1. Your credit score may be severely impacted
2. You might be sued by your credit card company
3. A credit collection agency may take over your overdue balance

Let’s talk about credit score for a minute.  What is it?  In layman’s terms, it expresses how conscious you are about paying your credit card, loans, or other lent money back on time, if at all.  There are three credit reporting agencies: Equifax, TransUnion, and Experian.  Sometimes, companies look at your overall score, that is, your score with all of these companies rolled into one number.  In other instances, a credit card company or lender will look at each of these scores individually in order to get a more accurate picture of your credit portfolio. If you don’t pay your bills, your credit score will get trashed, and it’s unlikely anyone will offer you credit in the near future (or until you start paying your bills on time).

It’s unlikely that your credit card company will sue you. They are more likely to turn your account over to a credit collection agency who can, and often will, sue you. But first, you will get several overdue notices in the mail.  After a few months (for me, it was 3), your credit card company or lender will turn over your outstanding balance to a credit collection agency who will try to get you to pay off your bill at all costs.  

Usually, they offer to set up a payment plan that, 9 times out of 10, is unreasonable.  In other cases, they might offer to settle with you, which means that you pay your balance all at once but it is considerably less than you owe.  For example, if you have an outstanding balance of $10,000, the collection agency might negotiate a settlement with you for $8,500 instead of the full amount that you owe.  Often, if they offer a settlement, they will demand full payment upfront, which in most cases is highly improbable on your end.

If you don’t pay the collection agency, one of two things may happen.  The collection agency may take legal action against you in a civil court to try and recover the money. They’ll most likely get a judgment against you which will then lead to bank and wage garnishments.

Regardless of how much you owe, it is extremely unlikely that you will “fall through the cracks” in the eyes of the credit card company: 99% of the time they will not forget your debt, unless it’s a very small amount (less than a hundred dollars or so). In the unlikely event they do forget your debt, that’s not a good thing.  A friend of mine, Paul, had his credit card company write off just over $2,000. His credit score was completely annihilated and he was barred from ever doing business with their credit card company or their affiliates or business partners, including other banks.

You can try negotiating debt down with your credit card company, if you can afford to pay in one lump sump. The same tactic may work for credit collection agencies, but bear in mind phone calls with them are like statements made at a police station: anything you say can be used against you. They will mine you for information about your job, your income, and your assets. Before you know it, you’ll find your bank account emptied and your wages garnished through a court order.

• Child Support. People who pay their child support don’t go to jail, but if you are one of the many who refuse to pay, a Child Support Officer may recommend jail time until you pay up.  In order to send you to prison, an arrest warrant has to be served though beware–you may be served an innocent looking subpoena to lure you to court with the intention of arresting you the second you step in the courtroom. Once in jail, you’re stuck there until you find some way to pay up. That means raiding your bank accounts, selling your household goods, or proving that you have a job. In case you think that this only applies to deadbeat parents and not you–think again. This case highlights a Georgia man who spent a year in jail for not paying child support–and he wasn’t even the child’s real father!
• Taxes. It goes without saying that you can be sent to prison for not paying your taxes. However, not filing is worse that filing and not paying once you have filed. Penalties for non-filing are worse than not paying your taxes after filing.  The penalty for non-filing is a whopping 47.5% interest (composed of 22.5% for filing late plus a 25% penalty for not filing in the first place). The time limit for hunting down tax evaders is ten years, and seeing as everything now requires a SSN (thanks to the Bush administration), the IRS can, and will, find you. Just type prison for not paying taxes into Google and you’ll find thousands of cases of tax evaders making the news. Of course, there are many thousands more of average Joes who go to jail don’t make the news.
• Credit cards and other consumer debt. Lawyers and collection agencies will find ways to make you pay up, including the threat of prison. While not paying on a  debt is technically not a crime in the United States, there are many cases where innocent people have been sent to jail because they didn’t pay debt. That almost happened to me, and my debt was a very simple one (an insurance company got a default judgment against me). I want to be clear that I was in no way criminally responsible, this was a simple civil matter than concerned my insurance company stating that I was responsible for a house fire because I left a pan unattended on the stove. (You can read the nitty gritty about that in this article).
  What happened to me can happen to you: the collection agency took me to court and won a judgment. The judge ordered me to turn over my financial documents–including my bank account numbers. I had to do this as I was threatened with arrest and contempt of court. After I turned over the documents I went to see a lawyer and told him I did not want to pay this unjust debt. He told me that it was common practice for judges to throw out arbitrary numbers–like $3,000–and give people 24 hours to come up with the money or face arrest. These people are forced to turn over their mortgage payment, go without food, or borrow from relatives to avoid jail. The sheriff’s department gets involved; a policeman friend of mine told me that on “slow days” they just take the latest batch of arrest warrants and go out to see how many people they can find.
• Not paying state surcharges. In certain states, like Texas, there are laws on the books to punish you if you don’t pay motorist fines. People convicted of traffic offenses like DWI, driving without insurance, or even plain old speeding are being hit with surcharges (up to $1,000  per year). Motorists who do not pay the surcharges are hit with an arrest warrant. That’s according to attorney Paul Kennedy, who writes about the comeback of debtor’s prisons on his blog.

Related posts:

1. Yes, there is a Debtors Prison in the United States
2. Federal Debtor’s Prisons Making a Comeback for Credit Card Debt
3. How Long Can You Go Without Paying Your Bills?