Not having the ability to repay debt obligations is frustrating, not only for you, but also for creditors. If you are facing a financial crisis or you are not able to repay your debts there are certain steps you should take. Recently on our bankruptcy forum a user asked, “My bills are overdue and I missed mortgage payments, what next?”
Whether it’s a job loss, a pay cut, or you have simply overspent, you may be like millions of other Americans who are unable to pay their bills and are considering filing bankruptcy. So what do you do if you cannot pay your bills?
Over due bills…take immediate steps
The first step is to face the problem. Open mail, return phone calls, and find out how much you owe. This includes making a budget and assessing your monthly debt obligations. Tally the housing and car payments, credit card bills, and other debt obligations then add all expenses for discretionary items. When you understand how much you are spending you can make some tough choices about what to cut.
In some cases you might have to get a second job or sell a house or car. It’s good to know the truth so you can solve the problem.
Next, contact your creditors. In some cases, especially with a mortgage lender, they may be willing to negotiate with you. They do not want to foreclose on your home; they would much rather have the mortgage payments.
Talk to the credit card company. In some cases they may be willing to lower the interest rate or extend the repayment period. Other creditors may be willing to drop late payment penalties or the interest rate they are charging you.
Do not make agree to any payment terms that are not feasible given your current financial situation. If you have renegotiated a new payment schedule make sure you make the payments on time and in full. Nothing undermines your credibility more than a renegotiation and a failure to pay.
Step four is to know your rights. If a creditor is harassing you, calling you at work, calling outside of the designated hours, or threatening you, you have rights. Review collection terms outlined by the Federal Trade Commission.
Avoid exacerbating your current financial situation by making additional bad credit decisions. Many debtors resort to payday loans or additional credit cards to repay past due debts. This might seem like a good idea, but these options have very high interest rates and bad credit terms which make them hard to repay.
Consolidating loans may also not be in your best interest. Be wary of unscrupulous firms that offer to consolidate your debt for an upfront fee.
If renegotiation, budgeting, and cutting your expenses does not work, it may be time to talk to a bankruptcy lawyer. Filing bankruptcy should be your last option. It has severe financial ramifications which should be taken very seriously. It is always best to try to repay your bills, if possible.
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