How to not pay your bills
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Here’s how to dodge the repo man and buy some time while you try to pull your financial life together. By Liz Pulliam Weston This is not a lesson in how to be a deadbeat. It’s a lesson in how to do the least damage when you can’t pay all of your bills. Most stories about dealing with debt assume you have the money to pay most or all of your bills. That's not always the case. Thanks to bad planning, bad decisions, bad luck or a combination of all three, sometimes you just don't have the scratch. Yet filing for bankruptcy, despite its recent popularity, isn't always the solution. If your bills aren't that monumental or your financial prospects are likely to improve, a Chapter 7 filing could be a major overreaction. You also may have a profound distaste for skipping out on your creditors -- even if you can't pay them just now. It can be helpful, in those times, to understand how to create some breathing room for yourself so you can formulate a plan to get back on your feet while minimizing the long-term financial fallout.
Coping with creditors Mortgage lenders: If at all possible, keep up with your mortgage and home equity payments. If you don't pay, your lender can foreclose -- a process that can take as little as three months (although most lenders wait for you to miss two or three payments before starting foreclosure proceedings). The further along the foreclosure process gets, the more you'll have to cough up in fees and collection costs to get your house back. Fortunately, many lenders have gotten a lot better about trying to help homeowners survive rough times with various "workout" plans that lower or suspend payments for a few months. If your cash crunch will be short term, it makes a lot of sense to contact your lender as soon as you know you might miss a payment to request help. If you have no idea when your financial prospects will improve, selling your house is usually a better option than letting it fall into foreclosure. You'll keep more of your equity and protect your credit score from future damage. Auto lenders: The repo man (or woman) can come for your vehicle if you're even a day late with your payment, although it typically takes a month or two for the lender to act. But, like mortgage lenders, some auto lenders are willing to work with you if you a) contact them early and b) are in a temporary cash crunch that's about to be resolved. Of course, if you don't need the car to get to work and you owe less than it's worth, selling it is often a great strategy to reduce your bills and free up some cash. Unfortunately, many borrowers in your situation either need the car, owe more than it's worth or both. The options are kind of grim:
You typically can ask for forbearance or deferrals that allow you to skip payments for a total of three years. If you've already used up those opportunities, ask about income-sensitive or graduated repayment plans. If you can't make those payments, your loan typically won't be placed in default status until 270 days, or about nine months, have elapsed. Even then, you often can "rehabilitate" your loan with a series of on-time payments that will eventually erase the negative effects on your credit. This is another case where you want to call the lender as soon as you run into financial trouble to see what can be worked out. Tax debt: The IRS and other taxing authorities often can offer you an installment plan; you also might try, with a tax pro's help, making an "offer in compromise" to settle your debt. Tax agencies have plenty of ways to get their money if you try to hide from them, including wage garnishment, liens on your property or bank accounts and seizure of your refund checks, so they're another creditor you don't want to avoid. Credit card companies and other "unsecured" lenders: "Unsecured" means your borrowing isn't attached to an asset, like a house or a car. Credit cards, medical bills and personal loans are considered unsecured debt. It usually takes about six months of skipped payments for an unsecured lender to "charge off" your account and place it in collections. A "charge off" is an accounting term that means the lender has given up on trying to get its money; it doesn't mean you no longer owe the debt. The account is either turned over to an in-house collector or sold or assigned to a third-party collector. You have the legal right to ask collection agencies to stop calling you; that request must be put in writing. But some collection agencies respond to such letters by taking you to court, where they could win a judgment against you and (in most states) take up to 25% of your after-tax wages (a process known as garnishment). It may be in your best interest to put off that day of reckoning.
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