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What Happens If You Don't Pay Your Debts?

Credit card debt is common in the United States

Mounting debt is a burden that can take years or even decades to resolve. It is a crisis seen worldwide, with almost 40% of Americans considering debt payments as their biggest expense. With shorter payback times, greater financial restrictions, and a serious decline in a person’s quality of life, debt plays a massive role in the daily lives of millions.

With many Americans living paycheck to paycheck during these trying times of unemployment and inflation, you may be unable to make your next debt payment in time. Here’s all you need to know about what happens if you don’t pay your debts.

A Step-By-Step-Guide

American Debt
Being unable to pay off a huge debt can be one of the most terrifying experiences in life. Almost half of Americans have experienced a reduction in their income due to the economic downturn. This can lead to a situation where they can’t pay their bills.
If you’re experiencing financial stress, it’s important to remember that the outcome of your situation is not as bad as you may think, especially with a myriad of solutions at your disposal to get rid of your debt in a manner that is both convenient and flexible. Here’s a step-by-step guide to what you can expect when

A Debt Collection Agency Will Take Up Your Debt

According to federal law, a collection agency can take over a debt if it’s more than 31 days past due. However, some creditors may try to collect on their own for up to 180 days. It’s important to remember that it usually takes about 60 days for a debt to be sent to a collection agency.
The first thing that’s obvious about a debt collection agency is that they’re hired by a company that’s owed money. If you pay the debt, the money will go back to the company that’s owned it.
Sometimes, debt collectors will sell the debt they bought to another company that they think has a better chance of collecting.

Debt Collectors Will Contact You

The debt collector will then contact you to try and get you to pay the debt. If you’re able to negotiate with them, then your debt problem will quickly go away. Different types of debt can have different consequences. For instance, if you have a mortgage that’s past due, it can cause your house to be foreclosed on.
If your car is also taken away, it can result in another indignity. Since the value of the vehicle is less than the amount that’s owed, it can still end up in collections.

How This Affects Your Credit Score

According to Lucey, medical debt is handled differently from other types of debt. First, it must be paid off within 180 days before it can be included in a consumer’s credit report. This is unlike other types of debt, which usually remain on a consumer’s credit report for several years.
Your credit score may go down after one missed payment. Generally, if your credit score was already low, one missed payment can make it bounce back up by a hundred points.

It May Take Years To Clear Up Your Debts

Between paying off your initial loans, the interest accrues, and the Keep in mind that there’s a big difference between a debt that’s unpaid and a debt that’s worth thousands of dollars. An unpaid debt of $70 might not cause much distress or hurt you.

Should You Be Worried?

dollar bills spread out
At some point, you will pay off the debts and find debt relief. Unfortunately, there are limitations on how long you can keep paying off credit card debts. Even though it’s frightening to be on the hook for money that’s owed, things will eventually get resolved. Most of the time, though, it’s not like you’re going to jail.
New York City attorney Simon Goldenberg offers three different scenarios. He said that these are the types of things that can happen depending on the amount of money that’s owed. The best-case scenario is that the debt falls off a consumer’s credit report after it becomes time-barred.
Goldenberg said that this is the middle-ground scenario, where the consumer settles their debts by paying them off at a reduced amount. This method avoids going through potential lawsuits.
If the middle ground doesn’t work for you, then you might want to consider negotiating with the debt collectors or going through with a bankruptcy or debt relief plan. Credit counseling organizations can help people manage their debts.
The worst-case scenario is that a lawsuit is filed against the consumer. The court then awards the creditor a judgment, which can be used to collect various types of expenses, such as wage garnishment.
It’s also important to remember that these types of scenarios tend to happen to people who avoid calling the creditors and dealing with their financial issues.

Initial Stages

If you stop making monthly payments on your debts, your creditors may charge you a fee and report those instances to your credit report. Your interest rate will increase after you start to default on your payments. This makes it harder to pay off your debts as time passes.
Usually, in-house collection departments will contact you to ask for payment information. If you don’t want to deal with them, your account may be sold to a collection agency. If you have a bank account that’s tied to a certain amount, the bank may take funds from it without notice to you.

Legal Action

Your creditor may also take money from your wages, with additional penalties and interest tacked on. Your creditor might be allowed to place a lien on your home or even outrightly take an asset such as a vehicle. Additionally, if you fail to appear at a court hearing, your creditors may issue an arrest warrant.

Being sued for unpaid debts is among the most frightening things our clients fear. In most cases, legal action against you will take a long time to complete. Getting the advice of a licensed debt relief company can be very helpful. They can help stop the court proceedings from happening.

If you’re dealing with a government agency, be aware that they can easily pursue aggressive collection methods without court approval. You may not have received any notice about the garnishment or bank account freeze that the government has put in place. Usually, the only way to stop the collection is to file a consumer proposal or bankruptcy.
debt collector calculating pending debts

What To Do If You Can't Pay Off Your Debts

If you suddenly lose your job or can no longer pay your debts, there are some simple steps that you can immediately implement to improve your situation.
Even if you can’t make your monthly payments, be aware of what’s happening with your accounts. Ignoring the issue and not opening your statements and mail is not ideal to avoid getting caught off-guard by creditors. This can also help you avoid getting overwhelmed with debts. There are also various options available to you if you feel like taking on more debt.

In America, only a few professional debt counselors are authorized to help people manage their debts. If you’re looking for the ideal debt resolution service provider, American Debt Enders provides Americans with all the tools they need and learn how to prevent bankruptcy due to debt.

From debt counseling services to unsecured debt invalidation, we work to ensure that your debts are paid off in a way that doesn’t cripple you financially. Call us at +1-877-766-2465 to discuss your options and see how American Debt Enders can help you.

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