Thursday, July 7, 2022
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Why Consumers Pay The Wrong Creditor


Credit cards vanquish tax collector

In the tug o war of which creditor to pay, why is it that credit cards win over taxes and child support?

I’m accustomed to clients who pay creditors rather than provide for their own health care, emergency fund, or retirement. That’s taking care of commitments to others before self.

But I haven’t figured out why embattled debtors choose to pay the credit card collectors instead of child support and taxes. Yet that was just what this week’s client had done: $10,000 in taxes and $24,000 in support for a child went unpaid, while he chipped away at credit card debt.

To a bankruptcy lawyer, this is insane, since both family support and recent income taxes are priority claims, not dischargeable in bankruptcy.

To an outsider, it’s still insane, since the IRS can simply take all the money in your bank account, without suing you first. And your child is dependent and yours, not to mention that failure to pay child support is the one debt that can get you jailed.

Those are the creditors to fear.

I have two theories of why people choose to pay credit cards instead of taxes or support.

  1. Terror of the Telephone: the credit card companies call, and call, and call if you don’t pay. They invade your personal space at home, and they confront you with your financial shortcomings incessantly. It’s hard on the nerves and the ego.
  2. Credit Report Obsession: fixated on credit reports and credit scores, clients focus on the immediate “damage” that credit card delinquencies can inflict, and set aside the more lasting damage that tax liens and wage intercepts can cause if you ignore the feds and the child support authorities.

Credit card companies can’t take your money without suing you first, so they have to use fear and shame to get you to distort priorities and pay them first.

We need to get that word out.

Who to pay when you can’t pay everyone

Debts that don’t go away in bankruptcy

Image licensed under Creative Commons, courtesy of Javier Kohen.

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