What Will Happen if I Fail to Pay My Debts?

Any consumer in the Oak Park area who is considering personal bankruptcy likely has wondered what will happen if he or she simply fails to pay his or her debts. In other words, if you have a significant amount of outstanding unsecured debt (like credit card debt or medical bills), can you simply stop paying, while also making the decision to stop answering your phone when debt collectors call? What will happen if you simply stop making payments on unsecured debt (such as your automobile)?
Weighing the Benefits and Harms of Consumer Bankruptcy
According to a recent article in U.S. News & World Report, many consumers consider whether the benefits of avoiding bankruptcy can outweigh the harms of simply avoiding their debts. In short, Chapter 7 bankruptcy or Chapter 13 bankruptcy often are better options than most consumers believe, and they can give individuals with a significant amount of debt the opportunity to get a fresh start. Indeed, the problems associated with filing for bankruptcy often are not nearly as bad as consumers suspect, especially when it comes to the amount of time it takes to rebuild credit or to get approved for a loan.
Failing to pay your debts, however, can have serious consequences. The article provides an important timeline of the steps that typically occur when you fail to pay a debt, and we want to discuss them to underscore how bankruptcy often can benefit consumers in ways that they did not initially imagine.
Process of Debt Collection for Unpaid Debts
What happens when you do not pay your debts? The following is a typical timeline.
  • The creditor will send your debt to a debt collection company. Typically, once you have failed to make a payment for 60 days, the creditor will hire a debt collector to attempt to get the money you owe.
  • The debt collector will begin contacting you. The debt collection company will begin making phone calls to you at home and sometimes at your place of employment. Keep in mind that you do have rights under the Fair Debt Collection Practices Act (FDCPA) with regard to when and where a debt collector is permitted to contact you. Then, if you do not pay the debt collection company, usually after 180 days the debt will be “charged off,” which indicates that the debtor is unlikely to pay.
  • The debt collection company might try to settle the debt, or it may file a lawsuit. Depending on a number of different factors, including the type of debt and the amount you owe, the debt collection company either may try to get you to settle the debt for an amount that is less than you owe, or it may file a claim against you in civil court. In some circumstances, if the debt is not big enough, the debt collection company may not do either of these things and simply may “take the financial loss and just move on.” But this does not mean the debtor is in the clear.
  • Debt will stay on your credit report for seven years. In most situations, charged-off debt will remain on your credit report for many years. In addition, you are likely to see a drop in your credit score. Even once the statute of limitations has run and the creditor and collection agency are barred from filing a lawsuit to recoup the money, you may be unable to obtain credit with charged-off debt on your credit report.
Keep in mind, these steps largely apply to unsecured debt. If you have secured debt and fail to pay, the item—like your car—usually will be repossessed.
Contact an Oak Park Bankruptcy Lawyer
Do you have questions about dealing with your debt? An Oak Park bankruptcy attorney can help. Contact the Emerson Law Firm to speak with a consumer protection advocate today.
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