Either way, if you or the business can't pay back the debt, a secured creditor can repossess or foreclose on the secured property, or order it to be sold, to satisfy the debt. An unsecured creditor is one to whom no collateral has been pledged and who hasn't filed a lien.
So here's what you can expect if you don't pay your debts:
- Your debt will go to a collection agency.
- Debt collectors will contact you.
- Your credit history and score will be affected.
- Your debt will probably haunt you for years.
- You'll pay off the debt or not, but life will go on.
If a debt defaults and no settlement is reached despite negotiations, the collections department may secure a lawyer's services that will send the final written notice of collection to the borrower. After all other means of collecting the debt have been exhausted, the law office may pursue a case against the borrower.
If you don't pay a collection agency, the agency will send the matter back to the original creditor unless the collection agency owns the debt. If the collection agency owns the debt, they may send the matter to another collection agency. Often, the collection agency or the original creditor will sue you.
In California, the statute of limitations for consumer debt is four years. This means a creditor can't prevail in court after four years have passed, making the debt essentially uncollectable.
Unpaid credit card debt will drop off an individual's credit report after 7 years, meaning late payments associated with the unpaid debt will no longer affect the person's credit score.
If your debt is legitimate, you must respond to the debt collector and create a plan for paying off the debt. This could mean paying in full, setting up a payment plan or negotiating the debt. If you don't repay or settle the debt, the debt collector can sue you.
Any time you fail to consolidate an outstanding loan, you may be blacklisted, and the effect of that is the rejection of your requests anytime you try to apply for a loan from any creditor.
Can a person be imprisoned by non-payment of debt? Put in simple words, no person can be compelled to pay debt by threatening the latter with the filing of criminal actions. Suits arising from non-payment of debts are only civil in character which cannot be a ground for criminal action.
When a loan defaults, it is sent to a debt collection agency whose job is to contact the borrower and receive the unpaid funds. Defaulting will drastically reduce your credit score, impact your ability to receive future credit, and can lead to the seizure of personal property.
A significant drop in your credit score (as much as 110 points from just one missed payment) Trouble securing credit in any form for years to come. Difficulty locking in a good interest rate even if you're able to secure credit in the future.
Once a debt is in collections, paying the original creditor may no longer be an option. You'll have to work out a payment with the collection agency. Collection agencies are typically assigned a debt for a few months. If they haven't gotten you to pay in that time, a new collection agency may take over the debt.
In most states, the debt itself does not expire or disappear until you pay it. Under the Fair Credit Reporting Act, debts can appear on your credit report generally for seven years and in a few cases, longer than that.
Come to your workplace
Under the FDCPA, it's illegal for a debt collector to come to your workplace to collect payment. The act prohibits publicizing your debts, and showing up at your job to collect your debt counts. This means that debt collectors cannot harass you in-person at your work.
Highlights: Most negative information generally stays on credit reports for 7 years. Bankruptcy stays on your Equifax credit report for 7 to 10 years, depending on the bankruptcy type. Closed accounts paid as agreed stay on your Equifax credit report for up to 10 years.
It has also used quasi-legal, legal action under Sec 138 of Negotiable Instruments Act. Both the sections quoted above provide for a jail term up to two years and a fine for up to twice the amount dishonoured.
Creditors cannot access money in your bank account unless a court order (also known as a 'garnishee order') is made to allow creditors to recover debt by taking money from your bank account or salary.
What can a debt collector do? Debt collection agencies don't have any special legal powers. They can't do anything different to the original creditor. Collection agencies will use letters and phone calls to contact you.
If someone owes you money and they refuse to pay you at the agreed time, you may take the matter to the Small Claims Court. If someone has bought goods such as furniture from you and they have failed to pay for it, you can take the matter to the Small Claims Court.
Making a payment on the debt will likely reset the statute of limitations — which is disastrous. If the collection agency can't show ownership of the debt. Frequently, the sale of a debt from a creditor to a collector is sloppy. A collection agency hounding you may not be able to show they actually own your debt.
When a loan is written off, the loan account still remains in the books of the lender as they hope to recover it at a later date. If the borrower has offered any collateral, it gets confiscated by the lender until the loan repayment is made. The collateral can also be auctioned off to recover the loan money.