While debt collectors cannot have you arrested for not paying your credit card debt, creditors can still use the legal system to make sure they get their money back. The most common legal recourse is to sue you for payment. If you get sued for unpaid credit card debt, don't ignore the lawsuit.
Some countries have conditions under which debtors can be incarcerated, but this is not the case under Australian law. So you can relax about this point if you live in Australia, you live under a reasonably civilised legal system. However, that doesn't mean that you are off the hook in regards to paying off your debt.
Myth #2: Debt is a crime
Debt is always a civil matter. It's between you and the person you owe money to. If you can't pay your loan back, you don't get a criminal record and you don't go to prison, and that's the bottom line.
If you don't pay your credit card bill, you will have to pay late fees, increased interest charges and it can cause damage to your credit score. If you continue to miss payments, your card can be frozen, your debt could be sold to a collection agency and the collector of your debt could also sue you.
The people you owe money to (your creditors) have a right to get it back. But it's not okay to harass or bully you. If you receive a notice about being taken to court, get free legal advice straight away. If you ignore it, you risk your goods being repossessed and sold.
Six Year Limitation Period
For most debts, a creditor must begin court action to recover the debt within six years of the date you: Last made a payment. Admitted in writing that you owe the money.
In case you are wondering what the 11 word phrase to stop debt collectors is supposed to be its “Please cease and desist all calls and contact with me immediately.”
If you missed a credit card payment by one day, it's not the end of the world. Credit card issuers don't report payments that are less than 30 days late to the credit bureaus. If your payment is 30 or more days late, then the penalties can add up.
After you've failed to make a payment on your credit card for 180 days, your issuer assumes you're probably never going to. At this point, the issuer can (and usually does) close your account, write off what you owe as bad debt and sell your account to a collections agency.
If you fail to make repayments over a period of time the bank could cancel your credit card. In rare circumstances, your bank may sell your credit card debt to a debt collector. Debt collectors also have legal obligations to consider any hardship request you make in relation to paying this debt off.
A default will stay on your credit file for six years from the date of default, regardless of whether you pay off the debt. But the good news is that once your default is removed, the lender won't be able to re-register it, even if you still owe them money.
Credit card fraud is a common form of identity theft, where someone gains access to physical credit cards, valid credit card numbers, and credit card account information and uses this information to make unauthorized purchases, withdrawals, or payments without the knowledge or permission of the cardholder.
There are laws about what someone can and can't do to recover a debt. They can't: send you to prison.
If you don't pay your court fines on time, or make an agreement to pay regular amounts over time, your driver's licence may be suspended by the Fines Enforcement Registry. In serious cases, you could end up having to spend time in prison as a result of unpaid fines.
If you get a summons notifying you that a debt collector is suing you, don't ignore it. If you do, the collector may be able to get a default judgment against you (that is, the court enters judgment in the collector's favor because you didn't respond to defend yourself) and garnish your wages and bank account.
Credit cards are another example of a type of debt that generally doesn't have forgiveness options. Credit card debt forgiveness is unlikely as credit card issuers tend to expect you to repay the money you borrow, and if you don't repay that money, your debt can end up in collections.
If you stop paying on your credit card debt and become seriously delinquent, the credit card company will likely write off the debt and consider it uncollectible. At that point, the company takes your debt off its books. However, this write-off offers no benefit to you because a write-off is not debt forgiveness.
Typical debt settlement offers range from 10% to 50% of the amount you owe. Creditors are under no obligation to accept an offer and reduce your debt, even if you are working with a reputable debt settlement company.
Credit card forbearance programs can let you skip payments, waive late fees or lower interest rates, but you'll definitely want to consider the benefits and drawbacks before opting in.
This is usually fine when there's no balance to pay off, but after a long period of inactivity a card issuer may close a credit card account. The exact length of time varies among issuers. Contact your card issuer to find out when they will deactivate your account if it isn't being used.
Your card expiring does not close your account, so it does not harm your credit rating or credit score in any way. Your balance does not go away. If you hoped your credit card expiration date would get you out of paying, you hoped wrong. Even if your account closes, you still have to pay off that balance.
A debt trap means the inability to repay credit amount. It is a situation where the debtor could not be able to repay the credit amount.
The debt trap is a situation where you are forced to over consume loans to repay your existing debts. Over time, you get stuck in a situation where the debt spirals out of control, exceeding your repayment capacity, making you fall into a debt trap.
A debt trap is when you spend more than you earn and borrow against your credit to facilitate that spending. While this can certainly be caused by unnecessary spending, having inadequate savings to handle unforeseen costs can also result in a debt trap.