AT APPROXIMATELY 1:45 on the afternoon of April 23, 2014, Scotty Fuentes was detained by officers of the New York City Police Department in the Bronx. The police officers apparently believed that Scotty was acting as a look-out for a game of “three card monte.”
Scotty denied any wrongdoing.
According to Scotty, the officers grabbed him, pulled his arms behind his back and handcuffed him. They proceeded to search and humiliated him before transporting him to the nearby precinct. Scotty was imprisoned for what he believed was an unreasonably lengthy and painful period of time. He was arraigned at Bronx County Criminal Court.
On September 29, 2014, all charges against Scotty relating to this incident were dismissed and sealed.
Prior to the charges being dropped, however, Scotty was terminated from his employment. Despite best efforts, he was unable to find a new job.
When the small unemployment checks he was collecting ran out, Scotty was evicted from his apartment because he couldn’t pay his rent. Then when he stopped making payments, his car was repossessed.
Scotty was fortunate to find a reputable law firm to represent him in a federal civil rights action against the City for false arrest and the filing of false charges against him. At the time of the incident Scotty had no arrest record, and his lawyers believed it was highly probable that Scotty would be victorious at trial.
Yet, the law moves at its own pace. Litigation is a slow process. The days, weeks, months and, ultimately, years dragged on. All the while, Scotty had no income and fell deeper into debt.
It felt to Scotty as if this unfortunate set of circumstances—being in the wrong place at the wrong time—had ruined his life.
Scotty was unable to sleep. His stomach was a mess, and his head was always pounding. He was not motivated to exercise or eat right. Having nowhere else to go, he moved back into his mother’s home and took up residence in the basement. He felt like a big loser.
He waited for the day his lawyers would call to say the case was going to trial so that he could “win” some money, repay his outstanding debts and start his life over again. But was that an unrealistic fantasy?
During this time, Scotty was often overwhelmed with negative thoughts about himself for being so vulnerable and against the police for being so wrong and so callous. He even considered suicide. Thankfully, he rationalized that he was feeling sorry for himself more than he wanted to end his life.
In June 2016, more than two years after his false arrest, Scotty was finally able to find a decent job and regain some of his self-confidence. He felt like a valuable member of society, yet his outstanding debt loomed heavily over him.
His debt prevented him from socializing, dating and moving on with his life. This was not the life he had envisioned.
Right before Labor Day, Scotty’s lawyers called and said there was a settlement offer that they believed was quite reasonable in light of the damages suffered and the risks of going to trial. While Scotty was thrilled that the nightmare was about to end, he soon realized that the offer, while “reasonable” to his counsel, could not pay off his creditors and reignite his life.
He asked his lawyers if they could negotiate a larger settlement, or if they would agree to reduce their fees, so he could net more money to pay down his outstanding debt, largely incurred as a direct result of the false arrest. The lawyers were not about to reduce their fees, but instead suggested based on his small income that Scotty file a Chapter 7 bankruptcy.
By doing so, he would be legally discharged from the unsecured debt he had incurred and would be free to start his new life—free of the debt and the lawsuit. Scotty would be able to keep the “exempt” portion of his settlement funds, and the balance would be used by the appointed bankruptcy trustee to make a pro rata distribution to his creditors.
Yes. In fact, a bankruptcy would stay on Scotty’s record for 10 years and negatively impact his credit. It would impair his ability to get loans (and, even if he were approved, such loans would be at higher interest rates). It would also affect his future employment opportunities.
Now, Scotty could explain to potential employers the hardship he faced as a result of his false arrest, but would they even give him that opportunity? Would they believe him? Would they take a chance on him?
Scotty called me to discuss which actions he might take that would be least detrimental to his future. My answer, of course, was to negotiate the debt.
Together, we ordered Scotty’s credit reports from the three credit bureaus and then called each one of Scotty’s creditors. Although Scotty’s settlement from the City was not enough to pay each creditor in full, many of the creditors were readily willing to accept a smaller amount in full settlement of the debt. Some creditors even agreed to erase the “negative line of credit” entirely from Scotty’s report upon clearance of the settlement monies. Other creditors would not remove the negative history, but they agreed to change the status to “settled,” meaning the negative information would drop off his report in about seven years.
By my count, seven years is significantly better than ten, and, in Scotty’s case, a settlement was far better than bankruptcy.
At the end of the day, we were able to settle all of Scotty’s debt from the settlement proceeds. Scotty was left with more than he would have netted had he filed a bankruptcy and only been allowed to keep the “exempt” amount.
It is very easy to get in debt, and such debt accumulation is often the result of circumstances beyond our control. It doesn’t have to be a false arrest; it could be a bad business decision, divorce or a sick family member. It might result from a misunderstanding about how credit works and the exponential damage compounding interest can have on the principal amount of debt owed.
Bankruptcy, however, must be a last resort and not a knee jerk reaction.
While Scotty did not want to “give away” the settlement funds his lawyer successfully negotiated, he also did not want to file for bankruptcy. Debt negotiation allowed Scotty to repay his debts without going through the bankruptcy process or having a bankruptcy on his record for another decade.
We all know we cannot always control what happens in our lives. Sometimes, life is simply not fair. However, when faced with challenging money situations and debt, be aware that thinking creatively, asking for what you want—and tenacity—can result in success.
These days, Scotty is walking with his chin up, and the smile has returned to his face.
While his hair is now graying in parts (he thinks due to stress), he is back to sleeping through the night. His stomach is not in a constant knot. Although he has suffered, he has grown, and he has learned.
You, too, can negotiate your debt and improve your credit status. If your finances are out of control – for example, if your annual income is the same as your total unsecured debt – perhaps it is time for you to consider taking action to negotiate your debt.
True wisdom comes in understanding that sometimes, you are both the prison and the key.
I’m a debt settlement and bankruptcy attorney who negotiates resolutions between clients and their creditors. I am also a real estate attorney involved in both sides of purchasing and selling distressed real property. I am passionate about teaching people about money and helping individuals of all ages achieve financial independence and success in a "no…
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