There’s a bit of bad advice going around for debtors who have no assets and are in default on their loans. Some are suggesting that “no asset” debtors avoid bankruptcy and simply stop paying their debts.

Things “no asset” debtors should consider before they stop paying:

  1. If a “no asset” debtor avoids bankruptcy and stops paying their credit card debt , the creditor may still decide to file a lawsuit and get a judgment.  With a judgment the creditor will be able to go after the debtor’s future assets if the debtor doesn’t file bankruptcy.
  2. If the “no asset” debtor owes the IRS money, they may be putting their social security benefits at risk. The IRS has the power to garnish social security benefits and other assets which may have received some protection in bankruptcy.
  3. Even if a debtor currently has no assets, they can’t be certain what the future holds. If the debtor files bankruptcy, the debts they owe may be discharged and any future income from a job, inheritance or other assets would be protected.  It the debtor avoids bankruptcy, they have no protection for future assets which could be seized by creditors seeking repayment on old debts. Debts don’t go away; they simply get old, unless you pay them off or discharge them in bankruptcy.
  4. Debtors who simply stop paying their debts instead of filing bankruptcy can be harassed by creditors via phone or letter. The stress of knowing that you owe money and are receiving hostile creditor calls can be relieved by bankruptcy.  Even if a debtor has no assets, it could be worth their peace of mind to file bankruptcy anyway.