The Consequences of Unpaid Debt
Every day, cubicles all over America are filled with debt collectors attempting to resolve unpaid balances. From day one, collectors are taught how to rebuttal any response or excuse thrown their way. Sometimes, your debt is out of your control. There are plenty of justifiable reasons to be late on payments, but there are people out there who simply refuse to pay their dues. Regardless, your debt collector is bound to warn you of all the consequences of unresolved debt. Some may be tolerable, some may affect your family for years.
Placed in Debt Collections
When you are placed in collections, you’re likely to be getting daily phone calls and frequent hate mail, both totally ignorable (to an extent). A simple move or change of phone number won’t slow agencies down, because they the resources and skills needed to locate you. No system is perfect, and if you go completely off the grid or never pick up the phone, eventually you won’t hear from them anymore. But that doesn’t mean you’re off the hook.
If your account continues to go unpaid, the collection agency will report to the credit bureaus. Depending on the type of debt you owe, your credit score could take a huge hit. If you default on any loan–especially a retail installment loan through a third party financer–you can kiss your pretty credit good-bye. Not paying back on loans is the best way to wreck your credit score. One missed payment could result in your score dropping as much as sixty points. In less than six months your credit will be almost unfixable.
Not paying back on loans will end up costing you way more than the interest you would have paid. If you never pay your dues, eventually you will have to file bankruptcy, which stays on your credit report for 7-10 years. Any future loans or credit cards (and possibly jobs) are completely out of the question. Once you do declare bankruptcy, certain steps must be followed to get the collectors to leave you alone, and your attorney will tell you this (which helps the collectors determine who is actually declaring bankruptcy). You must provide them with the information they need to verify that you are, in fact, declaring bankruptcy. Usually which chapter (7 or 13), an attorney name and phone number suffices. They will then remove you from the calling system and proceed to contact your attorney directly.
If it turns out you gave faulty information, you’ll be put right back in the system. If you answer the phone and say, “I’m declaring bankruptcy!” and then hang up, the agent is just going to call you again tomorrow, because legally they still can. If you provided all your attorney information to the agency and they still call you, then they are breaking the law. But most are pretty good careful about laws, for liability reasons.
If you meet certain requirements, you may be eligible for wage garnishments. This can get legally sticky. If you depend on welfare, social security, or any other similar type of benefits, your income will never get garnished. However, if you work full time for more than minimum wage and owe a substantial amount, there’s a good chance you’ll be forced into making payments. Wouldn’t you rather be in charge of your money and make payments on your own? It’s worth noting that child support will always trump debt, no matter what kind of debt. But you could still possibly get garnished depending on your take-home pay after your child support.
Income garnishment laws vary by state, but if you are entitled to a tax refund but owe an arm and a leg, you will never see that money for as long as it takes to clear your debt. Wages garnishes will not affect your credit score, however it’s public record that stays with you for seven years.
Debt is not something you should take lightly, even if it doesn’t seem a big deal right now. Unresolved payments makes financial freedom that much unattainable. Take the time to budget and save while you can, don’t overextend yourself, and you’ll be doing yourself a huge favor in the end.