money troubles, legal strategies to cope with your debts 9th (2003)

9th edition
Money
Troubles:
Legal Strategies to Cope
With Your Debts
by Attorney Robin Leonard
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9th edition

Money
Troubles:
Legal Strategies to Cope
With Your Debts
by Attorney Robin Leonard
Ninth Edition AUGUST 2003
Editor PEG HEALY
Illustrations MARI STEIN
Cover Design JALEH DOANE
Book Design TERRI HEARSH
Proofreading JOE SADUSKY
Index ELLEN DAVENPORT
Printing CONSOLIDATED PRINTERS, INC.
Leonard, Robin
Money Troubles : legal strategies to cope with your debts / by Robin Leonard.
p. cm.
Rev. ed. of: Money Troubles / by Deanne Loonin & Robin Leonard. 8th ed. 2002.
Includes index.
ISBN 0-87337-975-6
1. Debtor and creditor United States Popular works. 2. Credit Law and
legislation United States Popular works. I. Title.
KF1501.Z9 L46 2003
346.7307'7—dc21 2003051012
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Acknowledgments
I gratefully acknowledge the following people for their support and creative
contributions:
My delightful research assistants: Karen Chambers, who actually understands
U.C.C. § 1-207; Lisa Guerin, who spent many hours breathing the fumes of her
law school library; Annie Tillery, a researcher par excellence; David Freund, for
his work on debtors’ prisons; and Tricia Bernens, the funniest and most capable
attorney in the state of Indiana. For help with the sixth edition, thanks to Ella
Hirst.
My original editors, Steve Elias and Jake Warner, whose insights make Nolo
books as great as they are. My editor for later editions, Shae Irving, with whom it
was a joy to work.
All the Noloids who shared their debt problems with me.
Barbara Kate Repa, Marcia Stewart, Mary Randolph and Albin Renauer, my
cohorts in the editorial department, whose support was more important to me
than they will ever realize.
Sherri Conrad, Amy J.D. Markowitz, Leslie Landau, Randy Michelson and Wendy
Hannum, friends from my lawyering days, who answered a never-ending string of
questions, and offered lots of advice and good cheer.
—Robin Leonard

Table of Contents
I
Being in Debt Is Not As Bad As You Think
1
Secured and Unsecured Debts
A. Secured Debts 1/2

B. Unsecured Debts 1/3
2
How Much Do You Owe?
A. How Much Do You Earn? 2/2
B. How Much Do You Owe? 2/4
3
If You’re Married, Divorced or Separated
A. Who Owes What Debts in a Community Property State? 3/2
B. Who Owns What Property in a Community Property State? 3/3
C. What Property Is Liable for Payment of Debts
in a Community Property State? 3/4
D. Who Owes What Debts in a Common Law State? 3/5
E. Who Owns What Property in a Common Law State? 3/5
F. What Property Is Liable for Debts in a Common Law State? 3/6
4
Debts You May Not Owe
A. The Seller Breaches a Warranty 4/2
B. Your Car Is a Lemon 4/5
C. You Are the Victim of Fraud 4/7
D. You Want to Cancel a Contract 4/9
E. Canceling Goods Ordered by Mail, Phone, Computer or Fax 4/11
F. Canceling Goods Ordered From a Phone Solicitor 4/11
G. Miscellaneous Remedies 4/14
5
Prioritizing Your Debts
A. Essential Debts 5/2
B. Nonessential Debts 5/5
C. Review Your Lists 5/5
6
Negotiating With Your Creditors

