Legal ramifications of not paying debts

We often receive questions from worried readers about what will happen if they don’t pay down their debts on time. Whereas we always answer that it’s not a very big problem for those who gather some credit card debt once in a while, we do give some more specific advice to those with tens of thousands of dollars in debt, often in the form of credit. Under the following headings, we will go into the legal ramifications of not paying debts.

What are some of the consequences of not paying debts?

Not paying your debts might lead to the following consequences:

  • You’ll receive a debt collection notice
  • The creditor can foreclose on your property or other forms of collateral
  • You will not go to jail. We can confirm this one straight off the bat

Now, we will go into more depth on each of these consequences. 

You’ll receive a debt collection notice

When you don’t pay your bills on time, the first thing that will happen is that you’ll receive a debt collection notice, most often by email at first, before you then get a phone call from the collection company about how much you owe. Despite the sudden terror people feel in relation to any contact with these kinds of companies, you usually don’t have anything to worry about at this point. So please answer them. If they are professional, they will simply enlist the state of the situation and offer some ways that other people have solved the same problem as you’re having right now. There should not be any guilt associated with the process.

If you keep ignoring the debt collectors, they will most likely file a court lawsuit against you, which might, in turn, lead to the next consequence on our list: 

The creditor can foreclose on your property or other forms of collateral

As long as the judgment of the court approves of it (and it often will if you ignore the debt collectors), the creditor can seize the collateral you might have put up when you signed the loan. Collateral comes in the form of things like your house, boat, or car, and when you put it up, we have what’s called a “secured creditor.” 

Can a person go to jail for not paying debts?

No, you can not go to jail for not paying debts. The reason that you can’t go to jail for not paying debts is that the offense is of a civil nature, and not a criminal one. Most often, people go to jail for putting other people’s lives at risk. 

Is there anything you can do to repay your debts before things go too far?

After having explained some of the above consequences to our worried readers, we assure them that there are always some things you can do to repay your debts before things go too far: 

  • Ask friends and family: Depending on the extent of the debt, the relationship you have with friends and family members, as well as how strongly they stand financially, you might be able to ask these people for help
  • Gather your debts: As we mentioned in the introduction, most people’s debt problems are owed to credit card loans with high interest rates. The good thing is that banks in many countries are devising new solutions to help people pay down their debts. One that is particularly useful, is gathering your debts with a personal loan without security, in case you have several small loans/dispersed debt. To learn more about combining all your small loans into one, you can go to the following resources: 
  • (US) 
  • (Norway)
  • (Switzerland)
  • Declare bankruptcy if you own a business: If you own a company and have a debt that’s much higher than what we have covered above, one final solution to your debt problems might actually be to declare bankruptcy. This has doubtless saved many business owners from being overburdened with lifelong failures to pay down their debts. 

In sum, whereas you will incur some legal ramifications when you aren’t able to repay your debts, in the form of having your collateral be taken away (sometimes even through forced property selling), you can rest assured that you will never go to jail. But let’s do all we can to not let things go that far!