for bankruptcy is how this mental preparation takes away the power of the threat.
This preparation has two distinct parts. The first is simply understanding that the emotions are perfectly normal, the psychological warfare aspect of the situation from the creditor perspective, and that by facing the fear and preparing, the emotional power of the threat will go away.
Have the client go through the mental process of what exactly they would do if they had to file for bankruptcy liquidation. Lost their house, cars, jewelry, etc., and had to start all over again. Embrace this possibility and prepare for it emotionally.
“Now wait just a minute. We lawyers get berated and blamed for defeat because we explain the worst case scenario, then the advice I get is to have my client assume they’ll go bankrupt?”
Here is the difference: by having the client make decisions based upon avoiding the worst case scenario, you are feeding the fear. Having the client embrace the possibility, to not fear the worst case scenario, and to prepare for it, takes away the fear’s power.
You must educate, demonstrate, or remind the client that even if they did have to file for bankruptcy, everything will be OK. They WILL make it, the crisis will be resolved, they will move on, recover, and all of this will be a distant memory. They will get a clean start, time marches on, and they can’t take away family and friends.
This kind of advice may save someone’s life.
The second part of the preparation, the other essential half of the equation, is actually preparing for bankruptcy. Don’t put it off, stay in denial, and hope for the best.
If you cannot clearly explain the bankruptcy process to the client, in layman’s terms, send the client to someone who can. Your client does not understand the bankruptcy process, even if they’re sophisticated businessmen, or even if they’ve been in a bankruptcy case previously. In speaking with hundreds of clients and prospective clients over the years, not one understood what bankruptcy means, what their rights are, the procedures, etc. The vast majority don’t know the difference between Chapter 7 and Chapter 11. They don’t understand that filing for bankruptcy doesn’t render them helpless. In reality, filing for bankruptcy protection seizes control of the situation from the creditors.
DO NOT HIDE THE TRUTH
Especially in the world of commercial collections against business owners, embarrassment and shame are the sharpest knives in the creditor’s drawer. Your clients may not fear losing everything because they are in denial. They may not fear bankruptcy because they are resolved to never file for bankruptcy no matter what.
What keeps them awake at night? WOWS. What Others Will Say. You see, your client has been telling everyone, perhaps even their spouse, that their world is one of rainbows and unicorns. Their Facebook page is splashed with happy pictures of summer vacation hiking in Wyoming, or the kids fishing off the pier in Nantucket Harbor. Sailing in the Caribbean. Mom and Dad with friends at the black tie fundraiser for the museum. Your client is wasting precious resources keeping up appearances.
Advise the client to be honest with people about the shape they’re in. Stop lying about rainbows and unicorns. They should not be ashamed to admit to close friends and family members that they are in great danger. In my experience, when people are honest about being in difficult times, they find support and encouragement, not shame. Usually they get the most help from people and places they least expect.
Also, as you might also know from personal experience, when you admit your failings, you find out who your friends really are. As an added bonus, and at no extra charge, the client rids themselves of the those who were friends because of what they have, not the person they are.
Unintended Consequences of Keeping Up Appearances
Pretending everything is great to others also hurts the communication strategy with the creditors. As the attorney, part of your negotiation of a settlement should be painting an accurate financial picture and showing why your proposal is generous, will very likely yield the creditors more than litigation and collections net of expenses, and is also a plan that the borrower can actually accomplish.
What is the bank to think when we are showing them that you, Mr. Client, have little to no cash, when you are acting as if things are better than ever?!
When the client is running around spending money keeping up appearances, you should assume that word will get back to the bank. It may not, but you never know. Perhaps the fellow at the cocktail party listening in on you recounting last week’s deep sea fishing trip to Mexico is your banker’s next door neighbor? Do you still order the surf and turf on your weekly trip to the town’s best steakhouse? Is Mrs. Client showing off her new jewelry to her tennis group at the club?
The collections people are digging. If the client actions outside of the meeting rooms are inconsistent with financial reality, they will assume your client is lying to them. They have to. You would, too. When the client arrives at the meeting to plead poverty in a 7-series BMW, they will notice. And it probably won’t matter that the car is 10 years old and breaks down twice a week because the client can’t afford the necessary repairs.
Convincing the client to drop the façade is tough. Very tough. You cannot always do it. But when you succeed, you take away the other side’s most effective (and least expensive) weapons.
Maria wanted to beat the evening rush hour, so we called it a day. “The final few days were different,” she explained. “Our son and daughter stayed in regular contact with him and told me that he seemed to be doing much better.”
“He had made up his mind and was at peace with his decision,” I blurted out like a 5th grader, too eager to show that I knew the answer.
Her husband was feeling better because his problems were solved.