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Being buried under a mountain of unpaid credit card bills has many consequences, but jail time is not usually one of them. If creditors call threatening to have you arrested or implying that you could go to jail, they are misleading you and breaking federal law.
A history of credit card debt and jail time
Debtors’ prisons were once a common form of punishment for unpaid debts in America. As other methods of collecting unpaid debts (like bankruptcy proceedings) became more popular throughout the early 19th century, debtors’ prisons slowly fell out of favor until they were officially outlawed by the federal government in 1833.
Unfortunately, outlawing debtors’ prisons didn’t completely stop debt collectors from threatening people with jail time. Because creditors continued to make bold and deceptive claims to scare people into paying their debts back sooner, the U.S. government acted again, this time passing the Fair Debt Collection Practices Act (FDCPA) in 1977.
This act limits what debt collectors can and can’t say to you while trying to get you to pay your credit card debt — including outlawing threats of jail time for credit card debt.
What debt collectors can do
While debt collectors cannot have you arrested for not paying your credit card debt, creditors can still use the legal system to make sure they get their money back. The most common legal recourse is to sue you for payment.
If you get sued for unpaid credit card debt, don’t ignore the lawsuit. Failing to either respond to a lawsuit or show up to your court date will result in a default judgment against you. In a default judgment, the judge awards the creditor who is suing you everything they ask for in the lawsuit because you did not make a case in your defense. Debt collectors will often be allowed to garnish your wages, levy your bank account or act against your personal property to pay for the debt as part of a default judgment.
Instead of ignoring a lawsuit, consider hiring a lawyer to represent you. They will help you respond, keep track of the paperwork and make sure you’re treated fairly. Sometimes, lawyers can get your case thrown out or settled for a lower amount.
Some creditors take advantage of this judgment and petition the court to have you arrested for not cooperating, which is the only way you might go to jail for your credit card debt. If this happens, the charges against you will be for ignoring the court order to pay your debt, not for owing the debt itself. This subtle distinction is enough for debt collectors to get around the Fair Debt Collection Practices Act in some states.
How to get credit card debt under control
The best way to avoid debt collectors is to take steps to pay off your credit card debt as soon as possible. At the very least, you should be making your card’s minimum payment on time every month. While paying the minimum won’t do much to get you out of credit card debt, it will at least keep you from being delinquent on your payments.
Digging yourself out of credit card debt is a tough task, but very much worth it. You’ll be able to relax without the worry of being sued or possibly serving jail time. Here are a few options to help you get out of credit card debt and on the road to recovery.
Develop a debt management plan
A credit counselor can assess your financial situation and negotiate with your creditors to make a debt management plan for you. Under a debt management plan, you make one fixed monthly payment to the credit counseling agency which then distributes your payment to all of your creditors.
Consolidate your debt
Consolidating your credit card debt can lower your interest rate and give you a monthly payment that is more manageable. If you have large balances on multiple credit cards, a debt consolidation plan will combine them into one loan that is easier to manage with a fixed monthly payment.
Talk to your lender.
Working directly with your lender can lower your interest rate, your overall amount due and the payment terms of your credit card debt. While your creditors will push you to repay the entire amount you’ve borrowed plus interest, they would rather receive some kind of payment — even if it’s less than the amount owed — than nothing at all. If you call your issuer, you may be able to negotiate your balance and repayment options to better match what you can reasonably pay each month.
Bankruptcy is a dramatic option that can resolve your credit card debt. There are two types of bankruptcy that each address your debt differently. In a Chapter 7 bankruptcy, your credit card debt is canceled, but you may have to sell off your possessions to pay the creditors. In a Chapter 13 bankruptcy, your debt is reorganized and renegotiated to be paid over the next three-to-five years. Bankruptcy affects your credit for several years — 10 years for Chapter 7 and seven years for Chapter 13 — and should be treated as a last resort for getting out of credit card debt.
The bottom line
Incessant calls from debt collectors, a civil lawsuit, bankruptcy and tarnished credit are all real possibilities if you fall behind on your credit card payments. Even after you emerge from deep credit card debt, it will take years of rebuilding your credit before you can qualify for the best credit cards and personal loan rates.
Going forward, commit to paying your balance on time and in full every month. Developing this discipline will make it much easier for you to pay off your current debt and avoid going back into debt in the future.