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Can I Be Sued For Unsecured Debt?

Can I Be Sued For Unsecured Debt?

If you don’t pay your bills, even if they’re unsecured, there are ways creditors can get their money. Just because you didn’t put collateral up for a loan doesn’t mean the creditor won’t want their money.

There is a risk of you being sued for unsecured debt. While it’s not likely, the threat is there so you should always make good on your debt even if you have to take a debt settlement plan to clear it up.

What is Unsecured Debt?

Unsecured debt is debt you don’t put up collateral for, such as a credit card. A secured debt is a debt you put down collateral and if you don’t pay the debt on time, the creditor can keep your collateral.

There are many types of unsecured debts including credit cards, personal loans, and student loans as few examples. But just because there isn’t collateral doesn’t mean you can get away without paying the debt. 

What Happens if you Don’t Pay your Unsecured Debt?

What Happens if you Don’t Pay your Unsecured Debt?

If you don’t pay your unsecured debt, creditors will try to get their money. Their tactics depend on how long it’s been since you’ve made a payment.

Missing One Monthly Payment

If you miss one monthly payment, you’ll likely get phone calls, emails, or letters in the mail from your credit card company. They’ll remind you to make your payment as soon as possible. 

They’ll likely tack on a late fee for missing your payment and interest charges will accrue daily. They’ll keep doing this until you make your payment.

Many credit card companies offer options if you can’t make your payment. They just want you to be in touch with them to let them know what’s going on rather than ignoring them. If you don’t contact them, they can’t help you and the situation escalates.

Missing Several Monthly Payments

If your late payment continues into the next few months, the credit card company will increase its efforts to get its money.

They’ll continue with the phone calls and letters, but the wording may be slightly more threatening. They’ll also likely shut off your credit line and/or increase your interest rate based on your credit card agreement. 

You still have time to work out a plan with them if you can’t make your payment but want to settle your credit card debt.

If you don’t do any of the above the credit card company will likely involve their collections department to try different tactics to get you to resolve your debt. 

Missing All Your Payments

If you miss payments for more than 90 days (3 months), creditors will typically sell your debt to a collection agency. This means they charge off your debt as uncollectible. This gets reported on your credit report and greatly damages your credit score.

A collection agency will try to get you to pay the full amount you owe and sometimes more. They usually aren’t as nice in their tactics to get you to pay your bill, but they must operate within the law. They can’t harass you or use unnecessary means to get you to pay your bill. 

Getting Sued for Unsecured Debt

The big question is, can creditors or collection agencies sue you for unsecured debt that you didn’t pay?

They can, but most won’t.

Don’t let that fact make you feel better about not paying your debt, though, because the possibility is always there. Whether a creditor or collection agency can sue you depends on the statute of limitations in the province.

Some provinces have a 2-year statute of limitations and others have a 3-year limit. This means they have only 2 years from the date you defaulted to take you to court. If they don’t do it within that time, they cannot do it after the fact.

What Can Happen in the Lawsuit?

What Can Happen in the Lawsuit?

If a creditor or collection agency takes you to court and if you don’t file a defense, the creditor automatically wins and has a judgment against you.

If you fight it in court, you get a court date and the judge decides whether you or the creditor win. If you win, you don’t owe anything. But if the creditor wins, there is a judgment against you and any of the following can happen.

  • Your creditor can win a judgment against you which means you must pay the amount owed.
  • Your creditor may have the right to garnish your wages to get repayment.
  • Your creditor may have the right to put a lien on your home.
  • Your creditor may garnish your bank account.

Reasons a Collection Agency Won’t Take you to Court

Like we said earlier, the chances of a creditor or collection agency taking you to court are small. Here are the reasons why they might not:

  • Your debt is too small

It costs a lot of money to take you to court. If the amount you owe isn’t worth the costs the creditor would incur, they might not take you to court.

  • Your debt is too old

All creditors and collection agencies must be mindful of the statute of limitations. If too much time has passed, they cannot take you to court for the debt.

Final Thoughts

Can you be sued for unsecured debt? Sure, but it all depends on the circumstances.

This doesn’t mean you should ignore your debt, though. If you can’t get ahead of it and figure out how to get out of debt, consider contacting EmpireOne Credit for a solution. Our credit counselors can help you get ahead of your debt and go over your options including a debt settlement plan, a consumer proposal, or even bankruptcy.

We will help you decide which option suits your needs the most so that you don’t run the risk of getting sued for unsecured debt. Even though there isn’t any collateral on the debt, you still have the responsibility to pay it, one way or the other and we are here to help you.

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