Poor, elderly and loaded with more debt than they could ever hope to repay, clients of Maryland Volunteer Lawyers Service often view bankruptcy as their only way out.
"They carry so much shame about being in those circumstances," said Susan Francis, deputy director of the pro bono lawyers service. "It has an emotional toll on them."
What her low-income clients don't always know, she said, is that bankruptcy may not only be avoidable but unnecessary. People who have no income or property, or who live on fixed incomes may be "judgment proof," meaning they have no assets for creditors to collect or wages to garnish.
Spurred by a surge in requests for help, the lawyers service is launching a "bankruptcy bypass" program modeled on others around the country. It aims to create a formal process for the volunteer attorneys to let creditors know about a client's financial status.
While some assets are protected by bankruptcy, "we see folks that have no assets or all the assets are exempted out, so there's no reason to put [them] in bankruptcy," Francis said. "If they are on Social Security or Social Security disability, that income is in no way touchable, and it's not a good option."
The initiative comes at a time when consumer bankruptcies nationwide have fallen by more than 10 percent since 2011 through last year.
While the trend in Maryland mirrors that national decline, the share of Chapter 7 cases filed in the state by debtors on their own — without a lawyer — has been growing. Such "pro se" filers accounted for more than 19 percent of Chapter 7 bankruptcies in Maryland in 2014, surging from 7 percent in 2009, according to U.S. Bankruptcy Court. In Chapter 7, nonexempt assets are liquidated and the proceeds distributed to creditors.
That growth signals that for many in lower income brackets, the recession is not over, say Francis and other attorneys who work with clients who tend to be elderly renters with an older vehicle, if any, and little in the bank. Typically a crisis— becoming ill, losing a spouse or a job, or getting divorced — triggers the financial troubles. Debt, often from medical bills, typically ranges from $20,000 to $50,000.
"People are just in over their heads," said Wayne Clarke, a longtime attorney who began taking pro bono bankruptcy cases when he started a solo firm in Ellicott City in 2011. "I realized some of these people are collection-proof. You can sue them and get a judgment and even a lien, but it's not going to help. They don't have any money. Why put them through the stress and expense of bankruptcy?"
For Elkridge resident LaMona Linder, 77, constant calls from bill collectors were making it hard to sleep or keep food down.
The mobile home park tenant had lost her full-time job as a car counter for a traffic consultant in 2008. Linder, who divorced years ago after raising her children full time, began relying on credit cards for gas and other expenses while job hunting. But it seemed no one wanted to hire someone in her late 60s with limited experience.
Soon she had between $10,000 and $15,000 in credit card debt and struggled to make minimum payments. She tried to patch together bill payments for four years, but most of her income from Social Security went to rent and utilities.
"I couldn't pay the credit cards, and I didn't have money to live on," said Linder, who furnished her home with discarded pieces she restored. "All day long the phone would ring with credit card companies to pay the debt. They threatened they were going to sue me. … I told them I couldn't do anything. I would try to explain I'd lost my job and didn't have enough money to make good on the debt. They didn't want to hear that."
Clarke, who took Linder's case, offered an alternative. He would write to her creditors and document her finances.
"I tell my clients that when debt collectors call them, tell them, 'Don't call me,' and give them my number, and usually they go away," he said. "The last thing they want to do is waste time."
Representatives of the banking and credit industry say a balance needs to be struck between helping people who genuinely need it and enabling those with means to avoid debt. Programs such as the bankruptcy bypass can save time and expense, however, if clients are properly screened and their situations documented, industry experts say.
When customers find themselves in financial trouble, early communication with lenders is key, said Nessa Feddis, a senior vice president of the American Bankers Association, noting that unpaid debt gets reflected in prices paid by those who manage credit well.
"We encourage customers to talk to their bank if they're having difficulty repaying a loan," Feddis said. "That's the first step. They'll usually work with the customers."
A May report by NerdWallet shows the average U.S. household carries $15,762 in credit card debt and $130,922 in total debt, with the average household paying $6,658 in interest each year.
The rise in the cost of living has outpaced income growth over 12 years, the report found. While median household income has grown 26 percent since 2003, household expenses have outpaced it significantly — medical costs are up 51 percent and food prices have shot up 37 percent in that time.
Alvin D'Andrea, an Ellicott City resident who retired from the U.S. Postal Service on disability in 1990, realized last year he could not keep making credit card payments after learning in March that a friend he had invested with for more than two decades had defrauded him and others. The 74-year-old lost $190,000 in savings.
"It drained everything," D'Andrea said.
He began researching options and discovered he likely was judgment-proof because he lives on disability retirement income and owns no real estate. He stopped paying the bills last April and when lender calls came in, he referred them to his attorney, Frank Turney of Catonsville.
"The biggest issue is the harassment of the collection agencies," Turney said. "A lot of the collection agencies are buying bad debt from banks or credit card companies for pennies on the dollar. Then they hit hard just trying to get some sort of outcome."
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Seven months ago, the calls to D'Andrea stopped.
"It's a great burden lifted from your shoulders," D'Andrea said. "You know you owe the money, but you also know there's no way you would be able to pay it back."
The Maryland Volunteer Lawyers Service aims to help others in the same situation. Its volunteer attorneys get formal training and meet with clients at their homes or at clinics run by the nonprofit.
The attorneys will assess a client's income and assets to determine if they are "judgment-proof," reviewing credit reports, tax returns and proof of income. If they are, the lawyers then will inform creditors of the consumers' status. The goal is to serve more than 100 clients a year.
Linder, who has had much of her debt forgiven, occasionally gets a bill collector call and refers the caller to Clarke. Even without debt, she struggles, relying on food stamps and food banks for groceries, and getting state and community help with utility bills. But the calls have stopped.
"It was a tremendous amount of relief," Linder said. "I was so nervous. I was able to relax again."