Ignoring Debts: Attractive Option or Disaster Waiting to Happen?

It might seem like the perfect solution to that stack of bills taunting you on your counter: to push them out of sight and to hope for the best. This, essentially, is what some individuals choose to do when faced with debt trouble. If you do not monitor your bank accounts to see that your funds cannot cover all of your charges, then maybe the problem does not really exist!

Of course, this financial coping mechanism seems a lot more attractive in our minds than it does when reality plays itself out. It should come as no surprise – but might require quite a bit of self-discipline to come to terms with – that ignoring one’s debts is not a good debt relief strategy in the long run. In fact, it usually is a horrible idea.

Nonetheless, there always are exceptions to the rule. So before we discuss the probable effects that come from doing nothing about one’s debts, we first will set forth a couple of scenarios in which doing nothing in the face of debt might actually be the best option.

Doing Nothing as the Best Strategy

The primary situation in which doing nothing about a debt might be the best option is when the statute of limitations on a debt is about the run out. A statute of limitations on a debt is the period of time following the last activity on an account during which a lender may successfully sue for repayment of the debt. Once the statute of limitations runs out, you have an absolute defense in court against a lender who tries to sue you for repayment.

The clock on the statute of limitations starts ticking either from the date on which a payment on an account was due but not received, or from the date on which a creditor wrote off the balance as a “bad debt”. The length of the time period itself varies from state to state (State Statutes of Limitations).

If a lender is attempting to collect a debt on which the statute of limitations is very close to expiring, then this is one situation in which it almost certainly is best for you to take no action. If you make a payment before the statute expires, even just a partial payment in some states, then the statute of limitations will start over again from the beginning and the lender then will have plenty of time to sue you for repayment.


Another situation in which doing nothing about a debt might be worthwhile is when you are in the midst of an uncertain financial future. If you are having trouble making payments but are not sure what the immediate future holds (such as if you are in between jobs), then it might be a good idea for you to hold off on negotiating with your creditor or making payments until your situation is more stable.

In cases such as this, however, one action that you should not ignore is seeking out financial assistance. Doing nothing about a debt can be a dangerous game to play, so you want to be sure that you are playing the game properly. You might consider working with a credit counselor.

The Dangers of Doing Nothing

In most cases, of course, doing nothing about your debts will not pay off in the long run. What will happen in your unique case of ignoring a debt really depends upon the tactics of your individual creditor.

Maybe you never will hear a word and never will have to pay a thing. On the other hand, maybe your property will be seized or your wages will be garnished. Once you miss a payment or two on your debt, you probably will get a pretty good idea about how forcefully your creditor will press you for payments.

Since you never can be sure, you had better be prepared for the worst. The normal consequences that may result from ignoring a debt differ depending on whether the debt in secured or unsecured.

Secured Debts

Secured debts are those that are backed by collateral of some kind – such as a home mortgage or an auto loan. In general, ignoring such “major” debts is one bad idea. You generally can count on the property that you used as collateral being seized by your creditor should you ignore your debt. Such action could occur as soon as few months after your first missed payment.

Once your property has been taken, this does not necessarily mean that your account has been settled. If there still is a balance remaining on your account, then the lender might take legal action to obtain the rest of your debt.

As far as secured debts go, even if you have missed payment after payment without hearing one word from the creditor, chances still are very good that you are not home free. There is nothing to stop your lender from seizing your property, so you almost certainly want to look for new debt option.

The sooner that you can deal with your problem, the better -- especially in the case of a secured debt. Nonetheless, even if doing nothing has been your plan up until this very moment, it is not too late to try a different alternative.


It usually is not as difficult to negotiate with lenders as people assume, so either you or someone working on your behalf, such as a debtors’ attorney, should try to come to an agreement with your lender. You will need some money in order to negotiate, so even if doing nothing is your total and complete plan right now, you still need to use your money wisely for the future.

If, for whatever reason, you are not making payments on a debt, you absolutely should not be using that money for other expenses instead. For example, if you fail to make a payment because you have only 70% of the amount due instead of the whole thing, then save that 70% to use for potential negotiations. Planning for the future definitely is one thing that you cannot do nothing about.

Unsecured Debts

It might seem that the results of ignoring an unsecured debt cannot be as significant as ignoring a secured debt, but lenders of the former have their own tactics to get you to pay up as well.

While lenders of unsecured debts do not have the right to seize your property just because you have failed to pay, they can – and do – sue for payment. The results of such judgments can give lenders the right to seize property and/or to garnish debtors’ wages.

Your lender might also begin charging a penalty interest rate on your account, which definitely will not make it any easier for you to pay. If the account in question is a credit card, then you might find the principle of “universal default” going into affect – if one account is overdue, then interest rates on all of your credit cards might rise.

A lender almost certainly will put a negative mark on your credit report as well, the results of which can be dramatic. Such a mark can:

• Make it difficult to secure an apartment. The realtor might avoid renting to individuals with damaged credit.

• Make it difficult to obtain a job or promotion. The employer might not want to work with someone who has been irresponsible with finances.

• Make you ineligible for attractive interest rates.

• Make you ineligible to secure new credit.

• Raise your insurance rates.

Conclusion

“Out of sight, out of mind” is just not a good motto when it comes to finances. In the great majority of cases, doing nothing about a debt only will make it worse in the long run. At the very least, contact a debtors’ attorney or a credit counselor about your financial concerns, or consider working with a debt management company.