What Do Credit Card Companies Do When You Stop Paying?
Credit cards can be great if you're in financial trouble and need a helping hand, but when people can't pay them off, they become even bigger financial problems themselves. Due to the recent recession that affected millions of people, hundreds of thousands of them have defaulted on their credit card balances because they were unable to pay them off. Because of this, many credit card holders have had their credit scores ruined, been sued, or have had to turn to a life in hiding to avoid paying off their debts. I've personally dealt with all of these scenarios, so if you're having problems with credit card companies yourself, I'll cover all the various situations you might find yourself in now and the steps these companies will most likely take if you default and fail to continue paying them.
The first thing most credit card corporations will do is send you a letter asking you to pay whatever monthly balance you owe. After this, if you don't respond to their letter, they may send you another letter and another, hoping you respond. They may even call your house 3 times a day, and in some rare cases, hound your relatives or friends by calling them and asking about ways to contact you. By this time, if they've been unable to contact you, they've most likely reported you to the Credit Bureau and your credit score has taken a hit, so now it may be hard for you to get future loans or credit cards.
To get them to stop contacting you or anyone you know, you can send them a certified Cease and Desist letter, preferably with signature or delivery confirmation to make sure they received it. However, in many states there is what's known as a statute of limitations. This is a certain time period that credit card companies have to sue you or take legal action. For example, in some states the statute of limitations may be 5 years for written contracts and 3 years for oral contracts. So since you signed a contract with the credit card company when you applied for your card, it's considered a written contract and they have 5 years to take legal action against you (assuming you're in a state where it's 5 years. Some states are more and some are less). Now if there is any communication between you and them between that period, or if they do take some type of action, the clock starts over again and they have another 5 more years at that point. So if you send them any type of letter, including a Cease and Desist letter, that will start the clock all over again.
Now, let's say you move out of state and they can't find you or let's say you simply ignore them and rip up their bills and don't answer their calls, what happens now? Well after this, what will most likely happen is they will attempt to find you and if the amount you owe is a large amount, they may threaten legal action if you don't pay, they may offer to reduce what you owe, or the most likely scenario is they will try to sue you. If you a sum that's under $500, it's not likely that they will sue you, and they may just give up and move on to bigger fish, which is what happened with a friend of mine who moved out of state and who they couldn't find. But let's say you owe a quite considerable amount, such as $5,000. If their next step is to sue you, they will send someone with a subpoena to your home (and in rare cases, your place of business). Once you sign this subpoena, you must show up for court to either argue your case, or accept responsibility and listen while a judge will order you to pay you debt, either in monthly payments or by garnishing the wages from your job (if you live in a state that allows wage garnishment. Not all states do).
Also, before or during the court procedures, they will also most likely look for assets you may own and try to go after them. They may put a lien on your home or freeze your bank account, if the judge allows it, but this is only common in people who very large amounts. I've heard stories of them also being able to deduct the amount you owe from your bank account, even if you do not have any funds in there. So this way, your bank covers the charge and adds on an overdraft fee and you now owe the bank. But this is extremely rare and I've only heard it happening to a few people. Because of the fear of this happening, many people end up closing their bank accounts and learn to use check cashing stores instead. Many people file for bankruptcy to avoid all of these problems, but that in itself can cause problems for you late down the road so if you're considering it, you should really weigh your options and think about the future consequences you may face.
Even if you receive a subpoena, sometimes they will allow you to negotiate things outside of court, so you don't actually have to go to court. In this case, they may offer you a refinancing option, which allows you to pay less every month but owe more over the long run. But other times they will want you to pay the balance in full or will continue with the lawsuit.
If the credit card company doesn't sue you themselves, then they may sell your account to a collections agency, which is very common, and then this agency will attempt to do all the things the credit company would have done, such as sending bills, threatening legal action, trying to work with you by reducing your bill, or actually suing you themselves. Collections agencies are notorious for being very aggressive, and I've had one try to work with me and offered a reduction on my bill if I could pay it in full, but many were non-negotiable and out for blood. They threatened legal action, hounded me, etc. So sometimes it's better to deal with the people who gave you your credit card before they pass you off to the collections groups.
Well, I hope I helped to explain some of the things you may encounter when dealing with credit card companies. Just remember, it's not the end of the world and there are literally millions of people that have also had to face (or hide from) hostile credit companies and the various tactics they use to get people to pay up. If you're still unsure on how to proceed, you should try to talk to a reputable and established credit counseling agency, as many of them are good at negotiating things for you and guiding you through any legal scenarios you may encounter. If you owe an amount larger than $20,000, it may even be best to speak to an attorney, possibly even a bankruptcy lawyer.
comments powered by Disqus