A. Communicate With Your Creditors 6/2
B. Negotiating When the Creditor Has a Judgment Against You 6/14
C. Try to Pay Off a Debt for Less Than the Full Amount 6/14
D. Don’t Write a Bad Check 6/15
E. Writing a Postdated Check Is a Bad Idea 6/16
F. Beware of the IRS If You Settle a Debt 6/17
7
Finding Money to Pay Your Debt
A. Increase Your Income 7/2
B. Sell Some Stuff 7/2
C. Cut Your Expenses 7/4
D. Withdraw Money From a Tax-Deferred Account 7/4
E. Apply for Government and Agency Help 7/5
F. Consider a Home Equity Loan 7/6
G. Use the Equity in Your Home If You Are Elderly 7/7
H. Borrow the Money 7/9
I. Get Your Tax Refund Fast 7/10
J. What to Avoid When You Need Money 7/10
8
The Consequences of Ignoring Your Debts
A. Eviction 8/2
B. Foreclosure 8/2
C. Repossessing or Taking Property 8/10
D. Prejudgment Attachment of Unsecured Property 8/15
E. Lawsuit 8/15
F. Lien on Your Property 8/16
G. Jail 8/17
H. Bank Setoff 8/17
I. Collection of Unsecured Debts From Third Parties 8/19
J. Interception of Your Tax Refund 8/19

K. Loss of Insurance Coverage 8/19
L. Loss of Utility Service 8/19
M. Take a Deep Breath 8/20
9
When the Debt Collector Calls
A. Original Creditor or Collection Agency? 9/2
B. Original Creditors’ Collection Efforts 9/3
C. When Your Debt Is Sent to a Collection Agency 9/6
D. Debt Collection Practices—Legal and Illegal 9/12
10
Credit, Charge and Debit Cards
A. Credit and Charge Cards 10/2
B. Cash Advances 10/13
C. Automated Teller Machine (ATM) and Debit Cards 10/13
11
Consumer Loans
A. Required Loan Disclosures 11/2
B. Evaluation of Credit Applications 11/3
C. Terms of Loan Agreements 11/6
12
Reporting Credit Violations
A. National Banks 12/2
B. Federal Savings and Loans and Federal Savings Banks 12/2
C. National Credit Unions 12/3
D. State Banks (Members of the Federal Reserve System) 12/3
E. State Banks (Not Members of the Federal Reserve System) 12/4
F. Department Store, Gasoline Company and Other Creditors 12/4
13
Student Loans
A. Types of Loans 13/3

B. Figuring Out Who Holds Your Student Loan 13/4
C. Repaying Student Loans 13/4
D. Strategies When You Just Can’t Pay 13/6
E. Getting Out of Default 13/9
F. Consequences of Ignoring Student Loan Debt 13/9
G. Where to Go for Help 13/10
14
Child Support and Alimony
A. How Child Support Is Determined 14/3
B. Modifying the Amount of Child Support 14/4
C. Establishing Paternity 14/7
D. Enforcement of Child Support Obligations 14/8
E. Alimony 14/14
F. Bankruptcy and Child Support/Alimony Debt 14/14
15
If You Are Sued
A. How a Lawsuit Begins 15/2
B. Negotiate 15/5
C. Alternative Dispute Resolution 15/6
D. Respond in Court 15/9
E. What to Expect While the Case Is in Court 15/14
F. If the Creditor Gets a Judgment Against You 15/19
G. Stopping Judgment Collection Efforts 15/26
16
Bankruptcy: The Ultimate Weapon
A. Don’t Feel Guilty 16/3
B. Filing for Bankruptcy Stops Your Creditors 16/4
C. Bankruptcy Might Not Help You 16/6
D. An Overview of Chapter 7 Bankruptcy 16/8
E. An Overview of Chapter 13 Bankruptcy 16/9

