Non-payment of certain debts can have sudden and dire consequences for your family. Dealing with these types of debts can help avoid both short and long-term consequences as everyone seeks to navigate the unknowns of our current economic situation.

            One thing to keep in mind is that paying smaller, low priority debts just because you cannot keep up with high priority debts—“If I can’t pay my mortgage, at least I will keep up with my credit cards”, is a bad idea.

            If you don’t have enough money to make full payments on high priority debts, try to negotiate with the creditor to accept lower payments or save the money to be used later to get caught up, to cover the initial costs of moving to a new residence, or to pay for another car if your car is repossessed.

            It is very important to be proactive in contacting your mortgage lender, landlord, or other creditors to discuss options to delay payments or perhaps restructure payment plans.

            Creditors are likely to be more flexible in the current situation, but you must be prepared to have those conversations and demonstrate your hardship in order to obtain relief and avoid more serious problems.

High Priority Debts Include:

● Court judgment debt. You have been sued on a debt and a court has ruled for the creditor. The creditor has rights to seize part of your wages, bank accounts, and even your home or other property

● Criminal justice debt. Non-payment of debt arising from a criminal proceeding (such as fines, fees, and costs) can lead to immediate loss of your driver’s license, loss of income or assets, or even incarceration.

● Automobile loans or leases can result in a creditor repossessing your car after you miss only a few payments. This is high priority debt, particularly if you need your car to get to work or for other essential transportation.

● Home mortgage delinquencies (including non-payment of a debt to buy a manufactured home). Miss a month or two and you are unlikely to face foreclosure, but if you get behind by enough months, you face loss of your home.

● Real estate taxes. If you do not have an escrow account with your mortgage lender you are responsible for paying your own property taxes. While non-payment of property taxes will not result in the immediate loss of your home, at some point your home will be subject to a tax sale.

● Rent payments for your residence (or for the lot on which your manufactured home sits). Eviction can result if you do not keep up these payments.

● Child support debts will not go away and can result in very serious problems, including prison, for non-payment.

Lower Priority Debts

Lower priority debts should not be paid ahead of higher priority debts if this prevents you from appropriately dealing with high priority debts. Low priority debts become higher priority once you are sued in court on the debt. Some low priority debts include:

● Medical debt, such as payments due hospitals, doctors, other medical professionals, dentists, and ambulance companies. This debt does not affect your credit rating for six months, is unlikely to involve high interest rates or late charges, and it could take a year or two before you are sued, if you are ever be sued at all. Medical debt does not result in immediate loss of your property or income, unless you are successfully sued on the debt.  

● Credit card debt. You will not be subject to seizure of bank accounts, income, or property unless you are successfully sued on the debt or there is a default judgment taken against you. Debt collection contacts can easily be stopped.

● Debt owed friends and relatives. Non-payment is not going to harm your credit rating or result in lost property or wages, and you may not even be charged interest. Of course, you want to repay these debts, but your friends or relatives who lent you money are unlikely to want you to lose your home or car just to pay them back sooner.

● Private student loans. These loans typically do not involve collateral, and special remedies available to the government to collect federal student loans do not apply to private student loans. However, private student loans are difficult to discharge in bankruptcy.

● Debts you owe as a co-signer. If you co-signed for someone else’s debt and put up your home or car as collateral for the other person’s loan, the loan is high priority. Other loans for which you are a co-signer but have put up no collateral are low priority. If others have cosigned for you, tell them about your financial problems so that they can make plans.

● A deficiency action after your car is repossessed. If a creditor repossesses your car and sells it for less than the amount owed on the car loan, it may seek the difference from you, called “a deficiency.” This is a low priority debt because you have already lost the car, your credit rating has already been damaged, and the creditor can do little other than sue you. If you are sued, you often have solid defenses that prevent the creditor from recovering any deficiency. If the creditor prevails in the lawsuit, the debt becomes high priority.

● Charge accounts or other debts owed to merchants, particularly if the merchant has not taken as collateral the goods sold.

● Small loans even when they take household goods as collateral. Non-payment is unlikely to cause you to lose household goods collateral because creditors rarely seize them. They have little market value, a court order is usually needed to seize them. It is time-consuming and expensive to obtain that court order.