When a person is very far down on his or her luck and that person’s financial situation is sufficiently bad for that person to consider bankruptcy and stopping any effort to try and pay bills, that person needs to consult a bankruptcy lawyer. Street advice and experienced people and experts alike all say essentially the same thing, do not make any decision while in this mental condition without having first consulted that experienced bankruptcy lawyer in your state and or jurisdiction. The person seeking to become a debtor needs that calm, measured voice of reason on what to do to go forward.
In general if one stops paying bills to save money some almost guaranteed experiences will occur. Each creditor will begin calling, starting a few times a month but then becoming daily after two or three months with its account in arrears. The debtor-in-practice will begin to fear the sound of one’s phone. One’s mail will begin to contain dunning letters, usually one each week for each creditor the person has. One’s credit score will begin to take hits as the unpaid creditors begin to report the situation to the credit bureaus. Whatever money was being sent to the creditors will stay in one’s checking account … at least for a while … until the debtor-to-be finds something else on which to spend it … like food … clothing … electricity … and, living expense things like that.
If the ultimate decision is to file for bankruptcy, and if the bankruptcy chosen is Chapter 7, all assets, and that truly means every single asset the debtor has must be listed and is now in jeopardy, including the money saved from having stopped paying those creditors. But, all is not lost. Money in a savings or checking account will evaluated for money that must be excluded from seizure by federal and state bankruptcy laws. Then the bankruptcy appointed trustee will evaluate the life situation of the debtor – family, work, and such. Upon completion of this evaluation, the trustee can make additional amounts of saved monies exempt from seizure. There will be the required 341 hearing where the trustee and creditors alike will question the debtor who will be under oath. One of the investigation strings the trustee is very likely to pursue will be the money saved by not paying the creditors and any proof that the debtor has on how that saved money was spent, if it was spent. If the trustee believes that the money saved was spent on the wrong things, not life and family types of things, the trustee can require that the debtor pay the money spent on the wrong things back to the bankruptcy estate, that entity that now owns the debtor’s assets that can be used to pay the creditors some money. The trustee will also explore how the debtor came to be in such debt, to insure that there was no “racking up the debt” to gain unfair advantage from the federal and state bankruptcy laws. If this were so, the trustee could dismiss the bankruptcy outright.