What To Do If You Cannot Pay Your Bills

People contemplating bankruptcy generally cannot afford to pay off the various debts they have accrued.  However, bankruptcy has significant consequences.  As a result, there are some steps debtors can take to try to improve a bleak financial situation before making the decision to begin the bankruptcy process.

If you can only afford to keep up with some bills, you need to determine which debt you should pay off.  It is best to pay off the secured debt and stop paying the unsecured debt.  Unsecured debt is debt that is not secured by any lien or property, such as a home or car loan.  Thus, if you stop paying on unsecured debt, you will not lose any property in the process.  These debts are also dischargeable in bankruptcy.

It is important to recognize that if you do stop paying any creditor, whether secured or unsecured, the creditor will start contacting you to recoup the money owed.  They may call and they may send letters to you.  They can also seek the court’s help by suing you to obtain a judgment against you, which entitles them to collect the money they are owed.  The court can grant a wage garnishment judgment where the creditor can take a percentage of your paycheck.  The money will automatically be deducted from your paycheck in a wage garnishment.  However, if you file for bankruptcy, the automatic stay will prevent creditors from seeking any collection efforts against you.  If creditors contact you after filing for bankruptcy, you have recourse.

The implications of stopping payment on any debt can be complex.  Thus, you should consult an attorney before making any decisions on which debt to stop paying.   Debtors are often concerned that they can afford an attorney when they are having financial difficulty.  Nonetheless, if you file for bankruptcy, you will no longer be paying debt because it will be discharged in bankruptcy.  As a result you will have more funds available to pay an attorney to make sure your financial future is protected.  Additionally, an attorney can add attorney’s fees to the bankruptcy case.

You should try to continue paying certain debts that are not dischargeable in bankruptcy, like student loans and taxes.  Student loans are rarely dischargeable in bankruptcy proceedings.  There is a very high threshold that must be met in order for the court to dismiss this debt.  The debtor has to prove that they will never be able to repay the loan.  Skipping student loan payments will only increase the interest owed, thereby making the money owed over the life of the loan much greater. Similarly, the Bankruptcy Code only provides for very specific taxes to be discharged in bankruptcy.

Also, continue making payments on secured debts such as your car and home.  These creditors have the ability to seize the property from you if you stop making timely payments.  As a result, these bills should be the last bills you stop paying.

You can also try to make a debt repayment plan and try to stick to it.  Contact your creditors to see if they can adjust your repayment.  Get any agreements in writing.  Be wary of consolidation plans that cause you to borrow money.