Being in a position of not being able to pay your debts is no fun. You may be subject to ongoing collection efforts that make your life miserable. You may have trouble obtaining new credit because you have a terrible credit history and score. Then there is the normal guilt and shame that is baked into being behind on your bills. But what are the legal ramifications?
The law takes a very specific view of indebtedness. Likewise, state laws govern everything from what constitutes a legal debt to how creditors can go about collecting on it. Needless to say, indebtedness is not a simple matter under the law.
If you cannot pay your debts, consider the following legal ramifications:
1. Debts Can Go to Collection
A legally recognized debt is the result of a binding contract between parties. When you signed up for your cell phone service for example, you signed a contract promising to pay so much per month. Your signature legally binds you to those monthly payments.
The net result of this contractual arrangement is that the creditor can send your unpaid bills to collection. Most of the time, this means selling unpaid bills to collection agencies. A sale transfers ownership of what you owe to the debt collector.
2. Debts Can Also Go to Court
Creditors do not have to sell their debts to debt collectors. Instead, they can take debtors to court by way of civil lawsuits. If the amount you owe to any one creditor is sizable enough, you could be sued. In the event you lose, a judgment will be entered against you.
A judgment is a legal recognition of the debt and your obligation to pay it. It almost always includes the base amount you owe plus interest, the creditor’s legal fees, and any additional court costs.
3. Judgments Can Be Sold
Just as with other unpaid debts, judgments can be sold to collection agencies. Purchasing gives the collection agency legal ownership of the total amount of the judgment. Meanwhile, the collection agency has access to a number of tools to compel you to pay.
Selling judgments is not always the wisest course of action. So some creditors turn their judgments over to collection agencies on a contingency basis. Judgment Collectors, out of Salt Lake City, UT is an example of an agency that works on contingency.
Judgment Collectors does not get paid if they fail to collect. That means they have every reason to make sure they succeed. They will use every legal tool at their disposal to extract payment. If they come after you, you’ll know it.
4. Bankruptcy Is Not Always an Option
It is not uncommon to hear people say that bankruptcy is the way out of your debts. It may very well be, but bankruptcy is not always a viable option. Certain types of debts cannot be discharged in bankruptcy. Mortgages and outstanding alimony and child support payments are just a few examples.
5. You Could Lose Your Assets
Should a creditor forgo standard debt collection in favor of a civil lawsuit, a continued failure to pay on your part could mean you lose your assets. There are certain exempt assets the creditor couldn’t touch, but everything else is up for grabs.
The law certainly restricts how creditors can go about collecting on bad debts. Some eventually give up because they cannot stick with the rules and still get the job done. But there are professional collection agencies who use the rules to their advantage. They use the law to track down debtors and extract payment.