F. Does Bankruptcy Make Economic Sense? 16/10
17
Property You Do—and Don’t—Get to Keep
A. Property Subject to Collection 17/4
B. Property Subject to Bankruptcy Court’s Authority 17/8
C. Applying Exemptions 17/12
D. Instructions for Completing Worksheet 17/15
E. Turning Nonexempt Property Into Exempt Property 17/29
18
Rebuilding Your Credit
A. Avoid Overspending 18/2
B. Clean Up Your Credit File 18/6
C. Add Positive Account Histories to Your Credit File 18/15
D. Add Information Showing Stability to Your Credit File 18/15
E. Build Credit in Your Own Name 18/16
F. Ask Creditors to Consider Your Spouse’s Credit History 18/17
G. Use Existing or New Credit Cards 18/20
I. Work With Local Merchants 18/20
J. Obtain a Bank Loan 18/21
K. Don’t Use a Credit Repair Clinic 18/21
19
Credit Discrimination
A. The ECOA and the FHA 19/2
B. Sex Discrimination 19/2
C. Marital Status Discrimination 19/2
D. Race Discrimination 19/3
E. National Origin Discrimination 19/3
F. Age Discrimination 19/4
G. Other Discrimination Prohibited by State Law 19/4
H. Post-Bankruptcy Discrimination 19/4

I. What to Do if a Creditor Discriminates Against You 19/5
20
Help Beyond the Book
A. Do Your Own Legal Research 20/2
B. Lawyers 20/10
C. Debt and Credit Counseling Agencies 20/13
Appendix
1
Glossary
2
State and Federal Exemption Tables
Index
Being in Debt Is
Not As Bad As You Think
Introduction
The so-called debtor class … are not dishonest
because they are in debt.
–– Grover Cleveland, 22nd & 24th President of
the United States, 1837-1908
If you’re in debt, you probably feel very alone.
But you shouldn’t. Millions of honest, hard-working
people are having problems paying their debts.
Take a look at these statistics describing American
consumers:
• Over two million people each year seek
assistance from debt counseling agencies such
as Consumer Credit Counseling Service.
• Personal bankruptcy filings were over 1.5
million in 2002 and are expected to remain
high.

• In early 2003, outstanding consumer installment
debt totaled over $1.7 trillion, and it continues
to grow.
• Most Americans carry five or six payment cards
(credit, debit and retail cards combined). In
late 2002, the average American owed $3,250
on two cards.
• About three-quarters of all college students
have at least one credit card. About 30% carry
four or more. Most sign up before their
sophomore year, responding to credit card
issuers’ offers of free concert tickets, computer
software and discount air fares—just for
submitting an application. Card issuers target
college students, knowing that most people
hold on to their first card for as long as 15 years.
Even though your situation is far from unique,
being in debt may seem like the end of the world.
You may be afraid to answer your phone or open
your mail. Your self-esteem may be shot. Your
stomach, back and head probably ache. You may
feel guilty, angry, depressed or all three. You may
consider yourself a failure.
But there is good news. By knowing your legal
rights and asserting them, you can get the bill
collectors off your back and give yourself a fresh
financial start. And, often, it’s easier than you think
to fight back and affirmatively deal with your debt
problems. One reason is that many creditors and
bill collectors have modified their expectations and

collections practices in response to mushrooming
consumer debt. Debtors who assert themselves are
getting more time to pay, late fees dropped, their
debts settled for less than the full amount and even
their credit reestablished.
Money Troubles can help you take charge. This
book:
Shows you how to protect your legal rights. For
example, Money Troubles explains in detail how to
respond to a lawsuit, wage attachment, car repos-
session, foreclosure proceeding or property lien.
Helps you understand your debts. If you know how
the law categorizes different kinds of debts, you’ll
I/2 MONEY TROUBLES
know what kinds of collection efforts you can expect
from different creditors, and which negotiating
strategies you can try with them.
Shows you effective alternatives to bankruptcy.
Bankruptcy is the right tool for many people to deal
with their debt problems, but it’s not for everyone.
Money Troubles shows you the steps you can take
to avoid bankruptcy when appropriate.
Gives you practical tips and information. Money
Troubles contains over 20 sample letters and state-
ments that you can use to:
• get the bill collectors off your back
• ask a creditor for more time to pay, or
• ask a creditor to lower the amount of a bill.
Money Troubles also refers you to places to lodge
a complaint or ask for information, and contains

