Fed up with banks' use of bailout money

February 10, 2009 6:48 AM

What happens if I default on unsecured debt?

I'm fed up with the outrageous use of taxpayer bailout money by the nation's banks. I live in Florida, own my home outright and it is protected by the state's Homestead Act. I'd like to just pay about $20 a month to the credit card companies instead of the minimum payment(to keep them from claiming I stopped paying them) until I can file Chapter 7 in 4 years. What do you think?

posted by hardbop to work & money (9 comments total)

I'm actually curious about this myself. Out of curiosity, why do you have to wait four years to file Chapter 7? Are you currently in a Chapter 11?
posted by playertobenamedlater at 6:54 AM on February 10

I think your time would be better spent planning how to manage your debt for the next four years rather than planning your bankruptcy. If you're doing this as some kind of protest, I don't think it's a very honorable way of protesting.
posted by hootch at 7:08 AM on February 10 [1 favorite has favorites]

The creditor(s) might try and garnish your income, if you have any, and/or go after any other assets (car?).
posted by exogenous at 7:33 AM on February 10

Another question - are you talking about a $2,500 debt or a $25,000 debt?
posted by playertobenamedlater at 7:34 AM on February 10

ask this question here. I really really recommend the credit boards. there are people there who know everything about these kinds of topics and it's free. (I have no interest in that site, I just found it when I was new to the US and needed to figure out how to establish credit. they helped me a lot.)
posted by krautland at 7:53 AM on February 10

Because your question sounds more like a "stand against the man," I won't give advice on debt handling or restructuring measures.

You live in a wage garnishment state, so if you are employed and the debt is worth pursuing by the creditor you can be sued and likely will be. Whether you are paying matters not, as far as the contract is concerned, if it is less than the obligated amount. You can still be sued for defaulting. You will be called a lot. The bigger the debt, the more calls, letters and possibly calling your employer, family or neighbors to see if you're around to chat about paying the debt. (Not strictly legal, but happens.)

If you are employed and can qualify, you might look into a Chapter 13, which has no time limit but still allows discharging unsecured debt.

playertobenamedlater, hardbop likely has already filed a Chapter 7 and so cannot file again until 7 years has lapsed since the last filing.
posted by fireoyster at 9:31 AM on February 10

Claiming you're doing this because of moral outrage is a pretty flimsy excuse. Whatever the banks are doing with their bailout money, that doesn't change the fact that you owe those debts. Their poor management doesn't excuse your unethical activity.

I'm also wondering why you have to wait 4 years to file chapter 7. The only reason I can think of, off the top of my head, is that you've previously filed bankruptcy and are waiting for the mandatory waiting period to run out, in which case you'd be stuck. But if that's not the case, the wisest thing to do would be to file chapter 7 now, rather than open yourself up to potential legal trouble down the road.

If you fail to make the minimum payments, the creditors can and will seek judgements against you and garnish your income. You should also know that if you continue to use your credit cards while planning to file for bankruptcy, whether you're paying some token amount on your bills or not, that's absolutely illegal, and the credit card companies will fight your bankruptcy tooth and nail. If they can show the trustee that you didn't have any intention of paying back your debt (and frankly, paying $20 a month when your monthly interest alone is likely higher than that sounds like a huge red flag to me), your entire bankruptcy case will be thrown out, and you may find yourself with some hefty fines to pay on top of all that debt.

If you can, file now. If you can't, start managing your debt instead of blaming it on the banks' poor decisions.
posted by tomatofruit at 9:38 AM on February 10 [2 favorites has favorites]

What do I think? I think it's a bad idea. When you don't pay your debts, the debt is paid by others who use the same lending establishment.

If you REALLY want to "stick it to the man," pay off your debts and then never borrow money again. After all, they make money from interest -- if you don't borrow, you don't pay interest, and they don't make money.
posted by Houstonian at 10:27 AM on February 10 [4 favorites has favorites]

Yeah, it's really hard for us to get down with your stickin-it-to-da-man protest when it's clear you've already stuck it to the man and can't wait to do it again.

Your plan is pretty bad. There's no way they'd accept just any old payment and forget to sue you for what you're not paying. Possibly you could negotiate a payoff settlement with an individual creditor, but you'd probably have to come up with a substantial portion of the balance (say 50%), and the remainder would be a 1099 taxable income item for you.

As Houstonian says, the real way to do this is to pay off your debts quickly and never use debt again. If you own your home, get a home equity loan from a credit union and eliminate that consumer debt in one fell swoop. You'll save money, too. But don't be tempted this time to return to your old ways.

More simply, you could just move your business to a bank that has not taken TARP money, or any credit union (so far barred from TARP but that may change). If in fact you are willing to stand on this principle, and it isn't just an excuse.
posted by dhartung at 10:17 PM on February 10 [1 favorite has favorites]