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Ask Dave

Digging Out of the Hole

Margaret lost her job four years ago and racked up debt. She just received a notice to appear in court. What should her next step be?

QUESTION: Margaret in New York City lost her job four years ago and racked up debt. She just received a notice to appear in court. What should her next step be?

ANSWER: There are several things you can do. The question is what you should do. As far as the court case, it won’t hurt anything to go. If you go or don’t go, you will lose because it’s pretty simple; you owe the money and haven’t paid it. You are not going to win the lawsuit; there’s nothing to argue about here.

The only question is about the terms of the payment and so forth, and the biggest factor you have in paying this back is your lack of income. What if you started a housekeeping service where you would earn two to three times what you are earning right now? I’m making up something here, but a self-employed idea would probably make you a lot more than you’ve been making, because you haven’t even been getting 40 hours and you’re way below the poverty line.

Your career crisis is 90 percent of your problem. The remaining 10 percent is your credit card debt. If we can get you making $30,000 or $40,000, you can pay the credit card debt. Then it becomes just a minor blip on the screen. This struggle on the income side is what’s really causing you issues.

If I’m you, I’m going to sit down and really start dreaming about what kind of small business idea you could do. Maybe you have the world’s best apple pie recipe and it’s time to start baking them for some local coffee shops. You don’t necessarily have to clean; I’m just thinking of something that comes naturally to most people.

Maybe you’re good with plants and you start a business where you bring in plants for businesses and trim them and stuff. If I bring a plant in here and try to take care of it, it’s going to die. If you come up with something like that, the good news is you could double your income pretty easily.

In the meantime I would just talk to this creditor, because they probably won’t even garnish your wages right now. You don’t have any wages. You could go to visit with the judge and the creditor if you want; it won’t hurt anything. It’s not a big intimidating courtroom, and Matlock is not going to be there. It’s more like traffic court. It’s very informal. You’re going to lose the lawsuit, so the question is what they are going to do with your assets when you do lose it.

If you could scrape together $4,000 or $5,000, you could probably settle this for pennies on the dollar by talking to the lawyer representing this. That would be a good thing to do, but I’m guessing you can’t do that with your income limitations right now.