Credit Q&A: If you have credit cards and you can’t make payments, what can happen besides screwing up your credit?

Are you unable to make credit card payments? Suffering through the aftermath of a divorce? These subjects were the focus of recent questions sent to creditrepair.com via Twitter and Facebook.

 Q. If you have credit cards and you can’t make payments, what can happen besides screwing up your credit?

-Nancy

A. Being in the situation where you can’t pay your bills is tough because what happens when bills go unpaid is quite unpleasant. A marred credit report can be the least of your worries. The event time line for unpaid bills goes like this:

• After 30 days, you will likely receive a letter and/or phone call asking you to pay.
• After 60 days of non-payment, you will practically always receive more phone calls and letters.
• From 90-180 days from the time the bill is due, letters and phone calls come more frequently.
• After 180 days, most banks will charge off the balance, meaning they take a tax write-off for the loss. After a charge off, depending on the bank, the debt may go to a third-party collection agency. If this happens, the issuing bank will then cease contact with you.
• After your debt enters collections, you will almost certainly receive letters and/or phone calls from the collection agency.
• Any time after the debt enters collections, you risk a lawsuit. This can happen at any time after charge off, but usually collections departments will first wait to see if letters and phone calls will bring in the money before taking the step of initiating a lawsuit.
• If you lose the lawsuit, you will have a judgment entered against you, which will also go on your credit report.   If a company has a judgment against you, you run the risk of having money in your bank accounts seized or having your wages garnished.

If your debt is sent to a third-party collection agency, you will have the collection reported to the credit bureaus in addition to the charged off debt from the bank. You are protected from harassment and unfair practices of third-party collection agencies under the Fair Debt Collection Practices Act (FDCPA). Some of the things collection agencies can’t do are: call you repeatedly, call you before 8 AM or after 9PM, threaten to take action that is not legal and use abusive language.

Some banks don’t send their debts to outside collection agencies, favoring their own internal collections agencies operating under the umbrella of the bank. These banks include Capital One, American Express and Bank of America. Internal collection agencies will start collection of the bill through “normal” collections tactics (phone calls and letters) and potentially litigate to recover the funds.   If the debt collection efforts remain within the bank, you are not protected by the FDCPA, as this law only applies to third-party collectors. Regardless, case law has occasionally held original creditors to certain FDCPA collections standards.