What Happens When I Can’t Pay Debts?

Most bankruptcy filers go through a period of non-payment before recognizing they cannot get out from under their crushing debts on their own. If you are at the beginning of the non-payment stage and have so far only received dunning letters and calls, here is what may follow:

1. Rent. You will be evicted if you do not pay your rent, so this should be a high-priority debt. In addition, tenant-screening agencies collect eviction information from court records and report it to subscribing landlords. Being evicted will make it more difficult for you to rent another place.

2. Car payment. Most auto lenders will move quickly to repossess your car if you miss more than one payment. Hiding your car from the repossession service is difficult when you are regularly driving it. The lender will resell the car at auction, which often will not bring in enough to fully offset your outstanding balance. You remain responsible for the difference, which is called the deficiency balance. It will likely be turned over to a collection agency, who you will hear from shortly. And you no longer have a car to drive.

3. Unsecured property. If you owe several thousand dollars or more, an unpaid creditor may decide it is worth suing you for the unpaid balance. Upon obtaining a judgment, the credit will seek to garnish 25% of your wages if you have a job, seize your bank account, or lien any real estate you own. If you have foolishly kept money in a bank to which you owe money, the bank may simply remove the money it is owed from your account.

4. Student loan. If you are in default on student loan payments, the collecting agency can have the IRS intercept any federal income tax refund you are owed. The IRS will notify you beforehand, so you will have a chance to argue the intercept is inappropriate.

5. Utilities. Unpaid utilities will quickly result in a cutoff of services. And you will not be able to reinstate those services until the unpaid sum has been cleared.

You will usually be better off filing bankruptcy before any of the above steps are taken. Contact a local bankruptcy lawyer if you want to discuss your personal situation and learn whether bankruptcy is recommended for you.