Before mentioning and explaining the effects of the credit default, it is necessary to overview what it means to default on a credit.
Credit Default: being in default means that you have failed to make payments on your principal or interest or security when it is due. You just have failed to pay on the due credit, as you have agreed with your creditors. After certain time you have stopped making payments your creditor assumes you are probably never going to pay.
If the creditor considers you are not going to pay, usually your creditor writes off the amount you owe as bad debt, and sell your account to a collection agency. It may not always happen this way, it will always depend on the creditor’s decision.
If the debt is sold to a collector, at this point your debt belongs to a collection company, you will start receiving collections letters on the mail and/or sometimes also collection phone calls. You have the option to request your collectors to stop calling you based on what the law states; however, you still owe the balance, and if you do not address the situation, here are some of the serious consequences:
- The creditor can sue you, to get paid in full the due balance, the late fees, and of course, the attorney’s fees,
- Once the creditor obtains a judgement, your bank account, and your wages can be garnished; and your vehicles and other assets can be reposed.
- Your credit score is completely ruined.
Both Chapter 7 and Chapter 13 bankruptcy can stop all collection and litigation efforts against you. It stops the charging of interest and attorney fees and allows you to eliminate most or all of this debt obligation. Most people after bankruptcy can rebuild their credit faster than allowing the debts to languish without payment.
Make it a priority to pay off your debt if you can afford it, after the last payment is clear, obtain a written confirmation from your collector that states you have paid. if you cannot afford to pay in full, if it is possible, look for some type of settlement for a less amount, always making sure you get an agreement in writing before making the first payment of the new settlement. If you do not find another way out, declare bankruptcy. Contact a Mendez Law Offices bankruptcy attorney before you move forward with any decision.