Carrying substantial debt is stressful for anyone, and having no income can make the feeling of helplessness even worse. Bankruptcy proceedings are not only lengthy and emotionally tumultuous but also expensive; it costs about $300 to file and even more to pay a lawyer. Without an income, such expenses may be beyond your reach. The silver lining is that if you really have no income or assets, the process of bankruptcy may be unnecessary to achieve debt relief.
Get an Income Source
If at all possible, the best option is to get some money coming in so you can pay off your debts. Consider why you are not working and wiegh your options. If you can no longer work due to disability or age, apply for Social Security or disability. If you have been unemployed long enough to run out of unemployment assistance, then it may be time take a job at a lower pay rate than you are accustomed to while you continue your job search. Any option in which you don't pay your bills will have a detrimental effect on your credit history; it's better to pay the debts if you can.
Negotiate With Lenders
A temporary lack of income, or unexpected expenses, can get the best of even the fiscally responsible. Lenders to whom you owe unsecured debt don't want you to enter bankruptcy, because they aren't likely to get anything. Therefore, they may be willing to negotiate with you if there is a legitimate fear that you will declare bankruptcy in the future. Offering a lesser cash payoff is the option most likely to be accepted, but offer what you can. The worst that can happen is your lender will refuse to negotiate and you will be no worse off then you are now. If you do reach an agreement, be sure to get a copy in writing.
Be Judgment Proof
Having no substantial assets or income can be actually be beneficial when dealing with debt because you have nothing to lose. The next step in collection for a creditor is sue you in court and have a judgment rendered against you. Such a judgment could authorize the creditor to seize assets or garnish your wages. However, if there is nothing for them to take then you are "judgment proof," meaning that even if creditors win a case they will get no money. The judge will see that you cannot pay anything, and the creditors will have to walk away. Hire an attorney now to look at your assets and income and determine if you are indeed judgment proof. Your attorney will then contact your creditors and explain the situation. The creditors will likely give up on the debts as uncollectable rather than go to the expense of taking you to court.
This will save you the trip to court but does have some negatives. First, the debts will remain on your credit history as "charge-offs" for seven years, severely damaging your credit score. Second, if you do gain an income in the future, you run the risk of being taken to court then. Creditors usually have six to seven years, depending your state's laws, from the date an account first becomes delinquent to pursue a court case.
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