What Are the Causes of Action for Debt Owed?

Many ramifications, or causes of action, stem from unpaid debt, ranging from poor credit scores to garnishment of a debtor's bank account or wages. Creditors and debt collectors take punitive action, such as foreclosure or repossession, only if the debtor fails to pay on an account as agreed. That makes it possible for some people to carry excessive debt for years as long as they can make at least the minimum monthly payment. Serious problems begin when the debtor starts missing payments.

Credit Scores

Credit scores indicate if a person has good or bad credit and are usually a part of the credit approval process. Late payments and other negative information placed on credit reports can have a major impact on credit scores. Credit scores range from 350 to 850, with scores of 720 or higher considered excellent. Scores below 620 usually indicate poor credit. It is possible to drop from excellent credit to poor credit within just a few months following say, a series of missed credit card payments and subsequent default on credit cards.

Lawsuits

People who default on loans risk legal action. Creditors and debt collectors can file civil lawsuits to collect unpaid debts. Lawsuits are serious matters and can lead to monetary judgments or even bankruptcy. Credit card companies often use lawsuits to collect on unpaid credit card debt. Illinois Legal Aid reports that the lawsuits are so effective that the credit card company virtually always win in court. Banks and debt collectors also sometimes use civil lawsuits to collect balances remaining after automobile repossession or home foreclosure.

Credit Reports

The Fair Credit Reporting Act allows placement of negative credit information such as judgments to remain on credit reports for seven years. Most other negative credit information, including late payments, remains on reports for seven years as well. The notable exception is bankruptcy, which remains on credit reports for a minimum of 10 years. Effects on credit scores and credit reports are two of the biggest fall-outs from debt problems.

Garnishment

Bank or wage garnishment is possible after a debtor loses a debt lawsuit. The plaintiff, or debt collector, can ask the judge for the right to garnish the debtor's bank account or wages for the entire amount of the judgment. By law, banks and employers must comply, with employers deducting a percentage of the debtor's paycheck each payday to send to the debt collector. Banks respond by freezing the debtor's checking account and allowing the debt collector to freely make withdrawals in a lump sum or installments to pay the judgment.