Countless individuals across the globe find they are struggling to pay their debts because of the coronavirus.
They may have missed work because their company shut down temporarily, or a person might have come down with the virus and needed time off to rest and recover. Although some companies work with these individuals to come up with an alternative payment plan, not all do. What should a consumer do when they cannot make payments as agreed? A debtor must take certain steps to ensure the problem doesn’t escalate rapidly.
A Financial Assessment
A consumer first needs to assess their financial situation to know where they stand. This begins by making a list of all debts and determining if the problem can be resolved quickly or if it a long-term issue. Prioritize the debts and determine whether any property falls under the exemptions category if creditors decide to pursue legal action. In addition, research wage garnishment limits in the state. This information makes it easier to evaluate the options and determine which is the best course of action. Debt Legal Defense can be of help with this step if you are struggling to do an objective analysis of your finances.
Types of Debt
Not all debt is equal. Secured debts allow the lender to collect one or more assets from the borrower if they cannot repay the funds as agreed. A mortgage serves as a good example of a secured loan, as the lender may foreclose if the borrower falls behind on the payments. Credit cards fall under the category of unsecured debt, as the lender must take legal action to recoup the funds. They sue and get a judgment against the borrower if the lawsuit is successful. Only then can the lender garnish the borrower’s wages, levy their bank account, or put a lien against any real estate they own. Government loans are unsecured loans but come with special collection rights. The government may seize the borrower’s tax refund or garnish income without going to court. Debtors must recognize this and plan accordingly when paying off the debt.
The Duration of the Financial Crisis
A person who has been out of work for a short time might find they can catch up with a little help from their creditors. Other borrowers, however, find they cannot resolve their financial difficulties quickly. As a result, they need to consider options such as bankruptcy or debt settlement to get relief from their pressing financial problems.
Pay certain debts before others as you try to regain your financial footing. High-priority debts include debts associated with housing or transportation. Pay those before paying unsecured debts. Once you remit these payments, move on to unsecured debts such as utility bills. A functional home requires running water and electricity, and no person wants to go to jail for failure to pay child support. Pay these bills promptly, even if your finances are in shambles. Other high priority debts include car payments, student loans, secured debts, and unpaid taxes.
Once you have paid the high-priority debts, more on to credit card payments, court judgments, medical insurance, and medical bills. Leave department store and gasoline credit cards until last, along with other unsecured loans. If you owe family or friends money, they need to go at the bottom of the list of debts owed. Share information with friends and family about why you cannot repay them on time, as most people will understand the difficult situation you are in and try to help in any way they can.
Garnishment and Exemptions
States establish their laws regarding which assets creditors cannot seize in bankruptcy cases. Borrowers need this information so there are no surprises when the court finalizes the bankruptcy filing. In addition, creditors cannot access certain types of income. For instance, Social Security funds typically cannot be accessed by creditors to repay a loan or other financial product. Debtors need this information when determining the best course of action to get the relief they desire.
Options to Consider
A debtor may do nothing and find their financial situation worsens as a result. Negotiating with creditors remains an option every person should consider, along with credit counseling. Learn about programs that may help you get through this difficult time. For instance, some mortgage providers are working with customers to set up temporary payment plans until the global pandemic has passed. Student loan payments were put on hold for a period, and many local organizations are helping citizens with utility bills, food, and more. Consider all options at this time. Don’t overlook bankruptcy if your situation is dire or request help from family and friends. They may assist you during this difficult time.
Carefully Choose a Provider to Work With
Borrowers need to watch out for scams at this time. Sadly, some individuals prey on those who are going through a difficult time, as they know the person is desperate for relief and will do anything to relieve their financial burden. Don’t fall for this. In addition, don’t make a payment to a creditor over the phone unless you initiated the call. No individual wants to learn they made a payment to what they believed was their creditor when it wasn’t. Sadly, this happens, and the debtor finds their financial situation has deteriorated even more.
If you are at a loss as to what steps to take to resolve your financial difficulties, contact an attorney. Lawyers sit down with clients to review the options, the benefits and drawbacks of each, and more. This step becomes critical when a person is considering bankruptcy, as they need to know which assets remain protected and which the court may seize to pay off the debt.
In addition, the attorney becomes of great help when it comes time to decide which filing option to use. Although a person may wish to save these funds to use toward paying down the debt, they should consult an attorney to prevent mistakes that can leave them worse off than they were before they started this process. Nobody wants this to happen when a person is only wishing to better their life.