Debt collectors can take several actions if you ignore their letters, including filing a lawsuit, reporting to credit bureaus, and using debt collection tactics. To avoid these consequences, it's important to respond to collection letters promptly and take steps to resolve the debt.
Ignoring debt collection letters can lead to serious financial consequences, especially if you live in Minnesota, where debt collection laws have particular nuances. Failing to address these letters could impact your credit score, result in legal action, or lead to wage garnishment.
Because of the harsh consequences, it's important to discuss the effects of ignoring collection letters with an Minnesota debt collection defense attorney. A summary is also helpful, and you can benefit from an overview of how bankruptcy could be an option to alleviate debt pressures.
If you are unable to pay your debts, your creditors will begin to contact you to collect. These attempts typically begins with telephone calls. A customer service representative may call you and ask you to make a payment over the telephone or commit to a date you will make the payment. If you do not make the payment, the telephone calls become increasingly hostile and increase in number. Some may even the line into violations of the Fair Debt Collection Practices (FDCP).
When a debtor continues to ignore debt collectors through telephone calls, creditors turn to letters. The first few letters you receive from your creditors or a collection company may have a nice tone; however, if you ignore collection letters, the letters grow increasingly threatening.
Most creditors eventually turn your account over to a collections agency, debt collection attorney, or credit reporting company. Debt collectors and debt collection attorneys can be relentless in their attempts to collect a debt.
However, when you simply do not have the money left over at the end of each month to pay your creditors, you probably feel the only option you have is to ignore the collection letters.
In most cases, the consequences of ignoring collection letters depend on the type of debt and the creditor. However, in most cases you can expect at least the following collection attempts if you ignore collection letters.
Your credit score will decrease.
Unpaid balances will collect interest and incur late fees at a high rate.
Eventually you will be dealing with an aggressive debt collector or debt collection attorney.
Your stress level will increase as you deal with more letters, telephone calls, and collection attempts.
Many times, the debt collector sues to recover the debt.
Your property may be seized or levied.
When you ignore a collection letters from a debt collection agency, it doesn’t mean the problem goes away. In fact, failing to respond can severely damage your credit score. Debt collectors typically report unpaid accounts to credit bureaus, which can result in negative marks on your credit report.
For consumers in Minnesota, a bad credit score can impact more than just future loan approvals. The score is linked to your personal or financial information, so it can affect:
Your ability to secure housing
Whether you qualify for credit cards
Your impression before potential employers
The longer you delay addressing the debt, the worse the consequences become for your financial future.
Ignoring collection letters may also lead to more aggressive collection actions. If a creditor sues you and wins a judgment, they may legally garnish your wages, bank accounts, or even certain government benefits.
Minnesota law on wage garnishment allows creditors to garnish up to 25 percent of your wages in most cases. Additionally, creditors can place a levy on your bank account, freezing and seizing funds to cover unpaid debts.
While some forms of government assistance, like Social Security, are generally exempt from garnishment, creditors may still pursue other sources of income.
Below are four scenarios regarding different types of debts, illustrating the progression of collection efforts if you do not respond to the collection letters.
When you are suffering a financial crisis, it is easy to get behind on one or two mortgage payments because you intend to catch up on them as soon as things turn around. Unfortunately, your mortgage lender may not be willing to wait on things to turn around. Most mortgage companies begin with telephone calls followed by letters.
If you continue to ignore the collection letters, the mortgage company will turn the account over to a foreclosure attorney. Because this unpaid debt is secured by your home, the logical step for the mortgage company is to hire an attorney, serve foreclosure notices, and sell your home at a foreclosure sale.
Filing a Chapter 13 bankruptcy case can stop the foreclosure so that you can keep your home. Instead of paying the entire balance of past due bills in one lump sum as the mortgage company has been demanding in the collection letters, your past due payments will be paid over a 60-month bankruptcy plan.
Credit card debt is unsecured; therefore, if you do not respond to collection letters, the credit card company will turn the account over to a debt collector or sell to a debt buyer. In most cases, the debt collector or the original creditor will eventually retain an attorney to file a collection lawsuit.
