Credit card debt is easy to accumulate but often seems impossible to eliminate as interest accrues and the balances grow. Depending on how much you owe and your financial situation, getting rid of it can be as grueling as running a marathon.
If you’ve reached the point where you can no longer afford to make at least the minimum payments, you may wonder what consequences could await. More importantly, is jail a possibility?
In short, no, but failing to repay what’s owed could mean severe consequences for your credit and overall financial health.
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What Happens When You Don’t Pay Your Credit Card?
Before diving into what you can expect when you default on credit card accounts, it’s worth understanding how the balances grow and your legal obligations as a debtor.
How Credit Card Debt Accumulates
Credit card debt begins the moment you swipe your card, and only paying the minimum each month can easily lead to the balances spiraling out of control. If the account becomes delinquent, late payment fees and penalty APRs can also grow the balances even more.
The Legal Obligations of Credit Card Debtors
If you miss too many credit card payments, the credit card issuer may charge off the account. This means they write it off as a bad debt, and your credit score will likely take a significant hit. You can also face other financial consequences that can be costly for years. More on this shortly.
The Consequences of Not Paying Credit Card Debt
Below is a closer look at what happens when you fail to pay credit card debt.
Late Fees and Interest Accumulation
Paying after the payment processing cutoff time on the due date or any day after that will likely result in late fees. Depending on the credit card company, you could also receive a penalty APR of up to 29.99% for the next six months or possibly longer.
Credit Score Impact
Once an account reaches 30 or more days delinquent, it is generally reported to the credit bureaus as such. A single late payment can tank your credit score by as much as 100 points. The higher your credit score before the late payment is reported, the more significant the impact in most cases. And if the account reaches 60 or 90 days past due, the effect could be even more significant.
Collection Agencies and Legal Actions
Again, credit card accounts that are closed and charged off due to non-payment may be transferred to collection agencies. Their job is to collect what’s owed, and they will act aggressively to do so.
Remember that collection agencies must adhere to the guidelines outlined in the Fair Debt Collection Practices Act (FDCPA). They can’t threaten you with jail time or harass you to collect what’s owed.
Remember that debt collectors have the right to sue you in court, and if you lose, the court can order wage garnishment or bank account levies to recover what’s owed.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Can You Go to Jail for Not Paying Credit Cards?
Fortunately, you won’t go to jail in the U.S. for not paying credit card debt.
The Difference Between Civil and Criminal Offenses
It’s vital to understand how civil and criminal offenses differ, as the latter can land you in jail.
Unpaid credit cards fall into the “civil debt” category and are not punishable by jail time. However, criminal offenses related to financial affairs, like tax evasion, could land you in jail.
It’s important to know that ignoring judgments against you could result in serious legal consequences, including jail time.
How Debtors’ Prisons Were Abolished
Debtors’ prisons were commonplace in the 19th century. However, they are now a thing of the past, as new laws have since been established to deal with those who fail to repay their debts in a timely manner.
Legal Protection and Consumer Rights
As previously mentioned, the FDCPA shields consumers from abusive practices employed by collection agencies attempting to collect from you. If a debt collector threatens you with jail time, they are breaking the law and can face penalties.
In this case, you can file a report with the Consumer Financial Protection Bureau (CFPB).
Circumstances That May Lead to Legal Trouble
If the creditor sues and gets a judgment against you, ignoring it isn’t an option unless you want to face legal trouble.
Court Judgments and Wage Garnishment
Court judgments allow creditors to garnish your wages to get paid in some instances. This means a portion of your paycheck will automatically be deducted to satisfy your outstanding debt. This amount cannot exceed 25% of your disposable earnings in most states.
Asset Seizure and Liens
A court judgment can also lead to asset seizure or property liens. Creditors can request that the court allow them to seize non-exempt assets, such as funds in a bank account. A lien is a legal claim on your property that prevents you from selling it without paying off the debt first.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Contempt of Court for Ignoring Legal Summons
You could be held in contempt of court if you ignore court orders and fail to appear before a judge. Doing so also means you could incur fines or face jail time. The latter is not for failing to repay what you owe but for failing to comply with court orders. So, responding promptly when you receive a summons is vital to avoid legal troubles.
Avoiding Trouble Over Credit Card Debt
Here are some ways to minimize the impact of overwhelming credit card debt you cannot pay.
Communicating with Credit Card Issuers
Reach out to your creditors promptly at the first sign of financial difficulty. They may be willing to work out a payment arrangement with you that could entail lower payments, interest rates or deferred payments.
Working with Credit Counseling Services
Credit counseling services are often provided by non-profit organizations free of charge. A certified credit counselor will review your finances and devise a plan of action to help make your monthly debt payments more manageable. They may also recommend a structured debt management plan (DMP).
Seeking for Debt Relief
Debt settlement is sometimes used to get much-needed relief. It’s offered by for-profit companies that negotiate settlement offers with creditors on your behalf. This method could damage your credit score but can help you avoid lawsuits and bankruptcy if the debt settlement company successfully reaches settlement offers.
Filing for Bankruptcy: Last Resort?
Bankruptcy can give you a fresh start but should only be used as a last resort. Filing will significantly damage your credit score and make it challenging to access credit products in the future. You may also have limited access to housing options, employment opportunities (specifically in the financial services industry) and affordable car insurance in states that consider credit scores when setting premiums.
If you’re considering this option, contact a bankruptcy attorney to determine if it’s the best option for you or if other alternatives are worth exploring.
America’s Leader in Credit Card Debt Relief and Debt Consolidation since 2002. Over 850,000 Clients and $18 Billion in Debt Resolved.
Reduce Unsecured Debts Such As Credit Cards, Loans, or Bills. Regain Control of Your Finances. Talk with a Certified Debt Specialist.
Debt Consolidation Loan Options. Talk to a Certified Debt Counselor to Help You Achieve Financial Freedom Faster. Apply for a Quote.
Conclusion: Seeking Help Early for Credit Card Debt to Avoid Escalation
If you’re having trouble repaying your credit card debt, being proactive is in your best interest. Ignoring the balances won’t make them go away and could do more harm than good to your credit and overall financial health.
