Debt Strategies - All Debts are NOT the Same
Authored By: Legal Aid Services of Oklahoma, Inc.
Seniors and others living on pensions, Social Security and other public benefits have particular difficulties making ends meet in hard times. They want to pay all their creditors but simply may not have the money.
This information is for Oklahoma seniors living on fixed incomes.
It is NOT intended for those who simply choose not to honor their debts and financial obligations.
No moral blame should attach to a person who, through misfortune and by no fault of his own, has become unable to pay his debts. The law provides certain safety nets so those who become unable to pay their debts do not unduly suffer. These laws are available and morally neutral as are tax deductions and bankruptcy. If you have serious debt problems, consult with a reputable and experienced attorney or counselor for advice about your particular situation.
TYPES OF CREDITORS
A creditor is anyone to whom you owe money. A creditor can be the government (if you owe taxes or fines), mortgage holders, a landlord (if you owe rent), other lender such as banks, credit card companies and stores. Some lenders "sell" the right receive money from you (your payments on the loan) to other lenders. Usually these are collection agencies.
Unsecured Creditors have either loaned you money or sold you something based solely on your promise to repay them under certain terms or conditions.
Secured Creditors have both your promise to repay PLUS some rights in your property ("collateral") to guarantee repayment. An example is a mortgage on your house or a lien on a car. The secured creditor may take your collateral ONLY IF you violate the terms of your contract.
Home Foreclosure and Eviction are serious matters requiring immediate consultation with an attorney. If you don't make your house payments, the bank or mortgage company can foreclose and sell your house. If you don't pay your rent, the landlord can have you evicted.
Setting priorities means making tough choices. "Basics first."
BASICS means: shelter, food and clothing. Luxury and convenience items such as cable TV are not basic needs. Reasonable budgeting means making reasonable choices.
If you have cut your budget down to just but the basics, but still can't afford to pay all your debts-which debts do you pay first? Secured debts should almost always be paid before unsecured debts. It is less important for most people to hang on to their television than it is to hang on to their house or car. Given a choice between two secured debts, let go of what you can do without (personal items) in order to hang on to what you need (housing).
1. Family necessities first. Pay for food and essential medical expenses.
2. Shelter next. In Oklahoma, if you keep up your mortgage payments, no judgment creditor can take your house. If you can't, you can lose it through foreclosure. Pay your taxes, insurance, condo fees, homeowner's association dues or mobile home lot, or for work done to your home. If you cannot afford your rent or house payments, find a less expensive place to live as soon as you can.
3. Essential utility service. Utility companies may work out a payment plan for you. It makes no sense to pay rent or house payments, if you can't afford electricity or running water. Call 211 to find community resources to help you if you are facing a utility cutoff.
4. Car loans or leases next. If you need your car to get to work or for other essential transportation, make these payments next. You may even want to pay for the car first, if the car is essential to holding on to your job. Stay current on your liability insurance. In Oklahoma, it is a crime to drive without insurance - and you could lose your driver's license and incur fines and court costs.
5. Fines, debts owed to the government and child support debts. Failure to pay fines or child support can result in serious penalties, including jail. Some public assistance may br seized or interrupted for failure to pay child support or loans from, or backed by, the government.
6. No one is exempt from income tax. You must pay any income taxes and you must file your federal income tax return, even if you cannot afford to pay the balance due. Not filing a return, even if you owe a small amount and cannnot pay, can cause you to incur additional penalties and interest.
7. Loans with only household goods as collateral are a low priority. Treat these loans the same as unsecured debts - a low priority. Creditors rarely seize household goods. They have little market value and are hard to take without court process, which is both time-consuming and expensive.
8. Loans without collateral are also a low priority. Most credit card debts, hospital bills, debt to professionals, and store accounts are low priority. If you have not pledged collateral, there is little these creditors can do to harm you in the short-term.
9. NEVER move a debt up in priority because of threats to sue. If the creditor does sue, it will take a while for the collector to be able to reach your property, and much of your property may be protected by law from being taken by a creditor. Non-payment of rent, mortgage, and car debts may result in immediate loss of your home or car.
10. NEVER move a debt up in priority because of debt collectors. Debt collectors are not interested in making the best decisions for you and your family. They are interested in collecting debts. You do not have to talk to them, and the law provides remedies for harassment by debt collectors.
11. NEVER move a debt up in priority because of threats to ruin your credit record. When a collector threatens to report your unpaid debt to a credit bureau, they may have already done so. The damage will have been done by your inability to pay, and no additional harm is possible.
12. Court judgments. If a creditor gets a judgment against you, the creditor can ask the court to seize property, wages, and bank accounts. Social security income and most pensions, cannot be touched. At this time, most banks in Oklahoma will not raise your exemption rights for you. If a creditor garnishes your account, it is up to you to prove the account contains exempt funds.
In Oklahoma, a judgment creditor cannot take your home unless you do not pay the mortgage. Instead, a lien may be placed against your home. A creditor cannot force you to sell your home. Rental or vacation homes are not protected. When you decide to sell your home, the lien could become a problem. For most low-income seniors, a judgment creditor is just another unsecured creditor; consider them as you would an unsecured creditor when prioritizing your debts. The creditor can ask for a Hearing on Assets and serve you papers ordering you to bring information to the hearing. At that hearing, you may be required to provide information about your assets. You also have the chance to explain why you cannot pay. The creditor can get a court order to 'attach' or take your personal property to pay the judgment. They can also ask the court to order the bank to take non-exempt money from your bank accounts or wages. You must go to court if you get notice of a hearing and honestly participate in such a hearing. If you do not, you could be arrested and go to jail for contempt. Other than being held in contempt for disobeying an order to appear, you will not be put in jail just because you cannot pay a judgment.
13. NEVER co-sign a loan for someone, but if you already have, treat co-signed debts like your other debts. A debt which you have co-signed is your debt. If the other co-signers are not keeping the debt current, creditors will come to you for payment. Treat them as any other creditor especially if you have put up your home or car as collateral on a loan.
14. You will get offers to borrow money, take out payday loans, or refinance. Consider these options only with the guidance of a reputable attorney or credit counselor.