If the borrower is experiencing difficulty paying, it is best they contact the lender as early as possible.
The borrower has an obligation to pay based on the original loan agreement, and the creditor has a right to demand payment regardless of the borrower’s financial situation.
Be honest and inform them of your situation, as they may be able to work with you and provide some assistance or arrange a payment plan if necessary.
What happens when you have a delinquent account?
Until the debt is 120 to 180 days delinquent, the original creditor will handle the delinquency within their internal debt recovery department.
This is typically the result of the borrower unable or unwilling to work with the lender in order to mitigate any money troubles.
The debt will be declared in default and the lender will demand payment in full as the only option to prevent the debt from being charged off immediately.
The internal department (as opposed to a third party debt collector) is often referred to as “collections”, but they are more interested in preventing customer default than creating undue financial hardship on the customer.
The debt recovery departments are generally willing to work with customers to create affordable solutions to repayment.
They often have a variety of options for the customer, depending on the overall situation and how early contact is made.
These may include:
- refinancing the debt for a longer term and more affordable payments
- allowing the borrower to make partial payments for several months
- suspending payments for a designated period of time
Depending on the severity of the delinquency, credit lines may be closed and possibly refinanced to a fixed term loan.
When is a payment considered late?
When a borrower payment is past due for more than 30 days, the account automatically falls into a delinquency status.
The lender will typically send a letter to the borrower as a friendly reminder to pay. Below is a timeline describing the general procedures that a lender would follow during a delinquent payment period.
|Delinquent days||Lender activity|
|30 – 45||Send friendly reminders|
|45 – 60||Internal debt recovery begins|
|60 – 90||Reminders and phone calls more frequent|
|90 – 179||Debt recovery continues|
|180||Debt categorized as in default|
|181 – onwards||Third party collection agency takes over|
Let’s break down each stage of delinquency.
30 to 45 days delinquent
The creditor will begin sending late payment notices and “friendly reminders” stating a payment has been missed.
Typically, this will involve asking the borrower to please pay at the earliest convenience.
45 to 60 days delinquent
Payment reminders are mailed more frequently and include a request to contact the creditor to discuss options if the borrower is experiencing financial difficulty.
The creditor also typically begins by calling the borrower to request payment, via an internal debt recovery department who will begin handling the account.
They will begin contacting the borrower frequently, via phone calls, emails and letters, all of which can feel intimidating but are required to encourage customer contact with the creditor.
60 to 90 days delinquent
The borrower will begin receiving multiple phone calls, emails, and mailed notices daily with increasing frequency from the creditor or a collection agency working on the creditor’s behalf.
Consumer protections are also in place to protect borrowers from aggressive collection practices.
Long term non-payment however, will always result in a more determined approach at retrieving late payments.
90 to 180 days delinquent
Collection efforts continue. When the debt reaches 180 days delinquency (6 months), it will be declared to be fully in default.
The creditor will seek immediate payment in full from the borrower by a specific date.
If this does not happen, the loan will be charged off as a financial loss and the balance assigned to a collection agency.
After 180 days delinquent
The collection agency that now owns the debt may or may not begin legal proceedings in an effort to recover the debt, beyond normal collection efforts.
Much depends on the collection agency and the amount of debt owed. If the collection agency sues, the borrower is served legal notice which states they must respond in civil court.
If this occurs, the borrower should immediately consult a bankruptcy attorney to determine options, as you may be able to discharge your debt liability altogether.
Can you go to jail for not paying a loan?
Generally speaking, no, you cannot go to jail as a result of not paying your loan, because any lawsuits that a debt collector may file are dealt with in a civil hearing.
If the lawsuit requires you to appear in front of a judge and you refuse to attend, you could be held in “contempt of court” which is a criminal offense, for which you can be arrested.
Although this is not as a direct result of not paying your loan, it is an indirect cause due to your refusal to cooperate.
It is also important to point out that it is within the debt collector’s interest to the debt ethically and according to law.
Under the Fair Debt Collection Practices Act, your rights are protected from them taking matters into their own hands through harassment or even suggesting the threat of jail time if you don’t comply.
Can I lose my car over credit card debt?
If you default on credit card payments, you will not lose your car or your house for that matter, because it is an unsecured loan.
This means that when you were given access to funds without having to provide your car/house as security. This also applies to other loans such as unsecured credit lines and signature loans.
If however, the creditor or debt collector takes you to court and decision is made against you, it may be possible to place a lien on your vehicle depending on state laws.
It is at this point that you must hand over the vehicle as collateral until you are able to completely pay what you owe.
On the other hand, if you have a secured loan, one that is backed by some type of collateral (e.g. boat, car, motorcycle, RV), it will automatically include the threat of repossession, and hence you may lose your car, if the loan is not brought current.
The collection process for a secured loan follows the same general time frame as for unsecured loans.
When the creditor determines repossession of collateral is necessary in order to recover the loss, the borrower will be presented with the choice to either turn over the collateral of their own accord or it will be taken forcibly.