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Can I Go To Prison If I Don’t Repay My Loan? (USA)

By June 23, 2022No Comments
what happens if you not pay loan

Can I Go To Prison If I Don’t Repay My Loan?

It is pretty unusual for a borrower to be put to prison for failing to repay their payday loan, and this is something that will not happen.

You may, however, be subject to late fees or penalties, have a bad effect on your credit report and be subjected to additional items such as follow-up calls and letters from lenders attempting to recover the lost monies.

A lender may take you to court for unpaid debts in exceptional circumstances; however, you can be confident that this is something they would want to avoid doing and would resolve a debt without engaging the courts.

What Happens If I Can’t Pay Back My Loan?

Your credit score will suffer as a result.

The first thing to understand is that your credit score will suffer if you cannot repay your payday loan. You will be less likely to be able to borrow money in the future if you default on your loan since it will hurt your credit score.

How will the lender attempt to recover their funds?

Payday loan defaults may cause your bank account to be depleted, as well as income garnishment, collect calls, and legal action. If possible, pay off your debt before something like this occurs.

The lender from whom you borrowed will keep pursuing any outstanding balance on your loan after the predetermined loan time has expired. To recoup as much of their debt as possible, the lender will set up automatic withdrawals from your account. You may incur bank costs as a consequence of this.

If you have a debt, your lender may set up wage garnishment, which entails withholding a portion of your income and sending it to them immediately.

Could I be sued for a loan that hasn’t been repaid?

Although you won’t go to prison for not repaying a loan, lenders often take consumers to court to recover their lost funds.

Most of the time, payday lenders will strive to recover their money using strategies that are advantageous to both sides. If this is not possible for whatever reason, the lender may opt to go to court to obtain their money. If you don’t contest the lender’s claim or if they succeed and win in court, a judgment order will be issued against you.

You must appear in court if you have been called! When the defendant does not appear in court, lenders often automatically prevail.

Can Unpaid Debt of Any Kind Result In Jail Time?

Payday loan default won’t land you in jail, but there are other debts for which you may be sentenced to time behind bars.

In the case of other types of debt, you run the risk of going to jail if you don’t make your payments. These consist of:

  • The courts impose fines.
  • council levies
  • Commercial rates.
  • You are taking care of your children.

It’s essential to ensure with any payments demanded of you, just as with payday loans or installment loans, since failing to do so might result in costly fines or incarceration for those payments.

What Must I Do If I Am Unable to Pay Back My Loan?

Speaking with your lender immediately is the best action since ignoring their calls and emails or being quiet won’t help.

By refusing to react to any contact, you are encouraging the lender to take further steps to get a response from you. If you can demonstrate that you are having financial difficulties, you may be able to agree to pay off smaller sums over a more extended period, which is known as a payment plan or an arrangement.

There are effective methods to assist those with repayment difficulties, and US lenders are regulated and must abide by standards.

In addition, to learn more about your alternatives and make plans for a better and more promising financial future, you may choose to see a nonprofit credit counselor, bankruptcy lawyer, or legal assistance center.

Three situations in which debt arrests are possible

1. When you disobey a court order.

Creditors must file a lawsuit against you and successfully obtain a monetary judgment before they may collect an unpaid debt that is not supported by collateral. You may be held in contempt of court if you get a notice to appear in court because a lender has filed a lawsuit against you, and you choose to disobey that civil court order. At that time, the civil matter may transition to the criminal justice system, and an arrest warrant may be issued for you.

Even if you are unfamiliar with the corporation suing you, you should not disregard any court notices you receive. Aside from potential legal issues, missing the appointment or failing to follow the notice’s instructions means you’ve lost the chance to settle the debt or work out a payment arrangement.

How to determine if your debt lawsuit is valid

Remember that there is a statute of limitations on debt if you are sued. To sue you or threaten to sue you for a debt that has passed its statute of limitations is against the law. This loan is regarded as “past due.”

Depending on the state and the kind of debt, these laws might run anywhere from three to six years. There are a few outliers, as follows: For instance, the statute of limitations on credit card debt is three years in New Hampshire and six years in Maine, while it is ten years in Rhode Island, another New England state.

The lender may still get in touch with you and demand payment even if the debt is time-barred. Making a partial payment on a time-barred debt in certain jurisdictions actually “revives” the obligation, resetting the statute of limitations and enabling the debt collector to file a lawsuit to recover the entire amount.

You may file a complaint with the Federal Trade Commission, your state’s attorney general, and pursue your private action against a debt collector if you believe they have broken the law.

2. When you do not make child support payments

Because child support is a court-ordered payment, failing to make it might put you in prison. You may be held in contempt of court if you disobey a court order to do anything, such as show up for a child support hearing or pay support.

It’s crucial to remember that you were detained for disobeying the court order, not because you couldn’t afford to pay your debts. The failure to pay child support may result in criminal prosecution in 50 states, although this method is seldom used.

