HE-0647, Reprinted September 1998. Fred Waddell, Extension Family Resource Management Specialist, Associate Professor, Human Development and Family Studies, Auburn University. Originally prepared by Josephine Turner, Extension Program Specialist, Professor, Human Development and Family Studies, Auburn University.

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What To Do If You Can't Pay Your Bills

If you are swamped with bills, go ahead and take action. Don't wait until they are so bad you cannot do anything about them.

• Talk to your family about the problem. Work together as a family to make it through this rough time.
• Cut back on spending. For one month, don't spend any money on things that are not really necessary.
• Talk to the people you owe--your creditors. Try to work out a payment plan you can handle.
• You may want to explore a consolidated loan. This is one large loan to pay off all your debts. This payment on the new loan should be smaller than the total of the other monthly payments, but the total cost will be greater. It is often easier to pay on only one debt. There is a danger, however, of getting caught in a trap of overspending.

Before you decide to do this, you may want to take another step. Go see a credit counselor.

Prepare for seeing the credit counselor by figuring your income and your outgo.

I. How much money do you have coming in on a regular basis?

It may be from:

• your paycheck
• pension
• farm income
• rent
• social security
• insurance
• retirement
• help from relatives
• unemployment, welfare, or aid-to-children checks

You may be getting money from only one place. Or, maybe you get it from several.

Make a list of where you get your money. Put how much you get in the column that shows how often you get it: weekly, twice a month, monthly, or once a year.

List the amount you get in your paycheck or pay envelope after deductions are taken out. Deductions taken out might be taxes, insurance, union or other dues, social security, retirement, or savings.

List money earned by all members of the family. You may wish to list money earned by children, too, if it is used to pay some household expenses.

Here is a form you can use:

How Much Money Is Coming In?
Where From	Weekly	Twice a Month	Monthly	Yearly
Total

II. How do you spend your money?

How much and what are your fixed bills, such as rent or house payments, insurance, and debt payments?

Fixed Monthly Expenses
Expense Items	Amount
Housing (rent or mortgage)	$
Utilities-Gas	$
Electricity	$
Water	$
Telephone	$
Others	$
*Insurance-Life	$
Accident and health	$
Auto	$
Others	$
*Taxes	$
Car payments	$
Installment loans-furnishings and appliances	$
Credit cards	$
Other debt payments	$
	$
	$
	$
Allowances (personal)	$
Others (list)	$
	$
	$
	$
Savings	$
TOTAL FIXED EXPENSES	$
*If taken out of paycheck, do not list here.

Flexible Monthly Expenses
Expense Items	Amount
Food	$
Clothing	$
Transportation	$
Contributions	$
Personal care	$
Medical expenses	$
Recreation	$
Household expenses and supplies	$
Gifts	$
Others	$
	$
	$
	$
	$
	$
	$
TOTAL FLEXIBLE EXPENSES	$

III. What are your resources and plans for emergencies?

These can include unexpected medical bills, large repairs, etc.

Resources
Loans	$
Savings	$
Other	$
	$
	$
TOTAL RESOURCES	$

Take these forms with you when you go to the credit counselor.

When you know what you are able to pay on the bills, talk to your creditors. Tell them you want to make smaller payments and pay over a longer period of time. Most of them will try to help you out if you show you are sincere and willing to pay. Remember, though, taking longer to pay will usually cost more in the long run.

BE SURE to get any new agreement in writing. Then stick to the agreement.

What Is A Credit Counselor?

A credit counseling service helps people work out a plan for getting out of debt. A credit counselor will help you look at your money management.

Some counselors will help you work out a repayment plan and contact your creditors. You will pay the counselor a monthly payment, and the counselor will use that money to make your credit payments. Agreements are made with your creditors. They will allow you to pay off the loan in smaller payments. Credit counselors may charge you a fee.

Where To Go

Financial counseling may be available from:

• Churches and volunteer groups.
• Banks and savings and loan associations.
• Credit unions.
• National Foundation for Consumer Credit. Write and ask for names of members who offer such a service near you: Federal Bar Building West, 1819 H Street, N.W., Washington, D.C. 20005. Or call 1-800-388-2227.
• Consumer Credit Counseling Service of Alabama, Inc. Write to: Suite 317, Moore Bldg., 217 South Court St., Montgomery, Alabama 36104. Or phone (334) 265-8545.
• The Alabama Cooperative Extension System or your county Extension office. Ask for information about counseling in your community. Make an appointment before you go.

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What The Credit Counselor Can Do

A credit counselor can:

• Help you draw up a money management plan.
• Advise you on working with creditors.
• Give you information to help you plan your expenses.
• Also, some counselors and counseling centers may:
• Serve as a go-between with your creditors.
• Make payments for you from the money that you send them every month.

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What You Must Do

If you work with a credit counselor, you must:

• Agree not to take on any more debts.
• Go by the plan that you and the credit counselor decide on.

If you fail to follow through, the program will be stopped, and creditors may begin to take legal action.

Before You Go To A Credit Counselor

Before using the credit counseling service, be sure you know:

• Who is backing the program.
• What, if any, charges will be made.
• How the program operates; what exactly the counselor will be doing.

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If All Else Fails

If you have tried everything else and have finally decided to file bankruptcy, wait. GET A LAWYER. The Wage Earner Plan, Chapter 13 of the U.S. Bankruptcy Act, might be a solution to your problem. If you own a house, car, and other assets, you can keep them under Chapter 13. You will pay off your debts under a plan. The plan will be set up by you and your lawyer, and approved by the court. Creditors will not be able to bother you as long as you stay with the plan.

Final Out

If Chapter 13 also fails, then filing for straight bankruptcy is your legal release from your debts. This is not an easy way out, but a last resort.

When filing bankruptcy:

• GET A LAWYER.
• You are giving up some of your assets in return for being legally released from your debts.
• Certain assets cannot be taken from you. Social Security and Veterans' benefits are not given up in bankruptcy.
• Also certain debts are not taken away, such as taxes, college loans, alimony, and child support.

Bankruptcy remains a part of your credit file for up to 10 years. Bankruptcy is a court action and as such remains in court records. Court records are public documents. Going bankrupt can hurt you when you try to get credit in the future. It can also keep you from getting some jobs. These are some of the reasons why going bankrupt should only be done as a last resort.

For more information, contact your county Extension office. Look in your telephone directory under your county's name to find the number.