“You can run, but you can’t hide” is never truer than when it comes to money, more specifically to owing money. You can get away with not paying your bills for a little bit, but eventually your creditors, lenders, the IRS, and every other person you owe will all catch up to you. The longer it takes, the worse the consequences can be.
Credit card delinquency
Credit card debt seems harmless. The creditor doesn’t have the right to come into your home and take your property. However, they do have the right to report your late payments to the credit bureaus. They can also pass your account to a debt collector who’ll undoubtedly be more aggressive in collecting the debt.
Your credit can sue you, regardless of the amount you one. If they win, they can ask the court for permission to garnish your wages, take your property, or deduct money directly from your checking account. Creditors have from 3 to 15 years to sue you, depending on your state's law.
You could lose your property
If you take out a loan to purchase a piece of property, like a house or a car, the bank puts a lien on that property. The lien is the bank’s legal right to claim the property if you default on the loan terms. So, for example, if you fall behind on your mortgage payment, the bank has the right to take possession of your house. The same thing applies to a vehicle – the bank can repossess the vehicle.
Once the bank seizes the asset, they can auction is off. And, depending on which state you live in, they can come after you for any debt that's left after the auction.
Owing the IRS
The Internal Revenue Service is arguably the worse entity to owe. Since they’re a government agency, they have a lot of power. Bail on your taxes and you could face tax evasion charges. Convicted, you face jail time and a fine on top of the taxes you owe. Less severe consequences include a tax lien, wage garnishment, or bank levy.
You may be able to get an installment agreement for your past due taxes. That would allow you to make monthly payments on your tax. If you can’t afford to pay all your tax, you can request a settlement using Offer in Compromise forms. Depending on the tax, you may even be able to have it dismissed in bankruptcy.
Your history of nonpaying will follow you…
Fall behind on any bill and your credit report will eventually show it. Serious credit report delinquencies can keep you from accomplishing some of life’s biggest goals. You may not be able to get a job, buy a house, rent an apartment, or buy a car if your credit report shows that you haven’t been responsible with your finances.
Most negative information can stay on your credit report for up to seven years, but some items can stay longer. For example, some tax liens can stay for more than seven years. Bankruptcy can remain on your credit report for 10 years. Also, lawsuit judgments can remain on your credit report until the statute of limitations runs out, if that time period is longer than seven years.
Turn the situation around
Many banks and business be lenient about your past credit mistakes if your most recent credit history is favorable. Take care of your past due balances then focus on rebuilding your credit by making timely payments on your new accounts.
Sources: Fair Credit Reporting Act, IRS.gov