What will happen if the U.S. fails to raise the debt ceiling?

What will happen if the United States Congress fails to raise the debt ceiling by the August 2 deadline? According to President Obama, there are no guarantees that government checks or Social Security payments will be made to seniors.

Is this political pandering or is there some validity to his claim? CNNMoney reports that according to a Bipartisan Policy Center it is likely that the Treasury Department would not be able to pay up to 40% and 45% of the 80 million of their payments.

How can this be possible? The United States simply does not have enough revenue or income each month to pay its bills. It is estimated that the U.S. lacks an average of $125 billion each month and has to borrow that money to make their standard debt payments. It is ridiculous that our government functions this way. Imagine if individuals and families managed their own finances so irresponsibly.

The bigger question is who would not be paid. Obama has been known to use scare tactics to force legislatures to take action, but the bottom line is roughly $125 billion of bills on average may have to be put off and tough decisions would have to be made. For instance, the revenue the Federal Government receives in August could be spent simply by paying a few of our debt obligations including: defense contractors, Medicaid and Social Security Expenses, and debt on our interest. If our money is spent on these bills, who does not get paid? According to CNNMoney the list could include: active-duty soldiers, veterans, taxpayers due refunds and federal workers.

Even more devastating than no-payments could be the aftershocks on the stock market. Everyone assumes the debt ceiling will be raised, but if it is not it is hard to predict how the markets would react. Others predict volatility in the Treasury market which could cause the cost of U.S. debt to climb. This will impact everything from car loans to home mortgages.

Most importantly is the reputation of the United States which has, up until recently, been very good. The United States may continue to pay bond holders, but according to news reports, when the credit rating agencies know that the U.S. has not met its domestic debt obligations they may consider  lowering the United States credit rating. Fitch Ratings Agency said it would put the country on “Ratings Watch Negative”  if this occurred.

“Extensive payment arrears to suppliers of goods and services to the government … would damage perceptions of U.S. sovereign creditworthiness and signal growing financial distress,” said Fitch Rating Agency.

Filing for Bankruptcy Protection

Although it feels like the United States needs to press a financial reset button this is not an option. It is time for the government to cut spending and reduce the deficit.

What if you are an individual facing a major financial crisis? What if you have had an unexpected divorce, death, or job loss? Fortunately, federal and state bankruptcy lawyers may allow you to file for bankruptcy and discharge or restructure your unsecure debt payments.

Filing for Chapter 7 Bankruptcy will allow you to discharge most types of unsecured debt by liquidating your assets and using the money from the liquidation to pay your creditors.

If you do not qualify for Chapter 7 Bankruptcy, you may be able to file Chapter 13 Bankruptcy. Chapter 13 Bankruptcy will stop home foreclosures, wage garnishments and bank account levies and will allow you to restructure your debt payments to repay your creditors over a 3 to 5 year period.

Debts are paid in priority order, according to bankruptcy law, and a trustee is assigned to your bankruptcy case to distribute payments to your creditors. Creditors are also barred from contacting you or continuing their harassing debt collection tactics while you are under bankruptcy protection.

No one wants to file for bankruptcy. It is a serious financial decision which should not be made without serious financial consideration, but if you have evaluated all of your other financial options and feel like filing bankruptcy is right for you, contact a bankruptcy lawyer who can answer your bankruptcy questions.

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Beth

Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.