If you do not pay the debt or respond to the lawsuit, the judge will grant the credit card company a default judgment in the amount of the debt plus attorney fees, court fees, and costs. The judgment will accrue interest from the date of the judgment until it is satisfied.
The credit card company can go back to the judge and request that the judge require you to appear in court to disclose your assets to determine if you have assets for the creditor to seize and sell to satisfy the judgment.
Filing a Chapter 7 or a Chapter 13 bankruptcy case immediately stops collection lawsuits preventing a default judgment. Regardless of whether the lawsuit is in progress or a default judgment has been granted, the debt will be discharged through your bankruptcy.
Student loan companies will eventually garnish your wages if you continue to ignore the debt and fail to respond to collection letters. In most cases, student loan companies can garnish your wages for the debt.
Even though student loans are not eligible for a discharge in bankruptcy, filing a bankruptcy often gives you the debt relief you need to pay your student loans and avoid wage garnishments.
Car loans are much like mortgages — the loan is secured by property the creditor can seize to pay the loan. Unlike mortgage lenders, creditors with car loans do not wait as long to take action to collect the debt when you do not respond to collection letters. In most cases, the lender retains a repossession agent to seize your car in the middle of the night, while you are at work, or while you are shopping.
If the repossession is “peaceful” (you do not object to the repossession), the lender does not need a court order to seize your vehicle. This is why most repossessions occur at night or when you are otherwise occupied and unable to object to the repossession.
Filing a Chapter 13 bankruptcy will save your car in the same way it will save your home. The bankruptcy filing prevents the creditor from repossession your vehicle while you reorganize your debts.
In most cases, the full amount of your car loan is included in your bankruptcy plan and paid over 60 months. This can lower your monthly car payment and, in some cases, lower the interest rate on the loan.
If you're receiving collection letters, it’s important to understand the legal options available for repaying your debts. Minnesota has a statute of limitations that limits how long creditors can sue you for unpaid debts. However, acknowledging the debt or making a payment could reset the clock on this timeline.
One way to stop collection efforts is to work out a payment plan or negotiate a debt settlement. Many collectors are willing to negotiate reduced payments if you communicate with them. Simply ignoring collection letters won’t help resolve the situation and may lead to additional financial stress.
For individuals overwhelmed by debt, filing for Chapter 7 bankruptcy in Minnesota may be a viable solution. Chapter 7 bankruptcy discharges most unsecured debts, such as credit card debt and medical bills, allowing you to start fresh.
When you file for Chapter 7 bankruptcy, an automatic stay goes into effect, which stops creditors from continuing collection efforts, including wage garnishment and bank account levies. This can provide immediate relief from the financial pressure caused by unpaid debts.
However, it's important to note that not all debts are dischargeable under Chapter 7, such as certain tax debts or student loans.
If you have a steady income but are struggling to keep up with debt payments, Chapter 13 bankruptcy might be the better option. Chapter 13 allows you to reorganize your debts into a manageable payment plan over three to five years.
For Minnesotans facing wage garnishment or other collection actions, filing Chapter 13 can halt these efforts while you work to repay your debts. Once you complete the payment plan, any remaining qualifying debts will be discharged.
Unlike Chapter 7, this option allows you to retain more assets, such as your home or car, while still addressing your debt.
When a debt collector contacts you via letter, respond promptly to avoid further action. First, verify that you owe the debt by requesting a debt validation notice within 30 days of receiving the letter. This ensures the debt is accurate and legitimate.
If the debt is valid, consider negotiating a payment plan or settlement with the creditor. In the event of errors, make sure to respond with a dispute letter.
If you're unable to pay, explore legal options like bankruptcy. Ignoring the letter can lead to wage garnishment, lawsuits, or further collection efforts, so taking timely action is crucial to protecting your financial and legal standing.
Don't let debt drag you down any longer. LifeBack Law Firm, P.A. is here to help you break free from financial burdens and reclaim your life. Our experienced attorneys can assist with collection letters, and we're ready to explain details about bankruptcy. We understand that dealing with debt can be overwhelming, but you don't have to face it alone.
Take the first step towards financial freedom today by scheduling a free consultation with one of our knowledgeable attorneys. You can go online or call us directly at 844.277.9650. We'll work with you to develop a personalized plan to address your unique situation and help you find the relief you deserve.