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Cash Strapped? Prioritize Creditors

By Julia J. Smolka

At this unprecedented time, many of you are experiencing significant work and income stoppages.  As an attorney with extensive experience in debtor and creditor work, there are some dos and don’ts.

♦ Prioritize payments to creditors. Reach out to your landlord and ask for an extension on rent. If you have a mortgage, immediately go online to your lender’s loss mitigation options. They will likely have a new program for forbearance-type payment plans or options. The forbearance can be a 3 to 6 month-long break, with possible payment of interest only.  Be proactive and ask.

♦ Pay any car loan or lease, as your car can be repossessed without any warning or notice for non-payment.

♦  Reach out to utility companies and ask for a hardship extension on payments.

♦ Lost your job? Immediately apply for unemployment benefits online. Student loan payments should also be deferred or placed on forbearance if possible.

♦ Owe the IRS? Call the taxpayer advocate center and immediately submit hardship documents showing that payments to the IRS will make it impossible for you to maintain a minimum standard of living. Same with state tax debt.  Or apply for a payment plan on back taxes.

♦ Do NOT pay any medical bills in full. Immediately request a payment plan. Most medical creditors accept long term payment plans with no interest.

♦ Credit cards come last. They should not be a priority unless your basic living expenses are met. Ask for payment deferments but expect all lines of credit to be shut down quickly.  If a credit card is on autopay, stop it. If you have a credit card with your primary bank, the creditor likely has the ability to take funds from your account whether you give explicit instructions or not.

♦ Do NOT cash out retirement accounts.  These funds are protected from all of your creditors, even the IRS.  Keep that money there as long as you can.  Do NOT cash out a whole life insurance policy? Check your cash surrender value.  If you have a spouse or a minor or disabled child the cash value is likely exempt from creditors.

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