What Happens if You Have Credit Card Debt and You Don't File Bankruptcy?

Heavily reliance on credit cards can have a serious detrimental effect on your personal finances---as your credit card balances climb, you might find it difficult to make your minimum monthly payments. Eventually, over-the-limit fees, interest charges and late fees can drive your balances so high that bankruptcy may be an appropriate option. However, if you choose not to file bankruptcy, overwhelming credit card debt can still have serious consequences.

Continued Collection Activity

Unless you file bankruptcy or send a letter to your creditors stating that they should only communicate in writing, your creditors will continue to make telephone calls demanding payment. If you ignore their calls, they may also contact neighbors and family members to try to locate you. Your creditors will also continue sending letters demanding that you pay your account balances. They may also turn your accounts over to collection agencies.

Credit Damage

Falling behind on your credit card payments can negatively impact your credit score---the father you fall behind, the more severe the impact on your creditworthiness. Creditors and collectors can file a report with credit bureaus each month your account is 30 or more days past due. Late payment reports stay on your credit file for seven years, and can reduce your chances of obtaining future credit.

Legal Action

Continuing to maintain past due balances on your credit cards in lieu of filing for bankruptcy protection can also put you at risk of legal action for your debts. A creditor or collection agency may file a lawsuit to obtain a money judgment against you, which the agency or creditor can then use to take money out of your wages and bank accounts in most states. A judgment also places a lien on real estate you own, preventing you from selling your home or land until you pay off the judgment debt.

Alternatives

In some cases, you may be able to avoid filing bankruptcy while minimizing the risk of lawsuits and other consequences of high credit card debt. Contact your creditors as soon as you realize that you will have trouble making your monthly payments---if you reach out to your creditors before your debt becomes unbearable, they may work with you to develop a repayment plan appropriate for your financial situation. Also, you may consider a credit counseling service, which works with creditors to lower interest rates, consolidate payments and stop creditor calls and letters.