charts of state laws summarizing consumer laws,
debt collection laws, credit bureau regulations and
more.
Helps you evaluate your individual debt situation.
Money Troubles includes several worksheets to help
you figure out how much you earn, how much you
owe, how much you spend and what you own. With
these worksheets, you can prioritize your debts,
determine if you are judgment-proof and decide what
approach to take: do nothing, negotiate with your
creditors, get outside help negotiating or possibly
file for bankruptcy.
Icons Used in This Book
A caution to slow down and consider potential
problems.
This icon alerts you to a practical tip or good
idea.
“Fast track” lets you know that you may be
able to skip some material that doesn’t apply to
your situation.
Suggested references for additional information.
■
Secured and Unsecured Debts
A. Secured Debts 1/2
1. Security Interests: Liens You Agree To 1/2
2. Nonconsensual Liens: Liens Created Without Your Consent 1/3
B. Unsecured Debts 1/3
CHAPTER
1
1/2 MONEY TROUBLES

Dreading that climax of all human ills,
The inflammation of one’s weekly bills.
—George Gordon, Lord Byron,
English poet, 1788-1824
A debt is an obligation to pay someone money.
It may be a large obligation, such as a home mort-
gage or monthly rent, or a small obligation, like a
newspaper or magazine bill. If you don’t pay, you
often suffer some consequences. At the serious end
of the scale, if you don’t pay your mortgage or rent,
your house may be foreclosed on or you may be
evicted. At the minor inconvenience end, if you
overlook paying a subscription, it will be canceled
and you will be sent letters demanding that you pay
for copies you’ve already received.
The purpose of this chapter is to help you figure
out the kinds of debts you have. You may think of
your debts in several different ways, such as:
• Debts to people you know, such as a loan
from your Aunt Muriel or a bill you owe
Angelo, the owner of the local grocery store—
versus debts you owe to impersonal creditors,
for example, a credit card company.
• Your regular monthly obligations, for instance,
rent, phone bill or gas bill—versus debts you
pay only when you buy something on credit.
• Debts for goods or services you are currently
receiving, for example, a newspaper subscrip-
tion or credit card bill—versus debts to repay
money borrowed many years ago, such as a

student loan.
• Debts you’d rather not pay and wonder if you
really owe, such as back taxes—versus debts
you don’t have any reasonable grounds to
object to paying, for example, your utility
bill.
Groupings such as these may be relevant in help-
ing you decide how and in what order you will pay
your bills. Legally, however, these categories are
irrelevant. Instead, the law puts debts into two primary
groups: secured and unsecured. To understand your
debts and to intelligently decide what to do about
each one, you must understand the difference. This
point cannot be overemphasized: The consequences
of not paying a secured debt differ tremendously
from not paying an unsecured debt. (These conse-
quences are explained in Chapter 8.) If, after reading
Sections A and B, below, you are still not sure you
can tell a secured debt from an unsecured debt,
reread the material.
A. Secured Debts
Secured debts are linked to specific items of property,
called collateral. The collateral guarantees payment
of the debt. If you don’t pay, the creditor is entitled
to take the property designated as the collateral. If
you’ve ever had property, such as a car, repossessed
when you failed to pay a loan, you already know
how secured debts work.
These debts should be your highest priority. If
you don’t pay them, you will lose the collateral

