![]() ![]() Student loans begin taking us into the unsavory territory of wage garnishment. While student loan repayments and interests have been on pause for the past few years, the student loan interest will resume starting on September 1, 2023, and payments will be due starting October 2023. For all the attention that gets paid to credit card debt, it’s tough to top losing your freedom or the roof over your head. If nothing else, make sure your taxes and mortgage gets paid. This judgment mandates that you repay the bank the difference between what it resold your property for and the outstanding balance of the mortgage. If a bank cannot resell your home for enough money to recoup its costs, it can sue for what is known as a “deficiency judgment” against you in civil court. In fact, foreclosure may not even be the last of your troubles. In other words, if you don’t pay up, expect to be foreclosed upon, or at least that it is a strong possibility. The bank will not garnish your wages, for instance, because the terms of your mortgage explicitly state that the property is the bank’s sole collateral for the amount of the loan. And unfortunately, there is generally no less painful precursor to foreclosure. ![]() The difficulties of losing your home are too obvious to require elaboration. Once a mortgage lender determines that you cannot or will not repay your loan, it will exercise its contractual right to foreclose on your home and attempt to sell it, in order to recoup the money it lent you. The operative word there is “slightly.” While the local bank won’t be sending you to jail, their recourse is essentially the next worst thing: repossessing your house. Slightly less foreboding than the IRS are banks and mortgage lenders, to whom many are in debt by virtue of owning homes. The IRS is backlogged, but all non-payers and non-filers are logged in their computer systems, and it is only a matter of when (not if) you are pursued with audits or penalties. The State Department may also deny a taxpayer’s passport application or revoke their current passport.įinally, do not assume that the IRS has “forgotten” about you or that you’ve “gotten away” with not filing returns or paying for several years. G enerally, if you have a seriously delinquent debt, the IRS can issue a debt certification and the State Department will not issue passports to taxpayers after receiving their debt certification. A far more common punishment is the levying of fines and interest on the full amount of taxes you owe. Additionally, prison is hardly the only penalty the IRS can impose. Even banks and mortgage lenders have to wait in line behind the feds. If you owe money to several creditors, the IRS (by imposing tax liens ) is automatically first in line to collect on any assets you possess that can help satisfy its claims. But the very fact that the government can, if it so chooses, take away your freedom for unpaid tax debt suggests that this should be your number one repayment target. ![]() Granted, not all tax deadbeats are sent to prison in knee-jerk fashion. For one thing, the IRS is the only creditor capable of imposing fines or sending you to prison for failure to pay. No matter how many people you owe (or how much), delinquent taxes take precedence. Write it on your forehead and repeat as needed: the IRS always gets its money first. But nevertheless, it is worth exploring some important differences between various types of creditors, including the order in which you might want to prioritize repaying them. Of course, TurboTax encourages readers to aggressively repay all their debts as quickly as possible, on general financial principle. The consequences for not paying years of back taxes, for example, are much more severe than flaking out on some credit card payments. The fact is that not all creditors see your debt in the same way or have the same authority to punish you for failing to repay. If you aren’t careful, vastly different debts (back taxes, student loans, gym memberships, etc.) can all blur together into an indiscriminate mass of “all that money I owe people.” However, this is actually not the most intelligent way to approach your debt or even to think about it. Aside from the struggle to actually pay the amount owed, debtors must also prioritize which creditors are worth devoting the most money and attention to. ![]() Unfortunately, getting out from under that mountain of debt is rarely easy. Being in debt is difficult, but owing money to several creditors at once can seem treacherous – especially if one of those creditors is the IRS. ![]()
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