Can’t Pay the Utilities?

Better move to a state with different providers or get a place that pays all utilities, because the phone company, electric company, Internet provider, and gas company will remember you and your debt to them. Depending on how many times you have been delinquent, they may shut off your service anywhere from 15 days to 3 months after the last payment was due. You also will not be able to open a new account with the same company without paying what you owe – but you could move to another state or area, with a different set of utility companies, and open accounts with them.

You may or may not take a hit on your credit report and be harassed by collection agencies as well, it depends on whether the debt is enough for the companies to pursue. Nevertheless, it isn’t recommended to go without paying utilities if you intend on living there very long. Sure you can get around by candle light, but cooking can get a little tough.

Defaulting on Secured Loans

Defaulting on your auto loan or home loan pretty much operates the same way. You stop paying, they start calling. If you don’t agree to any repayment plans, they will sell the debt to a collection agency if the collateral isn’t worth repossessing. If the auto loan is sold to a collection agency, you have a pretty good chance of negotiating a lower price for the car. Otherwise, they will repossess the car, typically within 30 days to a year (although legally they can repossess just 1 day after the payment’s due date), or start the foreclosure process if it’s a home, which generally runs anywhere from 30 days to 3 months, sometimes more. Defaulting on loans really doesn’t look good on your credit report though, and will really hurt your chances of getting a job, apartment, and future credit. They may also file suit to garnish your wages, take your tax return, or seize other assets depending on the judgment.

Defaulting on Unsecured Loans

Unsecured loans include personal loans, credit cards, student loans, payday loans, and anything else without a real asset or lump sum of cash attached to the debt. Lenders of unsecured credit have fewer options, but they tend to be the most aggressive. Although legally, as with any collection agency, you can ask in writing for the calls to stop and they must oblige, be prepared to be handed a lawsuit if your debt is significant. Creditors tend to take that letter as notice of your intent to be a deadbeat borrower, whether that is your intention or not, and if they find reason to believe you can pony up the dough, they will hunt you down. Nevertheless, the best they can do without filing suit is call. And call. And call some more. If they do file suit, they can get pretty much the same things as a secured lender – wage garnishment, your tax return, or any asset which may cover the debt sufficiently. However, the chances of an unsecured lender filing suit are pretty slim if you don’t have a very big debt or your credit report shows no mentionable assets or cash flow.

Other Ugly Bill Collectors

As far as medical bills, construction companies, and other private companies are concerned, you don’t have much to worry about them unless they are sue-happy. If you have work done on your house – or body – and find you can’t pay the bill, they can call, send letters, and report it to a credit bureau. Hospitals are the least likely to sue, but a construction company just might seriously need that income and is liable to sue for it no matter how little you owe. Last but not least, the IRS is not someone you want to mess with – tax liens stay on your credit report until seven years after you have paid it off. In other words, if you don’t pay it, that tax lien will stay there until the cows come home, and they too can garnish your wages, withhold your tax return, and seize assets if the debt is big enough. In terms of a time frame, you may have a year before anything significant happens, but don’t count on it.

What happens if I don’t pay my bill?

Not paying your bills on time can affect your credit rating, plain and simple. There is little that people can do in life without credit, and even less if they have bad credit. Good credit is like a key. It’s what allows you to get a loan from the bank for college, a new car or a new home. In many companies, it’s customary to check the credit of prospective employees before they are hired as one check of their reliability. If you’re a credit risk, you might be an employment risk as well.

If you’ve ever paid a bill late, you’ve probably noticed that you’re charged a fine. If it’s happened more than once with the same company, what you might not have noticed, or even known, is that in addition to the extra charge, your tardiness was reported to the credit bureau. Procedure varies from company to company, but as little as two late payments can result in a mark on your permanent financial record. If being slightly behind can tarnish your credit report, imagine what not paying your bills at all can do.

As soon as it’s evident that you don’t intend to pay your bill, the company will turn its information over to a collection agency — this can be an outside agency or a division within the affected company. Once this happens, the collection agency will start by calling you. Agents will call you at home, at work, and even at a relative’s house if they can locate the appropriate phone number. After the agent contacts you, if you still don’t pay up, the collection agency can turn the matter over to the courts.

Fortunately for you, unless the agency has an adequate claim that you were fraudulent in some manner, it can’t have you sent to jail immediately. Usually, a judgment will be granted and the collection agency, on behalf of the company to whom you owe money, will be able to do any or all of the following to recover the money:

Garnish your salary (up to 50 percent)

Seize personal property such as cars, boats or jewelry

Place a lien on your bank account

Although regulations differ from state to state, the collection agency might even be able to seize your home. Most states have a homestead exemption, which allows people to maintain their property, if the property doesn’t pass a certain value. But many of these values are only modest. If your home is valued beyond this allowance, you can be forced to vacate and your home will be sold to help pay your debt. At this point, even after you make amends and cover the full amount owed, this indiscretion will stay on your credit report for as many as seven or even 10 years.

