A job loss, health problems or unexpected expenses can suddenly expose people to the financial calamity, where expenses exceed income. The term "bankruptcy" often scares people, but just do not pay the bills has its own risks. Understand what each one as the alternatives that exist, is crucial.
Definition of bankruptcy
Bankruptcy is a legal process administered by the court when a person declares financial distress and unable to pay their bills. People can seek protection from claims for payment under two provisions of the law of bankruptcy: Chapter 7 and Chapter 13. Chapter 7 discharges the debtor of all financial obligations to creditors and instructed to delete any amount owed by the debtor and creditors to cease any activity orders of demand for payment of bills. In addition, the court may liquidate some assets of the debtor, and these revenues partially offset any amount owed to creditors. Chapter 13 also protects people from claims of creditors, but does not eliminate all debts. Based on the debtor's financial situation, the court orders a repayment schedule less demanding. Lower monthly payments over a long time allowing the individual to pay and the creditor to receive finally the partial or full payment.
"No pay" Definition
People who do not pay the bills or to ignore financial responsibility for debts can be for several reasons. These reasons may include disappointment with the product, warranty or service problems of the poor, but more often the result of lack of funds. These individuals simply "no pay".
Effects
The bankruptcy affects credit ratings and can make it difficult to get extra credit for several years. However, paying a bill can also have side effects. In addition to overdue invoices and letters demanding payment, creditors may turn the bill to a collection agency. While laws protect individuals against undue harassment, collectors, debtors in constant contact, sometimes by phone, and finally resort to legal assistance if payment is not received. A court may order the debtor's wages be garnished, which means that the debtor's employer must deduct a payment ordered by the court of the debtor's paycheck. In the case of a mortgage, the bank may try to foreclose, resulting in a warrant for the debtor to vacate the property.
Alternatives
Debtors should not ignore the bills, but talk to your lender as soon as money problems arise. Creditors may try to arrange an alternative payment plan, and can sometimes reduce interest rates and repayment of arrears. Government agencies and nonprofit offering consumer credit counseling, helping interaction with creditors and debt consolidation. In the end, bankruptcy is not the worst alternative, particularly Chapter 13 filing, where the debt is restructured. People file for bankruptcy can immediately start building better credit, while wages garnished by court order and procedures for implementing best credit hard for many years.
