What To Do When You Can’t Pay Your Bills

Alternatives to Bankruptcy

I practice law to earn my living. What this means is that I get paid to help people and businesses with their legal needs and (sometimes) problems. I help my clients in a number of different areas of law — one of which is “bankruptcy” or what lawyers sometimes call “insolvency”. If you need legal advice in any area of law, I’d be happy to talk to you about your needs and whether you need my help. Feel free to phone my office for a telephone or in person appointment.

In this article, however, I’m going to focus on the problems people, and their businesses, have when they cannot pay their bills. And, I’m focusing on what lawyers call “insolvency” issues here because the American economy seems to be in a complete and utter mess, our leaders do not seem to know how to lead us through this morass without putting ALL of us deeper and deeper in the hole, and many, many, many people who manage their money responsibly and who always have been able to pay their bills, are now finding they cannot. Even if you are not one of the families facing insolvency, you certainly know some and so may find what I’ll say here useful as well.

When I ask whether you “can pay your bills?”, what I mean is whether you now take in enough money every month (in salary, hourly wages, annuity payments, etc.) to buy the things you need in order to live (e.g., for housing, clothing, food, transportation, schooling, charitable donations and tithes, recreation and retirement), pay back the other money you’ve borrowed within the next five years (except for your mortgage which, because it is so large, is usually paid back over 30 years) and pay the various taxes and other public duties imposed on you by our government. (I have not included anything in here for vacations, gifts or other ‘luxuries’. If you want to include such things in your budget — and you should if you’re a normal person — then you need to make just that much more money in order to be able to say “I can pay my bills.”)

From my point of view, then, you “cannot pay your bills” (are “insolvent” or “bankrupt”) if your current salary and/or wages are not enough for you to pay your mortgage/rent, live, (buy gifts, go on vacation) AND pay off ALL of your debts within the next five years, without borrowing any more money or dipping into your retirement or savings accounts.

If this is you, don’t despair. There are things you can do when you can’t pay your bills which fall short of “filing bankruptcy”. These alternatives to filing bankruptcy do not always work, and despite your best efforts, you may end up filing bankruptcy anyway, whether you want to or not. But, if, under the test I’ve set out above, you cannot pay your bills, you need to actively pursue alternatives to filing bankruptcy right now. If you do not feel like you can sort this out yourself, you need to consult a qualified lawyer. Now. Do not wait to talk to a lawyer until you have missed payments, creditors are calling, you are being threatened with garnishment, repossession of your car or even foreclosure on your house. Start now and take responsibility for your condition, and you’ll be glad you did.

When you realize that you are, in fact, bankrupt or insolvent, there are a number of alternatives to filing bankruptcy. You could get a face lift, move to a foreign land, abandon your family and start anew – you could hide from your creditors. Don’t do this. It is not right and it never works. All it does, really, is make your problems worse and invariably extends the financial pain and emotional turmoil you’re suffering because you can’t pay your debts.

Instead of abandoning your life as you know it and moving to a foreign land (where, these days your creditors would probably find you anyway) the first things people who are bankrupt do are what one might call the ‘band-aid’ approach: They “cut back” by cutting out their morning latte or ‘store bought’ coffee and Danish, buy a thermos and make it at home. They eat out less, or not at all. They mow their own lawns, clean their own toilets and iron their own clothes. Fewer trips to the movie theatres. The children start wearing more ‘hand-me-downs’, and they have to use last year’s school supplies until they are not useable any more.

Sometimes ‘cutting back’ works. Sometimes it just delays the inevitable. It will not work if, even after cutting back, you still can’t pay your bills. In that case, you need to consider other alternatives to bankruptcy.

The most effective alternatives involve communicating with your creditors about your financial problems. Try to get them to reduce your interest rate, extend the term of the loan and/or reduce your payments. It is also sometimes possible to get your creditors to reduce the principal balance of the loan, to waive late fees and other charges. If you have a mortgage on a home which still have enough equity, you should consider selling your current home and moving into a less expensive (and probably smaller) home. If you have new or new-ish cars, you should consider re-financing your car loans to get a lower rate, lower payments or an extended term … or simply selling/trading your car in order to get a less expensive (to operate, to insure and to purchase) car. If you have significant credit card or department store or other private label credit cards, the merchants will often work with you to reduce your payments.

You can, of course, communicate with your creditors yourself. After all, you got yourself into the situation you’re in, so you ought to be able to get yourself out. Right? Things should work that way. Right? Unfortunately, these days, loan papers, credit card agreements and mortgages are so complex that they are practically impossible to figure out without a law degree. This is where it is useful – and often necessary – to hire a lawyer to help you sort things out. At least to review your loan papers and agreements and let you know what your rights may be. In fact, in some cases, an experienced lawyer can determine that Federal Truth in Lending Act has been violated and the debt that you thought you owed, is not valid and need not be repaid.

Obviously, every situation is different, and it is likely that your debts are all valid, and you will not be successful in talking to your creditors directly. In this case, your best alternative to bankruptcy is to consult with a qualified lawyer. Let the lawyer go over your finances and tell you your rights. Let them tell you whether you are qualified to file bankruptcy and, if so, what is involved, what the effects of it will be, and whether you’ll be better off filing bankruptcy than having the lawyer negotiate with your creditors.

There are a lot of alternatives to bankruptcy, and if you cannot now pay your bills, I hope you find one that works for you. Whatever you do, do it now. And, if you find you cannot do it yourself, find a good lawyer whom you trust and relate to well, and let them help.