Your question is quite layered so lets take it apart a bit. You have a few different kinds of old clients only some of which I would really call "bad".

##Friends and Family Those are hard to negotiate with but not bad as such (or so I hope). Once you start to work for friends for free they expect that it will always be the case. In turn I personally find it very hard to ask friends to pay for my work. This is something you can only fix in a case by case way I'd say. But basically it comes down to the question whether they would be willing and able to pay somebody at all for the job - if so, why not you? You can still give a friends discount if you enjoy working on the project. And I will never charge my family to fix their messed up PC I guess :-D

##Clients not worth the time If you have old contracts (whether written or verbally) with a bad revenue/time ratio you need to update those. Of course not everybody can afford to pay full rates for a developer but maybe you can find a balance between those who can pay full and those that need to be subsidized a bit. My company sometimes takes smaller jobs from start-ups at a lower rate but only when we have someone to spare. In general those who pay the full rates get priority and we are open about this with those we offer discounted rates to.

##Clients that don't pay Yeah well - no pay, no play. Let those clients go. Do not directly refer them to anyone because it would ruin your reputation. If you referred someone to me that notoriously doesn't pay and/or has horrible communication habits we would stop working together.

##Don't lie! Just don't. It will always backfire one way or another. You are to busy to take a job? Be honest about it! Client does not pay? Tell them you will stop working for them if they don't! Client has bad communication habits? Ask them to change those or tell them you will need to charge them for the extra time.

##Networking and Cooperation As @CanadianLuke pointed out try not to see people working in the same field mainly as competition but as professionals with related expertise. Usually there are more people needing coders then there are coders. Maybe you can check whether somebody is willing to take on some of your older clients to get the business started same way you did in the beginning.

Hope this helps a bit! Cheers.

Your question is quite layered so lets take it apart a bit. You have a few different kinds of old clients only some of which I would really call "bad".

Friends and Family

Those are hard to negotiate with but not bad as such (or so I hope). Once you start to work for friends for free they expect that it will always be the case. In turn I personally find it very hard to ask friends to pay for my work. This is something you can only fix in a case by case way I'd say. But basically it comes down to the question whether they would be willing and able to pay somebody at all for the job - if so, why not you? You can still give a friends discount if you enjoy working on the project. And I will never charge my family to fix their messed up PC I guess :-D

Clients not worth the time

If you have old contracts (whether written or verbally) with a bad revenue/time ratio you need to update those. Of course not everybody can afford to pay full rates for a developer but maybe you can find a balance between those who can pay full and those that need to be subsidized a bit. My company sometimes takes smaller jobs from start-ups at a lower rate but only when we have someone to spare. In general those who pay the full rates get priority and we are open about this with those we offer discounted rates to.

Clients that don't pay

Yeah well - no pay, no play. Let those clients go. Do not directly refer them to anyone because it would ruin your reputation. If you referred someone to me that notoriously doesn't pay and/or has horrible communication habits we would stop working together.

Don't lie!

Just don't. It will always backfire one way or another. You are to busy to take a job? Be honest about it! Client does not pay? Tell them you will stop working for them if they don't! Client has bad communication habits? Ask them to change those or tell them you will need to charge them for the extra time.

Networking and Cooperation

As @CanadianLuke pointed out try not to see people working in the same field mainly as competition but as professionals with related expertise. Usually there are more people needing coders then there are coders. Maybe you can check whether somebody is willing to take on some of your older clients to get the business started same way you did in the beginning.

Hope this helps a bit! Cheers.