As the economy worsens, many credit-worthy individuals are having difficulty paying their bills. Perhaps they were laid off, or their employer went bankrupt. Payments slowly get mailed later and later, until one day the creditor who was recently anxious for business begins to harass the borrower: Pay up or else! Some creditors are more enlightened than others, but to most a person is simply a number, his or her worth based entirely on how quickly the bills get paid. Often there is only enough money to pay half, or a third, of the bills coming in. Everyone is calling and demanding money. Lawsuits are mentioned, and words like "deadbeat" enter almost every conversation. Who gets paid first?
KINDS OF DEBT
There are really three kinds of debt: secured, unsecured, and debts owed to the government. Secured debt is any debt with a tangible asset backing the specific loan taken out, for example, a home or car loan. If you decide not to make your car payments, the lender can take your car back and sell it to satisfy the loan. Secured lenders are likely to be the least flexible when you have trouble paying your bills. They don't really want to lose a good loan, but they know that they'll get a good portion of their money back by foreclosing or repossessing. This is especially true in a bad economy. When the price of real estate declines and the value of the loan exceed the current value of the house, a lender is less likely to work out a payment arrangement He wants to get the house and sell it as quickly as possible before the market drops even further.
Paying back secured debt usually takes top priority.Unsecured debt is extended by your signature only. A credit card, checking overdraft, or department store card are all examples of unsecured debt In order to collect, a creditor would ultimately have to go to court, obtain a judgment, and then collect it by attaching your assets or garnishing your wages. This is a long and costly process. Even then, if you declare bankruptcy, you may not have to pay anything. Unsecured lenders are much more willing to negotiate on a late account, since they are much less likely to collect than a secured lender.
Government debts are almost always paid eventually. The most common debts owed to the government are federal or state income taxes. Neither the IRS nor the state income tax authorities are required to go to court, as other debtors are, before garnishing wages or attaching assets. Often only a notice that a bank account has been seized or that wages are being garnished is sent before action is taken. In spite of greater-than-normal powers, however, government agencies can be quite easy to negotiate with. They do accept payment plans from individuals and often take a few months before becoming nasty about collecting overdue taxes. State tax agencies are usually even easier to deal with than the IRS. If you are consistently delinquent, however, their docile attitude can change very quickly. Remember, with the IRS or the state tax agency, you have no rights. It is best to pay them as quickly as possible.
