What Is the Penalty for a Person Who Does Not Pay His Debt?

The use of credit, such as credit cards or consumer loans, can lead to an accumulation of debt. When you accrue debt, you have a legal obligation to make good on it and the owner of that debt expects payment. If you do not pay your debts, you should understand the penalties that could occur as a result of not doing so.

Significance

When you owe debt, the owner of that debt can take legal action in court against you if you don't pay. This is done by filing a lawsuit in civil court. If the judge determines that you owe the amount sought, he will issue a judgment against you, which is a judicial order that states how much money you owe that creditor. With a judgment, this creditor can seize money in your account or garnishee a portion of your paycheck from your employer.

Consequences

Once a judgment is entered against you, the creditor will have a certain number of years from that date to collect the money. Even if you don't own any property or assets today, which is called being judgment proof, the creditor can seek to recoup the judgment from you at a later date when you do have the assets. The statute of limitations on judgments varies from state to state. One of the longest is Florida, which has a statute of limitations on judgments of 20 years.

Considerations

Another area that a judgment affects is your credit report. A judgment appears on your credit report for seven years from the date it's issued by the court. According to MyFico, public records such as a judgment will have an adverse affect on your credit and thus will lower your credit score. Your FICO score ranges from 300 to 850 and the extent of the negative impact on your credit score will depend upon the other factors present in your credit report.

Warning

The owner of a judgment can hire a collection agency to collect that debt from you. Collection agencies are permitted to access your credit report. They are allowed by law to call you at home from 8 a.m. to 9 p.m. and may call your place of employment unless you direct them not to. Also, the agency will add a collection account to your credit report and this will negatively impact your credit score as well.