When you sign up for a credit card, you agree to pay back the unsecured loan the credit card company gives you when you make a purchase. If you violate the terms of the card by defaulting on payment, you can face a myriad of consequences, but the odds of being prosecuted for fraud are very small. Since the loan was unsecured, your house and car are secure from repossession.
Although you won't face criminal penalties for defaulting on credit cards, you will likely be subjected to a series of heavy civil penalties, ranging from lawsuits to a significant reduction of your credit score.
No Criminal Charges
In the United States, you cannot be criminally charged or sent to prison for defaulting on unsecured debt that you incurred without the intention to commit fraud. However, if you stop making payments on a credit card and don’t notify the credit card company about working out a payment plan, your debt could be turned over to a debt collection agency. Debt collectors might use aggressive tactics to make you pay your debt, but they are restricted by federal law from undue harassment. Collectors who threaten you with criminal charges are breaking the law.
Filing for Bankruptcy
Filing a Chapter 7 or Chapter 13 bankruptcy means that your liability for personal debts will be discharged and you no longer have to pay them. However, not paying attention to your credit card payments because you’re planning on filing for bankruptcy is not a good strategy. If a credit card company can show that you purchased luxury goods or services within 90 days of your bankruptcy filing, you may still be responsible for the charges. In this context, luxury items are defined as things you don’t need for basic survival, such as travel expenses, jewelry, electronics and salon services. Using a credit card to pay for necessary items like groceries or car repair is more likely to be overlooked if you subsequently file for bankruptcy.
Repercussions of Defaulting on Credit Cards
Even though you won’t face criminal charges for defaulting on your credit card, you could be sued in civil court and have a lien placed on your bank account, depending on the state where you live. Other possible consequences include having your wages or tax refund garnished. One of the biggest consequences of having credit card debt discharged is the impact on your credit history. Having nonpayment of a debt on your credit report can make it harder to get low interest rates, a job or an apartment. It pays to think twice before defaulting on any type of debt, secured or unsecured, and to contact your creditors to see if you can come up with a payment plan.
- Nolo.com: Using Your Credit Cards for Luxury Purchases Before Bankruptcy
- Federal Trade Commission: Coping with Debt
- Federal Trade Commission: Debt Collection
- Eastern Illinois University: What Can Happen if I Don’t Pay my Credit Card Bills?
- Equifax. "What Is a Good Credit Score?" Accessed August 30, 2020.
Catie Watson spent three decades in the corporate world before becoming a freelance writer. She has an English degree from UC Berkeley and specializes in topics related to personal finance, careers and business.