Late Payments Can Snowball Into Financial Crisis

December 27, 2009 by  Filed under: Bankruptcy 

What starts as one missed payment can turn into financial ruin if the consumer isn’t careful. Minor money problems can snowball into even more serious issues when nothing changes. This may lead to liens, bankruptcy and other legal actions.

At a glance, one missed payment doesn’t seem like much. However, credit card companies will charge a late payment fee and add extra interest on the amount missed. More recently, creditors have begun increasing the total interest rate charged to delinquent accounts by as much as 10% 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 rapidly. Most consumers will ration out money in their budget, dividing it among creditors, utilities and basic needs, like food and fuel. Doubling or tripling the amount paid to one bill usually reduces the amount of money left to pay the others, causing a late payment to other creditors. That late payment will result in another fee, added interest and higher monthly payment.

The snowball effect continues until the consumer either catches up or can no longer keep up with mounting 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 few options. Bankruptcy is one. This is not a simple process, and it 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-depth, 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 processed 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 find 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 advantages for those who cannot manage their current financial situation. In most cases, debt is forgiven and the consumer is given a fresh 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.

Author is a freelance copywriter. For more information about Bronx bankruptcy, please visit

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