Once you've established that you cannot meet your obligations, you need to make a list of who needs to be paid first. Don't contact any of your creditors until you've established a pecking order. Bear in mind that you may have to change your priority list at a later date if creditors are unwilling to reschedule debt On the top of the list should be your essentials:
Shelter (rent or mortgage payment). If you are in really dire straits, you may have to move your mortgage payment to the bottom. In most states, if a lender (say a bank) forecloses, the lender is not allowed to take any further action against you. The bank cannot foreclose and then sue you for any market losses it may have sustained in the property. If the real estate market has crashed and you owe quite a bit more than the house is worth, you may want to consider letting the property go back to the lender.
Utilities and food. Make a budget for both. Utilities can often be delayed as long as two months, but most companies are quick to cut off services after that. Contact your utility company for their policy on hardship cases.
Transportation. In most cities it can be difficult to get a job without a car. A purchased vehicle can be repossessed the day after your grace period expires, but most institutions will let sixty to ninety days pass before taking action. Even if repossessed, a purchased car can usually be recovered by bringing the loan up to date. Leased cars, on the other hand, may be harder to get back once repossessed, because the lender may not reinstate the loan. If you are late with a payment, contact your lender to see whether an extension can be negotiated. Always ask whether a restructured payment plan will have to be reported to your credit bureau.
Bank or finance company credit cards and lines of credit. Anything over thirty days late is reported to your credit bureau. Keep the cards with the highest available balance current first You may need to use them in the future. Don't contact any of the banks unless you are sure you won't be able to make the payment They an freeze a credit line or close it if they have any hint of potential default. If you must miss a payment, contact the lending company and ask whether it can reschedule the debt without reporting a missed payment to the credit bureau. Some larger credit card companies have provisions for these kinds of situations.
Department store cards. Department store cards, like bank cards, report anything over thirty days. They may also be more difficult to negotiate with because they may not have any special programs in place to help debtors restructure their debts.
The IRS and state tax agencies. Although these agencies have unparalleled rights in collecting taxes, they are also fairly generous in regard to payment arrangements, often allowing monthly payments. These debts will not affect your credit report unless a lien is filed. Be sure to ask when setting up a payment arrangement whether or not a lien will be filed. It usually takes several months for action to begin. The IRS usually gets serious after three months and most states after about six months. If you owe money, try to make an arrangement before that time.
Gas company cards and convenience cards. Both of these generally require payment in full at the end of thirty days. These thirty days can usually be stretched to ninety days without losing your charge privileges. These debts are not reported to credit bureaus unless you are more than ninety days late. Many convenience card companies, including American Express, will also restructure your debt into monthly payments. You will lose your credit privileges, but nothing will show on your credit report. At the time this book is being written, American Express has begun to report all accounts, good and bad, to credit bureaus.
