Crisis: How to Spread Cash Among Creditors
faced with a drastic money shortage, many people have trouble
making crucial financial decisions. Angry phone calls from creditors,
lights going out, and letters from law firms are sure to turn
stress levels on high – and can greatly impair one’s
ability to think straight. This, however, is the most important
time to get it together and prioritize. If you only have so much
money to go around and a variety of creditors to satisfy, know
the consequences of not paying each type. Take a deep breath,
relax, and start deciding who gets what of the cash you have.
The repercussions for falling behind on child support payments
can be astoundingly harsh. Not only may your children have to
do without, collection on arrearage can result in a wage garnishment
of 50 percent of your income, public humiliation, revoking professional
licenses, and even jail. There is no statute of limitations for
child support debt – you owe it forever until it is collected.
If you find you can’t make the payments, make sure you contact
your lawyer or go through the court system to request a modification.
Simply not paying is a guaranteed way of making a bad situation
Forget Texas – don’t mess with the IRS. Not paying
your taxes can be a true financial nightmare. Fines and penalties
can increase the total debt dramatically, and the IRS can severely
garnish your wages, leaving you with very little money to live
on. Make sure you file your taxes even if you can’t pay
what you owe. Not only will you avoid some fines, you may be able
to work out a long-term payment plan, settle for a lesser amount,
or arrange for a hardship plan where you pay nothing for a year.
These options are only available if you file – so don’t
avoid the paperwork.
There was a time when many people simply did not pay their federally
guaranteed student loans, resulting in many millions of lost dollars.
Today the government has adopted a very strict collection policy.
Collection methods include wage garnishments and tax interceptions
(tax refunds automatically sent to the loan’s holder) without
having to go through the trouble of a lawsuit, and liens (a claim
against property that secures payment when the property is sold)
and levies (the forced sale of property and taking money from
accounts), if they do choose to sue. As with child support arrearage,
there is no statute of limitations for student loan debt, and
it can rarely be discharged in bankruptcy.
Whether a home, car, or major appliance, if the debt is secured
by what you’ve purchased, not paying it may result in loss
of that property. Repossession for a home can happen in as little
as a few months to over a year, depending on state law and the
type of loan you have. Miss one vehicle payment in some states
and it may be repossessed. If you don’t want to lose your
property (and the money you put into it), make sure you contact
your lender immediately to work out a plan of action.
The consequences for not paying credit card, unsecured loans,
and unsecured collection account debts are less severe and immediate
than the preceding debts – but they can be harsh as well.
To collect on the debt, these creditors must sue you in a court
of law first, and then win a judgment. The likelihood of that?
It depends on many factors, but make certain you know it can,
and often does, happen. And if you are sued, the judgment will
remain on your credit report for seven years, but collection of
the judgment can go on for much longer. Judgment creditors may
use wage garnishment, liens, and levies to collect unpaid balances.
can often avoid many of the problems associated with not having
enough money to make everybody happy by taking an organized and
proactive role. After identifying which creditors take the highest
priority, pare your expenses down to the bare essentials, and
if you can, send each at least a token payment. Stay on top of
all correspondence and open every letter. Pick up the phone and
communicate with creditors as soon as you know you can’t
pay, or have to send less than you owe. Write letters explaining
your situation, offer realistic solutions, and include documentation
to back it up. Whatever type of debt or debts you have, avoid
the urge to run away – creditors always run faster.