When you don’t have enough money at the end of the months to pay your bills, what do you do? If you don’t pay all your debts, there may be serious consequences for you and your family. Which debts should you pay first? You should pay your debts in the order of their importance and real, not imagined urgency. These are debts that let you keep your job and making an income and those debts that immediately threaten your income, savings, and property. Any creditor that is not paid may eventually attempt to collect that debt, but some creditors move faster than others. Deal with the creditors that are most likely to get to your income, not those who are just threatening to sue.
We recommend that you pay your debts in following order:
- Car loans and leases. If you don’t pay your car note, the lender can repossess your car. You may not receive any notice that the car is being taken until after it’s gone. Without your car, will you be able to keep your job? This is your highest priority debt if you need your car to get to work.
- Mortgage and Rent on your home. This is your home. If you lose your home in an eviction or a foreclosure, you face a crisis that is far more serious than a temporary loss of income. If you miss one month’s rent, you will almost certainly be summoned to your local court to appear in an eviction case. If you miss three mortgage payments, foreclosure proceedings are likely to start soon. Foreclosures often do not require court approval and a foreclosure sale can occur on as little as 28 days notice.
- Court judgments. A judgment is entered by a court only after you have been sued and you lost your case. A creditor may garnish up to 25% of your paycheck and 100% of your bank accounts and state income tax refunds. If these are not enough to pay your debt, the court may allow a creditor to sell your home or other property.
- Criminal Court debt. If you do not pay a debt imposed by a court in a criminal case, you can be jailed and it can lead to a loss of your driver’s license, garnishment of your wages and assets.
- Utility bills. Non-payment of utility bills can lead to termination of gas, electricity, water, and other utility services.
- Child support debts. These payments are to your children and should be a priority anyway. These debts cannot be discharged in bankruptcy and if unpaid can lead to imprisonment.
- Real estate taxes. If your taxes are not paid by your mortgage lender through your monthly mortgage payment, a failure to pay can lead to the loss of your property. Your home may be lost in a tax foreclosure before 3 years after you miss your tax payment.
- Federal student loans. These debts are considered “in default” after nine (9) months unpaid. A federally subsidized loan can lead to the loss of your tax refund and your Social Security or other federal benefits.
- Medical debt. Debts owed to hospitals, doctors, dentists, clinics and medical testing clinics and labs have a much lower priority and these creditors do not act quickly to obtain a judgment. They are often not reported on your credit.
- Credit card debt. Like medical debt, these creditors are slow to collect. But the amount you owe can increase dramatically with the imposition of late fees, increased interest charges, and overdraft fees. Eventually, unpaid debt is often sold to private investors for a fraction of the amount of the debt. You can negotiate a favorable settlement on these debts.
- Debt owed friends and relatives. These debts are never reported on your credit and these creditors are unlikely to sue, at least not right away.
- Private student loans. Private loans are not government subsidized and may be dischargeable in bankruptcy but not always.
Dealing with problem debt is a difficult process. Bredow Law is always ready to help with the advice and legal help you need. Call us for consultation with a qualified attorney who specializes in debt relief. Bredow Law specializes in debt relief, including bankruptcy, for consumers. When you are a Bredow Law client, we promise to provide the highest quality and most cost-effective debt relief representation. If you or someone you know has questions about debt or bankruptcy, Contact Bredow Law at (248) 795-5516 or by email email@example.com