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What Happens if We Just Walk Away From Our Debt? – Jim

“Dear Steve,

For nearly two years both my wife and I were out of work at the same time. I worked in high tech industries until my employer wanted to move me out of state and I couldn’t do it. My wife lost her job when her company dropped most employees due to the economy. I am 59 years old and no technical employers will even give me the time of day. My wife found full time work few months ago. I am selling products online to bring in some money.

During the time we were both out of work we managed to maintain our credit accounts. We later negotiated “hardship” rates. Now that the hardship rates are ending, even with my wife’s salary and my online sales, the credit is just too much to keep up and we are backsliding. Action needs to be taken now.

From what I am reading, debt solutions such as consolidation, counseling and bankruptcy all yield the same thing: bad credit. If that is the case. Why should we pay the accounts at all if all roads lead to bad credit? We are so tired of trying to keep the cards in good standing that we just don’t care about credit reports any more. Our health is more important. What happens if we just walk away and never make another payment? What recourse do unsecured credit cards really have?

Jim”

Dear Jim,

If your health is the most important consideration moving forward then bankruptcy seems like the logical approach. Otherwise you are going to be stressed and possibly develop depression from the continued collections activity and possible lawsuits.

it is quite possible you can’t afford to service your debt but walking away and hoping that it vanishes is a very incomplete solutions. With bankruptcy you can legally close the door on the debt, block collection activity, stop any lawsuits and have no tax consequences from the discharged debt.

And you don’t need to worry about your credit being bad for the rest of your life. It can be easily rebuilt. Just follow this guide.

Before you elect to do nothing, please do something and click on this link to find a local bankruptcy attorney.

Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.

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About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

4 Comments

  • I can tell you exactly what happens if you just “walk away” because that is what I have had to do. After 3 lay-offs in 4 years and last 18 months of unemployment insurance only to live I had to let go paying on credit cards (2) and auto loan in order to survive. Priorities became rent, food, gas, utilities, phone. I could not file Ch. 7 or Ch. 13 due to my situation. (Ch. 7 filed in 2005, unemployed so not eligible to file Ch. 13). In this last year I now have 2 judgments on my credit due to credit cards taking me to court and winning. I have had my vehicle repossesed and they will likely sue me for a 3rd judgment. No one got a dime as they cannot garnishee unemployment income and that is to end next week unless a Tier V is passed in Congress. I am going back to school to get a skill so that I can get a job and have a life again. Hopefully by 2013 I will be working again and then I will file Ch. 7 as soon as I can. It will free me up and I can once again rebuild my credit. I will be 58 and starting over completely.

    Meanwhile my advice to you is if you can file Ch. 7 do it and you will be able to rebuild your credit much more quickly plus lose the stresses of collection calls and court summons. Get it over with. I wish I could. With millions in the same boat I don’t think you’ll have trouble getting some kind of credit or else no one will be getting any.

  • Steve,

    Okay, I know the bankruptcy routine. I have had to do it before and it really didn’t discharge but a fraction of the debt and killed my credit for 10 years. I don’t have 10 years any more. By then I’ll be 69 and credit will be a moot point. Regardless of using the stated plan to rebuild credit, I don’t think I’ll get a property loan with bankruptcy on the credit report and at this point that’s all we care about.

    My real question which wasn’t answered is ‘What recourse do creditors really have?’ Specifically. I am asking for specifics. What can they actually do on unsecured debt if we stop paying?

    Thanks.

    • Jim,

      I’m surprised it killed your credit for ten years. It is relatively easy to rebuild credit after bankruptcy. It sounds like you filed a Chapter 13 bankruptcy and entered into a payment plan based on what you could afford rather than a Chapter 7 bankruptcy and a complete discharge of your debt. And if it was a Chapter 13 it would have only been reported for seven years.

      I can’t see why you may not be eligible for a mortgage after rebuilding your credit simply because of a past bankruptcy. Many people obtain such mortgages. Of course right now the difficulty in getting mortgages is exacerbated by other factors other than one once went bankrupt.

      Why don’t you go talk to a local mortgage broker and find out from the broker what you’d have to do to be eligible to qualify post-bankruptcy?

      Walking away will hurt you far longer than just dealing with your debt. If you just walk away it will still be reported negatively for seven years, you may be sued, wages garnished, judgments filed and this debt may be pursued far past any statute of limitations for suit in your state.

      All that being said, you can always walk away from your debt if that’s what you want to do. But you asked for my opinion and my opinion is that walking away is a worse move than just dealing with the debt head on.

      Steve

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