Every day more and more people are being overwhelmed by their debts as are result of income reduction, job loss, or the raising of interest rates by credit card companies. There is a lot of myths out there as to what creditors can do to people unable or unwilling to pay their bills anymore.
First it is key to understand that not paying your bills is not a crime. Defaulting on your debts in of itself does not lead to jail. If it was a crime then there would be millions more Americans behind bars.
So what can creditors do to you?
Creditors can damage your credit. They can reports lates to the credit bureaus every 30 days which will drop your credit scores. They can also sell or lease the debts to collection agencies which report the debt to your credit and again lead to a drop in scores.
Creditors can and will call. The Fair Debt Collection Practices Act regulates against creditor harassment by phone but does not explicitly say how many calls per day constitutes harassment. These calls are effectively sales calls, calls made to get you to send in money. Again, you have the right to not accept these sales calls and it is no crime to screen your calls. Any information they get from you helps them to decide if they should pursue a lawsuit against you.
Creditors can sue you. This is perhaps the scariest thing that creditors can do. Be sure check your state’s statute of limitations on how long creditors have to do so. First you will see the debt being transferred to a law firm that is in your state. Then you will be issued a summons with a court date. If a creditor successfully gets a judgement against you your credit will be further affected and the debt will take on a “second life” beyond the statute of limitations.
Creditor legal action has many possible outcomes. The creditor can obtain a lien on your house if you are a homeowner. Note they don’t take your house, you would simply now owe more on your home and if you sell it or refinance it you would need to pay off this new lien. The creditor can also get a garnishment against you in most states. This will cause funds to be deducted from your paycheck to pay off the debt. Check the limits on the amount that can be garnished from your pay in your state. It is not likely that the judge will allow a garnishment to be more than you can afford, which might not be very much if you are in real hardship. Also, once one creditor has garnished you up to the limit then no other creditors can do so until that debt is paid off- they must “get in line”. Often times the creditor is willing to work out a payment contract with you rather than pursue these options as they are aware that house values and even jobs are not any guarantee of funds to them as the house may never sell and the job can be lost.
As can be seen, creditors do have options to take but none of them is a life wrecker. Certainly creditors can negatively affect your life and can be a great nuisance. You should of course make every attempt to pay or settle your debts but noone should let their debts nor the fear of their creditors ruin their lives.