backing them up. Even if you don’t hear from these
creditors, don’t assume they won’t collect the debt.
Because secured collectors have such a powerful
weapon (they can seize the collateral if you stop
making payments), they don’t need to hound you
the way that collectors with lower-priority debts do.
There are two types of secured debts: those you
agree to and those created without your consent.
1. Security Interests: Liens You Agree To
A security interest is an agreement in which you
specify precisely what collateral (remember, that’s a
fancy word for property) can be taken by the
creditor if you default. It also creates a “lien”: the
creditor’s legal right to take possession of the
collateral in the event you don’t pay. Security
interests are of two kinds:
Purchase money. With a purchase money security
interest, you pledge as collateral the property you
buy using the loan proceeds. This is usually a
home, motor vehicle, piece of furniture, large
appliance or electronic equipment.
Nonpurchase money. With a nonpurchase money
security interest, you simply borrow a sum of
money and pledge some property you already own
SECURED AND UNSECURED DEBTS 1/3
as collateral. Personal loans from a bank and home
equity loans are typical nonpurchase money agree-
ments.
Some common examples of security interests—
both purchase money and nonpurchase money—

include the following:
• Mortgages (sometimes called deeds of trust)—
loans to buy or refinance a house or other real
estate. The house or other real estate is collat-
eral for the loan. If you fail to pay, the lender
can foreclose.
• Home equity lines of credit or loans (some-
times called second mortgages) from banks or
finance companies—such as loans to do work
on your house. The house or other real estate
is collateral for the loan. If you fail to pay, the
lender can foreclose.
• Loans for cars, vans, trucks, boats, tractors,
motorcycles, RVs—the vehicle is the collateral.
If you fail to pay, the lender can repossess the
vehicle.
• Car equity loans from banks or finance
companies. You pledge your existing vehicle
as collateral to obtain cash, usually used to
pay down high-interest debts.
• Store charges with a security agreement—for
example, when you buy furniture or a major
appliance using a store credit card. If you
don’t pay back the loan, the seller can take
the property. Only a few department stores
use security agreements. Most store purchases
are unsecured (discussed below).
• Personal loans from finance companies—
often your personal property, such as your
furniture or electronics equipment, is pledged

as collateral.
2. Nonconsensual Liens: Liens Created
Without Your Consent
A creditor can, in some circumstances, get a lien on
your property without your consent. These secured
debts are termed nonconsensual liens. A creditor
with a nonconsensual lien claims you owe her money,
and to secure payment she places a lien on your
property. To get paid, the creditor may be able to
force the sale of the property. This is called a fore-
closure. In practice, however, few creditors holding
nonconsensual liens foreclose on property, because
of the time and expense involved. Instead, creditors
generally wait until you sell the property to get paid.
There are three major types of nonconsensual
liens:
• Judicial liens. A judicial lien can be placed on
your property only after somebody sues you
and wins a money judgment against you. In
most states, the judgment creditor then must
record (file) the judgment with the local land
records office. The recorded judgment creates
a lien on your real property. In a few states, a
judgment entered against you by a court auto-
matically creates a lien on the real property
you own in that county—that is, the judgment
creditor doesn’t have to record the judgment
to get the lien. In some states, judicial liens
apply to personal property as well.
•

Statutory liens. Some liens are created by law,
automatically. For example, if you hire some-
one to work on your house, and you don’t
pay the construction worker or supplier of
materials (or you pay the construction worker,
who fails to pay the supplier), that person or
company can place a lien on your home, with-
out going to court. This is called a mechanic’s
lien or a materialman’s lien. In some states, a
homeowner’s association can do this as well,
if you don’t pay your association dues.
•
Tax liens. Federal, state and local governments
have the authority to place liens on your
property if you owe delinquent taxes.
B. Unsecured Debts
Unsecured debts are not secured by collateral. For
example, when you charge clothing on your credit
card, you don’t sign a security agreement specifying
that the clothing is collateral for your repayment.
With no collateral, the creditor has nothing to take
if you don’t pay. This leaves the bank that issued the
credit card only one option if you don’t pay volun-
tarily: to sue you, get a judgment for the money you
owe and try to collect on it. To try and collect on
1/4 MONEY TROUBLES
the judgment, the bank can go after a portion of
your wages, your deposit accounts and other property
that can be taken under your state’s laws to satisfy
money judgments. (See Chapter 15.)

