What Happens If You Ignore Old Debts?

Key Takeaways
  • Lenders do not treat all delinquent accounts the same.
  • Creditors may collect the debt themselves, hire a debt collection agency, or sell your account.
  • Ignoring old debts could lead to poor credit and a default judgment.
  • You can sometimes negotiate a reduced payoff on delinquent debts.

Creditors have different responses to missed payments. Factors that impact what actions a creditor is likely to take include the following: The amount owed, your financial health, your state of residence, the presence of collateral, and the lender’s policies.

If your state limits collection remedies and you have a small balance, the lender may turn the account over to a collection agency but never take you to court. In other cases, you could end up with a default judgment, giving the lender the ability to garnish your wages, seize bank account balances, or put a lien on your home.

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Here is what could happen if you ignore old debts:

Receive Calls from the Lender: Companies typically use in-house collections to call and send letters demanding payment when you miss the first payment. If you secured the loan with collateral, the company could begin actions that will repossess your property to pay off the balance owed.

Debt Collection Agencies: After a loan default (missing multiple payments), lenders often hire debt collection agencies to collect the debt on the company’s behalf. The lender owns the account in this arrangement, and the collection agency receives a percentage of all monies collected. Agencies can call, send letters, and sue on the lender’s behalf.

Sell the debt: As the debt ages, it has less value to the lender. Lenders who choose not to sue can sell the account to a debt buyer. A sale typically occurs after six months or more of missed payments. Debt buyers pay significantly less than you owe.

Could Lead to a Judgment

The type of debt will determine the collection remedies available to the lender.

Accounts secured by an asset, such as your home or vehicle, give the lender the right to take your property if you fall behind on payments. Ignoring collection calls will lead to a repossession or foreclosure. If selling the asset does not fully repay the debt, the lender can sue to collect the balance through a deficiency judgment.

Unsecured debts (credit cards, personal loans, or medical bills) provide fewer ways to collect on delinquent accounts. The creditor will initially call and send letters. Ignoring these efforts increases the likelihood that a creditor will sue. Legal action can lead to a judgment, which can force payment through wage garnishments, account levies, and property liens, essentially securing the debt.

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How Ignoring Debts Affects Your Credit

An account becomes delinquent when you miss a payment, and a missed payment negatively impacts your credit. Collection efforts come as a result of delinquency.

Multiple missed payments will initially drop your credit score significantly. Continuing to ignore delinquent accounts will continue to hurt your score for up to seven years.

Even if it is less than the total amount owed, paying off old debts could improve your credit.

How to Deal with Past Due Debts

The optimal response to past due debts depends on the account type, delinquency level, amount owed, and the creditor involved.

Secured debts must take priority because of the lender’s ability to repossess your property. Lenders will often grant a forbearance, work out payment arrangements, or modify the loan, allowing you to keep your asset while catching up on the loan.

Unsecured debts require a different approach. Lenders have fewer means to collect. Therefore they are more likely to sue as a means to force you to pay. It could also give you more leverage to negotiate a lower payoff.

Avoiding collection calls often leads to a judgment, which could allow the creditor to garnish your wages, take the money in your checking account, or place a lien on your property to force you to repay the debt.

  • What happens if I ignore old debt?

    You could face legal action, wage garnishments, property liens, and account levies. In some cases, if you owe a small amount, the creditor may choose not to pursue payment after a certain amount of time passes.

  • How long can creditors collect old debts?

    Creditors face a time limit to bring legal action, but there is no limit on how long a creditor can pursue payment of a debt. As long as the debt collector follows the law, they can communicate with you regarding old debts indefinitely. You have the right to initiate a “Do Not Contact,”which limits a creditor’s ability to contact you.

  • Can creditors collect a debt after seven years?

    The seven-year mark relates to reporting adverse events on your credit file, not a creditor’s ability to communicate with you regarding an old debt. There is no deadline on how long a creditor may contact you regarding past due accounts. However, state laws restrict the time a creditor has to sue.