What to Do When You are Unable to Repay Debt

Do not panic if you are in a financial bind where you can no longer pay back the debts you owe. You are not the first person to be in this situation. There are several things you can do to get debt relief and come out of this without losing everything. Here are some strategies you can employ when you can no longer pay back loans:

Consider if the Situation is Temporary

Is it just this month that you can’t repay your loan bills? During certain months, it’s common for households to run up expenses. For example, heating bills in winter can consume the extra cash you have. So, carefully think about whether your finances will improve in the coming months. Do not hope that it will. Simply think in practical terms whether you will have more money to repay your loans. Even if you are neck deep in debt, making any payment on debt is better than not doing anything. If your money situation will improve in the coming months, you may be able to get a waiver from creditors.

File for Personal Bankruptcy

If you have absolutely nothing anymore to pay back your debts, perhaps it’s time to entertain the idea of filing for personal bankruptcy. There are advantages and disadvantages to this option. Mainly, you will be protected against collection efforts by creditors when you file for bankruptcy in a court. Depending on the type of case you file, you will very likely be able to keep your property. Some unsecured debts may be discharged. If not, under Chapter 13 bankruptcy proceedings, a judge will order a new payment plan so you can start over.

Filing for personal bankruptcy is no small matter. So, you should certainly seek legal counsel before taking this route. Discuss bankruptcy proceedings and potential alternatives with a local lawyer in your area. For example, a debt and bankruptcy attorney in Scottsdale will be able to tell you about legal options in Arizona to protect your assets in case you default on any of your loans. Once you have legal advice, you will have a better idea about what to do.

Try to Negotiate with Creditors

Rather than ignoring those collection calls, face the creditor upfront. Explain your situation to the creditor and try to renegotiate the debt. If you go bankrupt, it’s bad for the creditor too, because the debt could be discharged by the court. It’s very likely that your creditor is open to negotiations in this regard. You can try asking for an extension, lowered interest or forgiveness for at least some aspects of the debt.

Try to negotiate politely. You can also hire a mediator or a lawyer to do the negotiations on your behalf. This tactic will prevent both parties from going to court, at least temporarily. The creditor may even be sympathetic to your cause and write off at least a portion of the debt.

What’s important to keep in mind is that it’s not the end of everything. Instead of panicking and avoiding, face your problem head on.