Lily is working as a milliner (a person who makes women's hats) and getting reprimanded by the forewoman for sewing the spangles onto a hat crookedly. She's in a small room with about twenty other working women.
It seems that Lily separated from Mrs. Hatch a few weeks after Selden visited. She went back to Gerty, who convinced her that she could use her artistic abilities to make and sell hats. Of course, she wouldn't have to do the grunt-work of sewing – she could just be in charge of the final touches, like ribbons or feathers.
Er, not so much. Lily is basically at the bottom of the totem pole since she can barely get her stitches straight.
Meanwhile, Gus Trenor and Simon Rosedale "rescued" Bertie Van Osburgh from Mrs. Hatch, and now they all blame Lily for trying to trap him in a marriage beneath his dignity.
Mrs. Fisher felt guilty at setting Lily up with Mrs. Hatch in the first place, so she goes to Judy Trenor and tries to get her to take Lily back as a friend. But Judy is having none of it. Mrs. Fisher reprimands Lily, who should have known better than to take money from Mr. Trenor.
So Mrs. Fisher and Gerty placed Lily as a milliner in Madam Regina's hat shop.
Lily began her work in January, and has been a milliner for about two months now. All the other women laugh at her because she used to be a member of the social elite, but now she's just a terrible hat maker.
Awkwardly enough, the other women talk about the ladies who will receive these hats – like Mrs. Dorset and Mrs. Trenor.
Miss Haines, the forewoman, tells Lily that her spangles are so awkward that she had better just give the hat to another woman to finish and "go back to binding edges."
After leaving work, Lily remembers that, when she was rich, she used to think that the working classes were an interesting group of people. Now, she just finds them to be boring.
She returns to her ugly, ill-furnished apartment. On the way, she stops at a chemist's (i.e., a drugstore) to fill one of Mrs. Hatch's old prescriptions which she pretends is her own. It's for a drug to help her sleep at night. The pharmacist remarks that it's strong and she should be careful not to take too much.
Lily hurries back to her apartment but, on the way, bumps into Rosedale. Lily is so out of it that she can barely carry a conversation, but he offers to get some tea with her and she complies.
Rosedale is enthused to have bumped into Lily, and wants to hear all about her life. Lily doesn't hold back; she tells him everything about her current situation. He is shocked that a beautiful woman like Lily has to work for a living.
When he asks about the inheritance from her aunt, Mrs. Peniston, Lily explains the whole situation with Gus Trenor and why she owes the money.
It's the first time she's really comes clean about everything. She wants someone to hear her story, and she hopes that the news will reach Judy Trenor, who will finally understand that Lily didn't mean to take money from Gus and that she's trying to pay it back.
Rosedale offers to help her, but Lily says walking her home is help enough.
Later, alone in her rooms, Lily wonders why she revealed everything to Rosedale like that. She determines that she's very lonely, cut off most of her friends – even Mrs. Fisher. Lily's avoiding Gerty, too, because she's afraid of accidentally bumping into Selden while she's over there.
Lately she's been turning more and more to the sleeping medication, which at least allows her to wake every morning with a feeling of "obliteration."
Meanwhile, she's tempted to use the ten grand inheritance (which she still has not received) to start her own hat shop, but she worries that, if she does, it might take years to make enough to pay Trenor back, and she doesn't want to remain under his obligation in the meantime.
Lily is also concerned that she isn't strong enough to avoid temptation until she gets her inheritance. (Remember, at any moment she could use the letters to crucify Bertha and marry Rosedale.)
She also knows that, as another temptation, Rosedale would be more than happy to lend her the money she needs to pay back Trenor.