subject: Getting Behind On Payments Can Lead To A Financial Crisis [print this page] What starts out as one missed payment can turn into a financial crisis if the consumer isn't responsible enough. Small money problems can turn into even more serious issues when nothing changes. This may lead to liens, bankruptcy and other legal actions.
At a glance, one missed payment seems like it wouldn't hurt. However, credit card companies will charge a late payment fee and add additional interest on the amount of money missed. More recently, creditors have begun increasing the total interest rate charged to delinquent accounts by as much as ten percent and increasing the amount of the minimum payment owed every time a payment is late or missed altogether.
For example, a simple monthly payment of $100 can become a $350 monthly payment very quickly. A lot of consumers will ration out money in their overall budget, dividing it among creditors, utilities and basic needs, like gas and food. Doubling the amount paid to one bill usually decreases the amount of money left to pay the others, causing a late payment to other creditors. That late payment will turn into another fee, added interest and an increased monthly payment amount.
The snowball effect continues until the consumer either catches up with payments or can no longer keep up with increasing fees and bills. Repeated late or missed payments can result in legal action, such as judgments, liens and repossessions.
When the situation turns into a full financial crisis, there are a couple options. One common but difficult one is bankruptcy. It's far from simple and must be taken seriously by the debtor. All financial information must be turned over to the person's attorney and all inquiries from other parties must be answered through the lawyer as well. While the questions asked are complicated and in-detail, full disclosure is always recommended by bankruptcy attorneys. Should creditors or officials from the court or U.S. Trustee's office believe that information is being withheld or hidden, the process will become even more stringent and invasive.
Although bankruptcy is handled through federal court, each case is run through the United States Bankruptcy Court (USBC) in the specific district for each state. For example, a consumer in Bronx bankruptcy would be referred to the USBC Eastern District of New York. The debtor would need to locate a bankruptcy lawyer in New York to handle the case. Bankruptcy law is very specialized, so legal counsel must be well-versed in bankruptcy laws and procedures.
Filing for bankruptcy has its benefits for those who can't manage their current financial situation. In most cases, debt is forgiven and the consumer is given a new start. They may need to pare down the number of real estate properties and vehicles owned, but will often be allowed to keep at least one of each. A financial payment plan to pay back a portion of debt owed to each creditor may also be required.
