If you are having problems paying your credit card bills, you should be aware of the federal and state laws that address the problem of bad debt. Unpaid bills do not go away: They can continue to haunt you in the form of bad credit and ongoing harassment from bill collectors long after you default on your balance. By knowing your rights and working with your credit card company, you can minimize the inconvenience and embarrassment caused by unpaid debt and regain control of your finances.
Significance
Credit card debt is unsecured debt: You did not put up any collateral when you got your credit card, instead, your credit card company offered you credit solely on the basis of your promise to repay the money. Because your credit card company cannot seize collateral to pay off your balance, they have limited options for collecting the amount you owe.
Effects
The effects of bad credit card debt on your financial life, and even some day-to-day activities, can be considerable. If you do not pay your credit card bill, eventually you may lose your charging privileges, and the card may be canceled altogether. The credit card company will begin calling you both at home and at work, asking you to pay your bill. If your bill remains unpaid after six months, your credit card company will turn your account over to a third-party collection agency, which will continue to contact you about your debt.
Your bad debt will be reported to credit bureaus and can have a serious effect on your credit report. An unpaid credit card bill can cause you to be turned down for credit from other lenders and credit card companies, and it may hurt your chances of employment or renting an apartment.
Misconceptions
Some people think that when a credit card has been "charged-off," they no longer owe the bill. This is untrue. A debt is "charged-off" by your credit card company when it believes that it cannot collect the debt and writes it off as a tax loss. They are still able to continue collection efforts and can turn your debt over to a collection agency. The credit card company, or the collection agency, can also attempt to sue you in court for the money you owe.
Time Frame
Credit card companies typically charge off bad debts six months after the account was last current. After that, state law determines the statute of limitations on how long the creditor has to file a lawsuit, which can range from three to 10 years. Negative information about your debt can remain on your credit report for up to seven years.
Prevention/Solution
If you run into financial trouble and are not able to make your credit card payments, contact your credit card company to explain your situation. The company may be willing to work with you to help you manage your debt. Another option is to seek credit counseling: Credit counselors can help you set a reasonable budget and, when appropriate, work with your credit card company to lower your interest rates and payments.
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