In times of financial difficulty, because of issues such as a significant cut in pay or a burdensome accumulation of debt, you may find yourself unable to pay your bills. While your creditors may be patient for a short time, you must take action before your creditors start collection proceedings.
There are different options that you can pursue if you can't pay your debts. This option you choose will depend how far behind you are on your payments. These options include:
Talk to your creditors
The worst thing you can do is to avoid or ignore your creditors when you are having financial problems. Most creditors are willing to help you through a temporary setback with options such as:
You may be allowed to skip one or more payments until you can pay in a timely manner. These payments will be paid at the end of your loan, and interest will continue to accrue on the principal.
This option temporarily reduces your monthly payment by allowing you to pay only the monthly interest portion of your payment, while your principal balance remains the same.
Interest rate reduction
Some creditors may offer to lower your interest rate, which also lowers your payments.
What happens if you can't negotiate with your creditors?
if you are too far behind in your payments, your creditors will file a petition in civil court to have your wages garnished. Garnishment will require your employer to deduct a portion of your wages and send the money to a creditor that has filed a civil suit to force payment of a debt.
The process that leads to garnishment
After your creditor files a civil suit, you will be served a summons to appear in court on a specified date. This summons must be served in person.
If you choose not to appear, a judgement will be awarded to your creditor, which gives them the right to seek garnishment of your wages. You may choose to appear at court to plead your case and possibly work out a payment arrangement to which both parties will be legally committed.
Whether or not you appear in court, you will be required to supply the court with information concerning your employer and current wage. The amount of the garnishment will then be determined using a percentage of your wages.
How can a garnishment be stopped?
Filing for bankruptcy protection is the only way to stop such collection activities as wage garnishments and foreclosure of your home. All collection activities must cease when you file for bankruptcy.
There are two types of personal bankruptcy, and the type you choose will depend on your situation.
Chapter 13 bankruptcy
This involves the reduction and structured repayment of debt, while keeping your property such as your home and vehicle.
A repayment plan is devised that will allow you to repay unsecured debt within three to five years, according to income. Debt may be reduced to accomplish this goal.
This is the option to choose if your home is in foreclosure and you want to remain in your home. You must continue making your regular mortgage payments and make arrangements to pay overdue payments over time. You can also renew your loan on your vehicle, but you must stay current in your payments.
Chapter 7 bankruptcy
This involves the surrender of all assets, including your home, and the forgiveness of all debt except federal taxes, student loans, and bankruptcy filing fees.
While you can file for bankruptcy on your own, bankruptcy attorneys are experts in the process and can negotiate for your best outcome in any bankruptcy proceedings.