My 26-year-old daughter has $3,000 in credit card debt and is trying to tell me that nothing can happen to her because she has nothing a collector can take from her. I guess that's technically true because she doesn't have a house or car or anything of worth. The debt is from a trip she took to Thailand. So what happens if she does get hauled into court over her debt, which is months old now? Is she really invincible if there's nothing they can take from her? Can she end up in jail? Will her credit be ruined? She might not care, but I do. I want to know any bad consequences that will happen to her so I can lay them out in front of her because she is not worried. Thanks for any advice you can give. — Annamarie
Either your daughter is trying to convince herself that running away from a debt she incurred is a problem-free decision, or she's woefully ignorant of the law and her responsibilities. I'm hoping that it's the latter, as the former means that she wants to justify her actions.
Because she is not the one coming to me for advice, you're going to be the conduit of my “bad” news. And it's not actually bad. It's the truth, and she needs to hear it.
Of course there are repercussions for not paying a bill, whether she has the cash to pay or not. Will she go to jail? That's unlikely. The only way she might is if the credit card company suspects fraud and files a criminal case against her, she loses the case, and the judge decides that she ought to spend time behind bars as punishment. However, this so rarely occurs that it hardly bears mentioning — although I must admit that I still like to mention it, especially to people who feel they can borrow money from whomever they want and not pay it back simply because they don't feel like it. At the very least it sounds scary.
What's really important to convey, though, is what most certainly will happen. And here it is:
- Credit report damage. One missed payment starts the credit ruin rolling. The more she skips, the worse it becomes. As your daughter is still young, she probably would like to have positive credit, since it will help her obtain better rates on future loans and lines of credit and look attractive to employers and landlords. And she can't just clear up damage overnight. Just as with a personal reputation, it takes time and hard work to heal a file riddled with evidence of poor behavior. The late payments will reside on her credit report for seven years.
- Collection activity. After not paying for about six months, the credit card company might sell her past-due account to a third-party collection agency. The agency's collectors will then start to contact her via phone and mail. Oh what fun she'll have when the debt collectors start to call! And call and call…
- Lawsuits. When your daughter signed the paperwork to get the credit account, she agreed to repay what she charged according to the terms of the contract. Therefore, she is legally bound to do so and when she stops, the credit card company (or collection agency) has the right to sue her for the delinquent debt. If she loses the case (highly likely), she won't be liable for only $3,000. It will be far more, as court costs, attorney's fees and accumulated interest will be piled on to the balance.
- Post-judgment collection action. She may not have any assets they can take right now, but that won't stop a judgment creditor. They have time. Depending on the state she lives in, they may have decades to wait her out. One day she may acquire some valuable property or cash, and it's possible for them to seize it. Additionally, if she's working, they may be able to garnish her wages. Nothing like a court order to impress a present or future boss!
Please print out my response to your letter, hand it to her and then walk away. This is not your affair, but hers. At that point she'll have the information she needs to make a sound financial choice between paying up or suffering the consequences.
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