Most debts that people incur are unsecured.
Common ones include:
• credit and charge card cash advances
• credit and charge card purchases
• gasoline and department store charges, unless
you sign a security agreement
• loans from friends and relatives
• student loans
• alimony and child support
• medical and dental bills
• accountants’ and lawyers’ bills
• rent
• utility bills
• church or synagogue dues
• health club dues, and
• union dues.
Not all unsecured debts are created equal. Collec-
tors of some unsecured debts such as student loans
and unpaid child support are allowed to use more
aggressive collection tactics than the typical un-
secured creditor. (See Chapter 13, Student Loans,
and Chapter 14, Child Support and Alimony.) ■
How Much Do You Owe?
A. How Much Do You Earn? 2/2
B. How Much Do You Owe? 2/4
CHAPTER
2
2/2 MONEY TROUBLES
There can be no freedom or beauty about a home
life that depends on borrowing and debt.

–— Henrik Ibsen, Norwegian poet
and dramatist, 1828-1906
To successfully plan your strategies with your
creditors, you need to spend time coming to terms
with your total amount of debt. This may make you
shudder. Some people with debt problems believe
that the less they know, the less it hurts. They think,
“I’m having trouble paying a lot of my bills. I can’t
stand the thought of knowing just how much I can’t
pay.”
Happily, most credit counselors will tell you that
people tend to overestimate their debt burdens. If
your guess is that you owe $15,000, you may only
owe $11,500. If you think you’re over your head to
the tune of $25,000, it may only be $15,000. This
may bring little comfort to those of you who may
find out that you owe more than you thought, but
knowing the total amount of your debts will make a
crucial difference in how you proceed.
To figure out your financial situation, you need to
compare what you bring in each month with what
you spend each month on your monthly expenses
(such as food, housing and utilities) and your other
debts (for example, student loan payments).
To figure out how much you earn, spend and
owe, use the worksheets provided below. If you are
married or have jointly incurred most of your debts
with someone other than a spouse, fill out the
worksheets together.
Warning Signs of Debt Trouble

If you have panic attacks when you try to figure out
your total debt burden, you’ll feel better if you skip
this chapter and come back to it when you are
better able to confront the information. Before
doing that, however, ask yourself the following
questions. If you answer “yes” to any one of them,
you are probably in or headed for serious debt
trouble:
• Are your credit cards charged to the maximum?
• Do you use one credit card to pay another?
• Are you making only minimum payments on
your credit cards while continuing to incur
charges?
• Do you skip paying certain bills each month?
• Have creditors closed any accounts on you?
• Have you taken out a consolidation loan? Are
you considering doing so?
• Have you borrowed money or used your credit
cards to pay for groceries, utilities or other
necessities (for reasons other than to get perks
on a credit card)?
• Have you bounced any checks?
• Are collection agencies calling and writing
you?
A. How Much Do You Earn?
Start by figuring out how much you earn each
month. Complete Worksheet 1, which is self-
explanatory.
HOW MUCH DO YOU OWE? 2/3
Worksheet 1: Monthly Income

(Combine for you and your spouse, partner or other joint debtor)
You need to compute your monthly net income. Net income is your gross income less deductions: federal,
state and local taxes; FICA; union dues; and money your employer takes out of your paycheck toward
your retirement plan or health insurance, to pay your child support or to repay a loan.
To figure out your monthly net income, do the following calculations (unless you are paid once a
month):
• If you’re paid weekly, multiply your net income by 52 and divide by 12.
• If you’re paid every two weeks, multiply your net income by 26 and divide by 12.
• If you’re paid twice a month, multiply your net income by 2.
• If you’re paid irregularly, divide your annual net income by 12.
Spouse, Partner
Net Wages or Salary You or Joint Debtor Total
Job 1
Job 2
Job 3
Other Monthly Income
Bonuses
Dividends or interest
Rent, lease or license payments
Royalties
Note or trust payments
Alimony or child support
Pension or retirement pay
Social Security
Disability pay
Unemployment insurance
Public assistance
Help from relatives or friends
Other
Total Income $ $ $