3. When you knowingly mislead the IRS to avoid paying taxes

You risk the IRS suing you if you don’t pay your taxes (though the IRS does have extensive enforcement powers and may be able to make collections without legal judgment).

You’ll be subject to penalties or fee collection if you keep accruing debt to the IRS. The IRS might file a lawsuit against you to recover unpaid taxes if you make mistakes. You may even be confronted with a tax lien, which allows your home or automobile to be confiscated to pay your obligations. These situations would be civil processes, and you would not be sentenced to prison time.

What to do if you are threatened with being arrested for unpaid debt

  • Look through your FDCPA rights.

It may be illegal for a lender or debt collector to threaten to have you arrested if they are behaving exceptionally aggressively. The Fair Debt Collection Practices Act prohibits threatening you with prison time.

  • Examine your region’s and state’s debt collection laws.

Several states and towns also have debt collection laws and federal laws. Your agreement with your lender should be carefully studied as it will include details on how they may get in touch with you. You have the right to sue them if they break this agreement or any other law.

  • Send a cease-and-desist letter.

You can ask debt collectors to stop communicating with you or only contact you in writing. The FDCPA requires the debt collector to abide by the request after receiving it, and they are only permitted to get you to let you know that the debt has been settled or if they are pursuing specific legal action, like filing a lawsuit.

What can occur if you don’t make your payments on time

  • Your credit score will suffer greatly.

Even if you don’t end yourself in prison, failing to pay your obligations will have far-reaching implications in your life. Most significantly, any debts you owe might affect your credit score and often remain on your credit record for seven years. This may impact your ability to get a new credit card, home loan, or vehicle lease.

  • Your possessions could be taken.

If you used your home or vehicle as collateral to obtain the loan, the creditor might be able to seize such possessions to collect the money you owe.

  • Your pay may be withheld.

When a creditor gets a court or government order requiring your employer to take a part of your pay and deliver it to your creditor, this is known as wage garnishment. The kind of debt and the garnishment regulations in your state determine the maximum amount that may be taken.

For instance, if your federal student loan lender can’t reach you to work out a payment plan and you are far behind on your payments, they may take you to court and ask for a salary garnishment. However, this is usually only done after all other options have failed and your student loan has been handed over to the Department of Justice for collection.

There are five strategies to reduce your debt.

1. Examine your debt.

Review all of the debts you owe first. The debt may be past due. Debt collectors have been known to make errors or participate in debt consolidation schemes, so the debt could not even be yours in some instances.

2. Make contact with your creditors.

Speaking with lenders already threatening you might be daunting, but if you can handle it, doing so can help you save money. In the end, creditors just want payment. Creditors are often prepared to listen to you if you approach them calmly and explain your present financial circumstances.

If you decide to have that talk, be sure to have a plan for how to settle your debt before you meet with them. Describe how much you can afford to pay toward your debt each month and if you need any further help, such as reduced fees or interest rates. If your creditors and debtors agree on a new repayment plan, record it and deliver it to them for transparency.

3. Enlist the assistance of a credit counselor.

A qualified specialist may advise you on your present debt issue if you discover that your financial condition is getting out of hand.

A credit counseling service can help you develop a more comprehensive financial plan so that you don’t find yourself in the same situation again. For example, they can assist you in creating a working budget, develop a strategy for paying off current bills and provide tools to help you stick to the plan.

4. Sign up for a debt management plan

Entering a debt management program might help you handle your debts more effectively if you have obligations to many creditors. This is a service given by nonprofit credit counseling firms to assist people in getting out of debt in three to five years.

A credit counselor will bargain on your behalf for lower interest rates and other costs and consolidate all of your debt into one monthly payment. The credit counselor will then split up your income into the proper installments for each of your different lenders after receiving it straight from you.

You should anticipate paying a registration cost of around $25 and a monthly maintenance charge of between $25 and $50 when you join. Your credit counselor will tell your lenders that they will be making payments on your behalf after you enroll in their services. That implies that you won’t get any further collection calls.

Debt management programs let you add credit cards, student loans, medical, and personal loan debts. You cannot enroll in secured debt. While you are engaged in the program, you cannot acquire additional credit. Even closing credit lines may require you.

5. Take into account debt relief

A debt consolidation loan is a personal loan used to pay off other obligations. Your obligations are consolidated into a single, more considerable debt, which you subsequently pay down regularly. As a result, a new lender will receive your debt and direct payments from you. You may also combine credit debt from several providers with a single balance transfer card.

You may apply for several debt consolidation programs through your bank, credit union, credit card company, or another lender. The advantage of debt consolidation is that you may combine your debts to make them easier to handle. This often enables you to get a lower rate than what you would have had to pay to each lender individually. Additionally, consolidating your debt might reduce the number of collect calls you get.

Luke Pitt