What Will Happen if I Am Insolvent and Return an Item Purchased on Credit?
Rescission is the name for the remedy that terminates the contractual duties of both parties. In order to have a rescission, both parties to the contract must be placed in the position they occupied before the contract was made. Courts have held that a party may rescind a contract for fraud, incapacity, duress, undue influence, material breach in performance of a promise, or mistake, among other grounds.
Inability to pay is not a ground for rescinding a contract. If the item is returned without the creditor's consent to cancelling the debt, it is likely the creditor will sue for the remaining amount owed, along with attorney fees and other costs. I suggest attempting to settle the debt before they obtain a court judgment. Once a judgment is obtained, the creditor will likely be unwilling to negotiate a settlement and may place liens on property, such as bank accounts, or garnish payments. In some cases, a debtor may be able to negotiate a settlement with the creditor, although this is more difficult once a suit has been filed. In some cases, the creditor may settle for a lesser amount if the debtor is insolvent, since a promise to pay something is better than collecting nothing. These types of agreements are called an accord and satisfaction. If it is possible, a debtor should get a release included in such an agreement so that the creditor may not pursue the full balance of the debt claimed.
You have probably heard of debt relief companies. There are also some companies, even credit card companies, that will work out a compromise settlement or reduced monthly payment. Family and friends are also sometimes options. There is really no good answer to your problem, a problem that many people face. Thus options include, but are not limited to, bankruptcy, debt relief company, compromise you do yourself, friends, family, loans. I suggest you resolve the charges before a lawsuit is filed to collect the money owed, which may further damage your credit history.
Another option to examine is Consumer Credit Counseling Service. CCC is a nationwide nonprofit organization that attempts to work with both the debtor and his or her creditors to devise a more manageable repayment plan. This service very often results in revised payment plans which are acceptable to both the debtor and the creditor, thereby eliminating the need to file bankruptcy.
If you need help negotiating with your creditors, consider contacting a nonprofit debt counseling organization. You can find a list of counseling agencies by location at the website of the U.S. Trustee, www.usdoj.gov/ust (select "Credit Counseling and Debtor Education.") The federal government has authorized the agencies on this list to provide counseling to debtors considering bankruptcy. However, don't pay anyone to "fix" your credit.
The following link allows you to search by area for financial counselors recomended by Dave Ramsey:
Please read the tips from the Better Business Bureau on selecting a credit counselor :
Anyone considering filing bankruptcy should first evaluate all of the potential alternatives, and then make an informed decision regarding whether bankruptcy is the best choice. It should be stressed that this is a personal decision for each individual. There is no one answer that is right for everyone. Only by carefully exploring all of the alternatives may a person truly know whether bankruptcy is the best solution to their debt problems.
Prior to making a decision to file bankruptcy, each individual should first attempt to contact his or her creditors and determine whether it is possible to obtain their cooperation in working out a different payment schedule. Most people would be surprised to learn that creditors often are willing to make reasonable modifications to assist the debtor in repayment. Communication and honesty are the key words here. In exploring this option, the creditor should be honest and forthright with the creditor regarding one's financial situation.
The debtor should also take a close look at his or her assets. If any have a resale value, consider whether a sale of those assets and the application of the proceeds of the sale to one's debt may reduce the debt to a more manageable level. Often, after the sale of one or more personal assets, debt is reduced to a level which makes bankruptcy a less attractive option.
Another option to explore, which may not be available to every debtor, is a consolidation loan. It may be possible for some debtors to obtain a consolidation loan to repay one's debt, which very often will result in lower overall payments.
The automatic stay is one of the most valuable functions of a bankruptcy proceeding for the debtor seeking relief from creditors. The automatic stay immediately stops any lawsuit filed against you and virtually all actions against your property by a creditor, collection agency or government entity and provides an injunction against the continuance of any action by any creditor against the debtor or the debtor's property. After filing for bankruptcy, the automatic stay will prevent creditors from calling and harassing the debtor in any way. In fact, should a creditor continue to attempt to contact the debtor during the automatic stay, that creditor could be held liable for damages.
Federal bankruptcy laws provide a private cause of action for an individual injured by any willful violation of the automatic stay. The injured individual is entitled to recover actual damages, including costs and attorney's fees. Punitive damages are awarded when the actions taken by the creditor are particularly egregious and there is a showing of actual damage.