2/4 MONEY TROUBLES
B. How Much Do You Owe?
In Worksheet 2, yoU figure out your debts. You will
want to be as thorough and complete as possible.
The completed Worksheet 2 will tell you exactly
how much you should be paying each month (to be
current on all your bills) and how far behind you
are. Here’s how to fill it out:
Column 1: Debts. In Column 1, enter the type of
debt. Don’t enter a debt more than once.
If you are married, you may not be certain which
debts are yours and which belong to your spouse.
If your marriage is intact and you’re having mutual
financial problems, approach your debt problems as
a team. That is, enter all your debts in Column 1. If,
however, you are separated or recently divorced, or
are married but having financial problems of your
own, see Chapter 3 for help on figuring out the
debts for which you are obligated. If you live with
someone else, determine whether you have any
joint debts (debts that you both owe). If you gener-
ally share expenses and maintain a household with
someone else, it is a good idea to combine your
income and pay all of your debts with joint funds,
regardless of who actually incurred the debt. Enter
both partners’ debts in Column 1.
Column 2: Outstanding balance. In Column 2, enter
the entire outstanding balance on the debt. For
example, if you borrowed $150,000 for a mortgage
and still owe $125,000, enter $125,000. If you don’t

know how much you owe, consider contacting the
creditor. If you’d prefer that the creditor not hear
from you, make your best guess. On debts where
you make monthly payments that include both
principal and interest, enter only the principal.
Columns 3 and 4: Monthly payment and total you
are behind.
In Columns 3 and 4, enter the amount
you currently owe on the debt. If the lender has not
established set monthly payments—for example, a
doctor’s bill—enter the entire amount of the debt in
Column 4 and leave Column 3 blank. If the debt is
one for which you make regular monthly payments
—such as your car loan or mortgage—enter the
amount of the monthly payment in Column 3 and
the full amount you are behind (monthly payment
multiplied by the number of missed months) in
Column 4.
For credit card, department store and similar debts,
enter the monthly minimum payment in Column 3
and your entire balance in Column 4. But keep in
mind that eventually you should make more than
the minimum payment on your credit cards. (See
Chapter 10, Credit, Charge and Debit Cards, for
information on the danger of making only minimum
payments each month.)
Column 5: Is the debt secured? In Column 5, indicate
whether the debt is secured or unsecured. Remember,
a secured debt is linked to a specific item of property:
collateral. If you signed a security agreement pledg-

ing property as security for your payment or the
creditor has filed a lien against your property, the
debt is secured. Specify the collateral the creditor is
entitled to grab if you default. (For more on
determining whether a debt is secured or unsecured,
see Chapter 1, Secured and Unsecured Debts.)
Add it up. When you’ve entered all your debts
onto the Worksheet, do the following:
• Total up Columns 2, 3 and 4. Column 2
represents the total balance of all your debts,
even though some of it may not be due now;
Column 3 represents the amount you are
obligated to pay each month; and Column 4
shows the amount you would have to come
up with to get current on all your debts.
• Compare the numbers at the bottom of Work-
sheet 2, Column 3 (the amount you are obli-
gated to pay each month) and Column 4 (the
amount you would have to come up with to
get current on all your debts) to the figure at
the bottom of Worksheet 1 (your net income).
The figures on Worksheet 2 may far exceed the
figure on Worksheet 1. For example, your income
and monthly payments both might be near $2,000,
while the amount you need to pay to get current is
$4,500. Or, your income might be less than half of
how much you need to pay each month. Whatever
the situation is, don’t despair. The rest of this book
gives you tips on prioritizing your debts, negotiating
with your creditors and using other techniques to

ease your burden.