I was laid off a few months ago and I haven’t found a new job as quickly as I thought I would. While I want to pay my monthly bills, my savings is starting to run out and there just isn’t enough money to go around. I assume that paying my creditors something is better than nothing so I’m planning on paying each of them half of the minimum payment. The problem is that when I told a friend my plan, she said that my creditors could still sue me even if I make partial payments. Now I’m worried -- is this true?
Yes, it is true. If you fail to pay your minimum monthly payment, you breach (fail to live up to) your credit contract and your creditor can sue you for the entire amount you owe. (To learn more about creditor lawsuits, see What Happens if a Creditor Sues You?)
Something Is Not Better than Nothing
Making a partial payment will not stop your creditor from suing you because in most cases, making a partial payment is no better than making no payment at all. Here is why.
Credit Agreements Are Contracts
When you get a loan or credit card, you sign a contract with the creditor. In it are the “terms” or responsibilities that you agree to follow. A basic term of your contract requires you to stay caught up with your minimum monthly payment
Partial Payments Breach Your Contract
When you make a partial payment you are making less than the minimum monthly payment your credit contract requires you to pay. By paying a lesser amount, you break or “breach” that contract term requiring you to keep your account current. When this happens, your creditor can sue you for your entire outstanding balance.
What to Do If You Can't Make Your Full Monthly Payment
Sometimes there is no getting around the fact that you don’t have enough money to make your payment. Here are some ideas you might want to try to help you get through a tough financial time.
Contact Your Creditor
Some people feel uncomfortable calling creditors and asking for help when they have financial problems. There is no need to worry, however. Creditors creditor regularly talk to people who have lost jobs or who are too sick to work. In fact, your creditor may already have a program designed to help you in an emergency. These types of programs often let you lower your payment for a certain period, or even skip a few payments until you get back on your feet. (Learn about some of the options when talking to your creditor.)
If your creditor accommodates your hardship in some way, it is a good idea to get the terms of your new agreement in writing -- this will prevent misunderstandings in the future. This is especially important if there is a later dispute about how much you should have paid. The simple reality is that if you don’t have proof of the new terms, you lose.
Consider Filing Bankruptcy
If your financial situation doesn't look like it is going to improve anytime soon, it might make sense to consider bankruptcy. (Here are some things to consider when deciding if you should file for bankruptcy.) Determining if bankruptcy is a good option early on saves you from funneling dollars towards a debt that you will later eliminate in bankruptcy. It may also allow you to eliminate many, if not all, of your other bills, which can give you peace of mind as well as free up money for essential bills, like your rent or utilities.