Creditors may forgive a portion of your debt if you can reach a settlement to pay less than what your owe. Bankruptcy can eliminate some or all of your debt. Mortgage lenders may relieve a large amount of your debt due to declining property values. If you can't pay any of your debts from credit cards or loans, creditors may write off those debts as a business loss, but the unforgivable debt remains. Collection agencies can buy those delinquent accounts and seek payment from debtors, which may include filing lawsuits to recoup the debt.
Your debt remains on your credit report for several years. So, even if you elude debt collectors, your credit rating is ruined by not paying off your debts. In some cases, a person’s debt may go unnoticed or eventually get lost in the paperwork by collection agencies. More often than not, especially if you are delinquent with more than one creditor, a collection agency will contact you to get the money owed to the creditor. Just as there’s no such thing as a free lunch, you can’t remain debt-free from unforgivable debt until the statute of limitations runs out, which can take several years, depending on the state.
Creditors consider options when you go a certain period without paying your bills or loans. After failure to collect the debt, they may turn the delinquent account over to a collection agency. Even people who cannot afford to pay their bills due to sudden job loss or unexpected financial burdens are not relieved from the debts they owe. Working out some kind of payment plan with your creditor avoids a lawsuit or a court judgment against you, which can cause further financial difficulties.
A creditor, usually through a representative such as a collection agency or law firm specializing in accounts in default, may file a lawsuit to retrieve money owed from credit cards or loans. Make every effort to respond to the lawsuit, including appearing at the scheduled court hearing. If you do not appear in court or are unable to negotiate some kind of payment settlement, a judge will most likely rule in favor of the plaintiff. When that happens, creditors can freeze your bank account, take a portion of your wages through your employer or take property you own.
To avoid the harsh consequences of out-of-control debt, contact your creditors when you realize you cannot make payments. Many creditors understand the hardships people suddenly face, especially during a bad economy. Being laid off or hit with unexpected medical payments may contribute to your hardship, but you still have an obligation to pay off your debt, at least to some degree.
Readjusting your budget to reduce spending and expenses helps you at this time as you work out some type of plan with your creditors. Consult a consumer credit counseling agency, which can guide you with budget counseling and even work out a debt management plan with your creditors. In some cases, debt management agencies can lower interests rates or fees to help pay off your debts.
Filing bankruptcy is a last resort if you have debt you cannot afford to pay off. Bankruptcy, however, does not forgive debt in certain matters, such as taxes, child support or student loans. A bankruptcy court helps consumers and businesses eliminate debts or repay them under the protection of the court, depending on how much you can afford. Consult a bankruptcy attorney before considering this move.