Nobody likes to be in trouble. And certainly nobody likes to be in trouble when the legal system is involved. That’s why it’s important to know the best ways to manage your bank account and bills to avoid falling into legal trouble. Unfortunately, some people find out too late that there are money
mistakes that lead to legal woes.
Stop Paying Student Loans
Bills are piling up and the student loans that were deferred while you were in school are now coming due. The only problem is you don’t have funds to cover the payments. If you are proactive you can contact the lender for a private student loan or the handler for a government-backed student loan to discuss your options.
You might be able to reduce your student loan payments based on your income or adjust the payment enough to make it more manageable on a part-time income. But the problem comes if you stop paying the loans all together. For the first nine months or so you’ll get phone calls and letters about your payments, asking you to go ahead and send the money you’ve been neglecting to send.
But once you are deep into default, the government steps in. The Department of Education will contact you through a private collection agency to let you know that time is up and that they will be accessing
your bank account directly.
You have a thirty day notice and then the Department of Education will begin to garnish your wages – taking funds directly out of your payment through your employer – to repay your debt. The garnishment will continue until you have repaid your loans or until you set up a hearing to sort out the issue and demonstrate that you will repay the loans yourself. How much will the government take? They can legally take up to 15 percent of your income as repayment – quite a bit more than you would have paid monthly.
Unable to Pay Other Loans
Much like student loans above, when you can’t pay your loans on time, you could get calls from debt collectors, and even wage garnishment. This applies to home and car loans, which can involve repossession, along with other short term loans that you may have. It’s also safe to say that the inability to repay your loan can impact your credit score. Others like payday loans could also be a problem as well.
Fail to Pay Child Support
Parenting is hard work, and it’s even harder work if you fail to pay your child support payments. Children are expensive and court-ordered child support is designed to share the cost of raising a child between parents who are not married or in a relationship. The court should establish a payment that is fair to both parties, usually a percentage of the parent’s income between 20 and 40 percent.
If the paying parent falls significantly behind on child support payments, the court will step in on the child and custodial parent’s behalf. The court will be contacted by the government agency in your state responsible for monitoring child support. The court will then send a letter to your employer alerting them that you are behind on child support payments. It can be embarrassing to have your employer involved in your personal affairs. Many find it easier to simply pursue a short-term loan to get caught up rather than risk the office finding out about missing payments.
Once contacted, your company then has a legal responsibility to withhold payment from your check through wage garnishment until the backlog of child support payments has been cleared. If you are behind in child support payments, the court can demand between 50 and 60 percent of your take-home pay to be garnished for your overdue payments.
Forget to File Your Taxes
If you owe taxes, it’s only natural to push the filing and required payment until the end of the tax season. Some people even file extensions to push the date even farther, although that does not actually push the payment date out. Money is still due on the tax deadline.
While delaying your payment until April 15 is perfectly fine and legally within your rights, delaying it past the due date can create significant legal problems. If you wind up filing within a month or two after the due date, you might wind up owing some additional fees and interest penalties for the late payment, but it’s unlikely that you will face much more legal action.
When your money management creates a crisis and you can’t pay (or won’t pay) far past the original deadline, you are looking at a real legal problem. Remember, the only things certain in life are death and taxes, and taxes happen every year.
If you don’t file your taxes and tell the IRS how much you owe in taxes every year, it will estimate the amount owed on your behalf. It will then begin to charge fees and interest making that estimated tax bill grow larger and larger by the day. If you don’t clear that debt, the IRS can and will garnish your wages and future tax returns.
IRS garnishment is more severe than garnishment for child support or student loans. The IRS provides a 30 day notice. Then, once the garnishment begins, the IRS is required to leave a particular amount in your check ranging from $450 to $1250 depending on tax exemptions. It takes every thing else. If you really have dug yourself in a deep hole with back taxes and refusal to pay, the IRS won’t stop at garnishment. You may even wind up serving time in prison. It was the IRS, after all, who took down Al Capone, one of the most notorious gang members of the 1920s. He was sent to jail not for murder or racketeering, but for tax evasion.