I’m an author, economist, and law school graduate.
Steve, if a consumer has a choice to make between paying their housing, utilities, car payment and unexpected medical bills not covered by insurance, is it wrong as an attorney to tell them to cease making payments on their unsecured credit cards?
That’s a very interesting question and one that I’ve actually thought a lot about over the years.
There are all sorts of influences that could be injected here based on fear, religion, or other beliefs. At the end of the day however I feel the answer rests in reality, outside of those external influences.
The reality is that the unsecured debts come last in a situation where money needs to be spent first for food, shelter, utilities, etc. I think health insurance comes before your Home Depot card and the mortgage payment comes before American Express.
As I always tell people, if you lose your home because you made your credit card payments first, it’s awfully inconvenient to try to live under a credit card lean-to.
On another level we are faced with the issue of strategic default. Is it better for the consumer to walk away from their mortgage when the bank won’t modify it to make it affordable? Should the individual walk away even if that’s bad for the larger economy and the value of other homes in the neighborhood?
What is right on an individual level is not necessarily right on a macro level. The disparity does not make it wrong, just different.
Consumers that are facing bankruptcy are often instructed to stop paying their unsecured credit cards when they decide to file. In that situation since the bankruptcy will be filed shortly the last payments will most likely not make a significant dent in level of debt and retained, allow the consumer to start moving forward. The remaining debt will be discharged regardless if they are made or not.
In a long roundabout way I finally made it to your answer. Which is, as a purely academic question the consumer should pay all creditors equally based on their financial situation. But creditors don’t play by those rules. So here in the real world, telling someone to stop paying the unsecured debt while they implement a larger solution like bankruptcy is just reality and a commonly accepted practice.
Please update me on your progress by posting updates here in the comments section of your question. I’m very interested in how this works out for you.