Newark Lawyers for Debt Relief

Essential vs. Nonessential Debts

All Debts are Not Created Equal

Some debt is more important than others. If you are having trouble paying your bills, take the time to prioritize your bills. Make a list of what is important, as outlined below. Always pay the essential debts first. There is a difference between the bill collectors who call you and demand payment immediately and the bills you MUST pay before the collectors demands.

Essential Debts

An essential debt is one which you should put at or near the top of your list for payment. If you let an essential debt slide, you could face serious, consequences.

  • Rent or mortgage. Unless you know you are going to move and have an alternate place to live, make paying your rent or mortgage a top priority. Mortgage payments may be different. If you've lost your job and it looks long-term, you should be realistic about whether you can afford to stay in your home. You might be better off selling your home, renting a lower cost place and using what's left over to pay your other essential bills. If you decide to stay put, payments on a home equity line of credit or second mortgage are also essential because you can lose your house if you don't pay.
  • Utility bills. Being without gas, electricity, heating, water or a telephone is dangerous.
  • Child support. Not paying can land you in jail unless you convince the judge that you really couldn't pay.
  • Car payments. If you need your car to keep your job, make the payments. If you don't, consider selling it to avoid repossession. You may be able to use any leftover money to buy a cheaper car.
  • Other secured loans. Secured debts are linked to specific items of property. If you don't repay the debt, most states let the creditor take the property without first suing you and getting a court judgment. If you don't care whether the property is taken or are confident that the creditor doesn't really want it, don't worry about missing a payment or two. If the property is something you cannot live without, however, you'll need to keep that debt current.
  • Unpaid taxes. If the IRS is about to take your paycheck, bank account, house or other property, you'll want to negotiate to set up a repayment plan immediately.

Nonessential Debts

A nonessential debt is one with no immediate or devastating effects if you fail to pay. Paying these debts is a desirable goal, but not a top priority.

  • Credit and charge cards. If you don't pay your credit card bill, the worst that will happen before the creditor sues you is that you will lose your credit privileges.
  • Department store and gasoline charges. If you don't pay these bills, you'll probably lose your credit privileges and, if the debt is large enough, you may be sued.
  • Loans from friends and relatives. You may feel a moral obligation to pay, but these creditors should be the most understanding with you.
  • Newspaper and magazine subscriptions. These debts are never essential.
  • Legal and accounting bills. These debts may be essential especially if you need your lawyer to do work for you. Remember, you don't bite the hand that is helping you.
  • Unsecured loans. An unsecured loan is not tied to any item of property. The creditor cannot take your property. If you refuse to pay, the creditor can collect from you only by suing you and obtaining a court judgment. These unsecured debts are rarely, if ever, essential to pay first.

Essential or Nonessential?

Some debts straddle the line between essential and nonessential. Not paying won't cause severe consequences in your personal life, but it could prove painful nonetheless. In deciding whether or not to pay these debts, consider your relationship with the creditor and whether the creditor has initiated collection efforts. Some of these debts include:

  • Auto insurance. In some states, you can lose your driver's license if you drive without insurance. In California, you cannot even register your car without proof of insurance.
  • Medical insurance or bills. These may or may not be essential. There are lots of doctors. You may not have to pay them if you cannot afford them. Always make sure your health insurance will cover the medical treatment. If you don't have health insurance, see if you qualify for Medicare or other public assistance.
  • Car payments for a car that is essential for your job. The inconvenience of not having a car may justify making these payments.
  • Court judgments. Once a creditor has a judgment, the creditor can collect it by taking a portion of your wages or other property. If a particular judgment creditor is about to grab some of your pay, the fact that the original debt may have been nonessential is irrelevant.
  • Student loans. Paying an old student loan isn't essential if the holder of your loan isn't hassling you. But paying the loan may become essential if the IRS is about to intercept your tax refund, the holder of your loan threatens to garnish up to 10% of your wages or you are making payments under a "reasonable and affordable" repayment plan to rehabilitate your loan and get out of default.

Do not, under any circumstances, make payments on nonessential debts when you have not paid essential ones, even if your nonessential creditors are breathing down your neck. This may sound obvious, but when pressured by bill collectors, many people forget the obvious. For example, if you pay a few dollars on an old hardware store bill just because its collector is the loudest or most persistent, you may face eviction or have your heat turned off in mid-March because you won't have enough money left to pay for these crucial services.

To learn more about how we can help you handle your debt or deal with harassing phone calls, contact us online or by calling 888-434-0004