What happens if you stop paying your debts or ignore debt collectors?

What usually happens, in order?

Not every debt goes the whole way, but when it does, the steps tend to come in this order.

1. Calls and letters. The debt may pass to a debt collector. Collectors are covered by a federal law that prohibits abusive, unfair or deceptive practices, and they are generally prohibited from contacting you before 8 a.m. or after 9 p.m.5
2. Credit reporting. Most negative information can generally be reported for seven years.6
3. A lawsuit. If you are sued, the court papers give a date to respond by. If you do not respond, the court can enter a default judgment for the amount claimed plus lawful fees, interest and costs.3
4. Enforcement. With a judgment, and depending on your situation and your state's laws, the creditor may be able to garnish your wages, place a lien on your property or move to freeze funds in your bank account.3

What rights do you have when a debt collector contacts you?

Ignoring a collector gives up rights that only work if you use them, and most of them must be used in writing.

• Ask what the debt is. A collector must give you validation information about the debt, generally in its first message or within five days after it.7
• Dispute it in time. Once you receive that information you have 30 days to dispute the debt in writing, and a dispute sent in that window makes the collector pause collecting the disputed amount until it responds.7
• Tell the collector to stop contacting you. After a letter saying so, the collector must stop, except to confirm it or to say that it or the creditor may take other legal action, such as a lawsuit.2
• Know what that letter does not do. Stopping contact does not make the debt go away, and the collector can still sue or report negative information to a credit reporting company.2

How much can a creditor take?

Federal law caps wage garnishment for ordinary debts at the lesser of 25% of weekly disposable earnings or the amount by which those earnings exceed 30 times the federal minimum wage.8

The caps are higher for child support and alimony: up to 50% of disposable earnings for a worker who supports another spouse or child, or 60% otherwise. The federal limits do not apply to federal or state tax debts.8

Federal law also bars an employer from firing you because your wages are garnished for any one debt.8

Federal benefits get separate protection. When benefits such as Social Security are paid by direct deposit, the bank must protect two months' worth of them from a garnishment order.9

Much of the rest depends on the state you live in, which is why this guide does not give state figures. A legal aid office or a lawyer in your state can tell you what applies to you.

Does an old debt ever expire?

The debt itself does not, but in many states a statute of limitations limits how long a creditor or collector can use the courts to collect it. Most states set that period between three and six years, and it varies with the type of debt and the state.1

Be careful with old debts. A partial payment, or acknowledging that you owe the debt, may restart the period. And if you are sued on a debt that is too old and do not show up to raise that defense, the court may still enter a judgment against you.1

Which debts are collected in other ways?

Debts owed to government agencies follow different rules. The Treasury Offset Program collects past-due debts owed to state and federal agencies by withholding money that federal agencies are paying to the person, such as a tax refund.10

Social Security benefits can sometimes be garnished to pay money owed to the government, such as back taxes or federal student loans, and for child or spousal support.9

Federal student loans also have no statute of limitations. If a defaulted federal student loan is your main problem, read our student loan guides, because the options there are different.1

What would filing bankruptcy change?

Filing a petition triggers the automatic stay. While it is in effect, creditors generally may not start or continue lawsuits, wage garnishments or even telephone calls demanding payment.4 11

The stay has limits. It does not stop criminal cases or the collection of child support from property outside the bankruptcy estate.12

If the case ends in a discharge, the debts it covers can no longer be collected from you at all.13

Bankruptcy has costs of its own. The Federal Trade Commission describes it as generally a last option because of its long-term effect on credit, and it can stay on a credit report for up to 10 years.14 15 16

What can you do now?

Even if you are not ready to decide about bankruptcy, a few steps protect you.

• Open your mail, and respond to any lawsuit by the date in the court papers.3
• Keep letters from collectors and notes of calls.
• If your federal benefits go into a bank account, direct deposit is what triggers the automatic protection.9
• If you are behind on a mortgage, a HUD-approved housing counseling agency provides foreclosure prevention counseling free of charge.17 18
• Look for free legal help if you cannot afford a lawyer.19 20