Start with the essentials

Pay for family necessities first.
Paying for food and essential medical expenses should be your first priority.

Pay housing-related bills.
Keep up your mortgage or rent payments, if possible. If you own your home, real estate taxes and insurance must be paid. (They may be included in the monthly mortgage payment.) Any condo fees or mobile home lot payments also should be considered a high priority. Failure to pay these debts could lead to loss of your home.

Keep utilities on.
Make necessary utility payments next if possible. Working hard to keep your house or apartment makes little sense if it is not livable because you have no utilities.

Pay a car loan or lease.
If you need your car to get to work or for other essential transportation, rank your car payment just below food, medical expenses, housing costs and utilities on your priority list. You may want to pay your car payment first, if your car is essential to holding onto your job. Stay current on your insurance payments as well. If you don’t, your creditor may buy insurance for you at your expense. It will be more costly collision and theft coverage with liability protection. In most states, it is illegal not to have automobile liability coverage.

Pay child support.
Child support debts will not go away. Fail to pay and very serious remedies may result, including prison.

Pay income taxes.
You must pay any income taxes you owe that are not automatically deducted from your wages. You must file your federal income tax return even if you cannot afford to pay any balance due. Remember, though, if you have lost income due to a change of circumstances, your tax obligations also will be reduced. Pay only what is necessary.

Identify your low-priority obligations

An unsecured debt is a low priority.
Most credit card debts, attorney, doctor and hospital bills and other debts to professionals, open accounts with merchants and similar debts are low priorities. You have not pledged any collateral for these loans, and there is rarely anything that these creditors can do to hurt you in the short term. Many won’t bother to try to collect in the long term.

A loan with household goods as collateral is a low priority.
Sometimes a creditor requires you to put some of your household goods up as collateral on a loan. Treat this debt as a low priority. Creditors rarely seize household goods because they have little market value, it is hard to take them without court process, and using the courts is time consuming and expensive.

Don’t move a debt up in priority if a creditor threatens to sue.
Many threats to sue are not carried out. Even 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 exempt from seizure. On the other hand, nonpayment of rent, mortgage and car debts may result in immediate loss of your home or car.

Don’t pay when you have a good, legal defense.
If the goods purchased were defective or a creditor is asking for more money than they’re entitled, you may have a legal defense for not paying your bill. You should obtain legal advice to determine whether your defense will succeed. In evaluating these options, remember that it is especially dangerous to withhold mortgage or rent payments without legal advice.

A student loan is a medium priority debt.
Student loan debts should be paid ahead of low priority debts, but after top priority debts. Most delinquent student loans are backed by the United States, and federal law provides special collection remedies against you, including the seizure of your tax refunds and denial of future student loans and grants.

A court judgment boosts a debt’s priority.
After a collector obtains a court judgment, that debt often should move up in priority because the creditor can enforce that judgment by asking the court to seize your property, wages and bank accounts. Nevertheless, how serious a threat this really is will depend on your state’s law and the value of your property and your income. It may be that all your property and wages are protected under state law. If so, you should still pay this debt only after more pressing obligations. This is a good time to obtain professional legal advice if you have not done so already.

Debt collection efforts should not boost a debt’s priority.
Be polite to the collector, but make your own choices about which debts to pay based on what is best for your family. Debt collectors are unlikely to give you good advice. They’ll urge you to pay debts that you should actually pay last.

Threats to ruin your credit should not boost a debt’s priority.
In many cases, when a collector threatens to report your delinquency to a credit bureau, the creditor already has provided the credit bureau with the exact status of the account. And if the creditor has not done so, a collector hired by the creditor is very unlikely to do so. In fact, your mortgage lender, your car creditor and other big creditors are much more likely to report your delinquency than a debt collector who threatens you about your credit record.

Treat cosigned debts as your own.
If you have put your home or car as collateral on a cosigned loan, paying this debt should be a high priority debt when the other cosigners fail to pay. If you have not put up collateral, treat a cosigned debt as a lower priority. If someone has cosigned a loan for you and you are unable to pay the debt, you should tell your cosigner about your financial problems, so that he or she can decide what to do about that debt.

Refinancing is rarely the answer.
If you’re having serious money woes, you’ll want to be careful about refinancing. Refinancing a loan can be very expensive, and it can give creditors more opportunities to seize your important assets. A short-term fix could lead to long-term problems.