First of all we need to be clear about what is meant by unsecured debt. Most loans and debts will fall into one of two categories, secured or unsecured. A secured loan is secured against some asset you own, usually your home. What it means is that if you default on the loan, you can lose the asset. A mortgage is a loan secured against your house, and if you fail to keep up payments, your home can be sold to repay the debt. If you own your own home, It is generally much easier to get a secured loan, because the lender knows that even if you default on payment they can get their money back by selling your home. Loans can also be secured against other property, such as your car.
Unsecured loans or debts are basically every other type of loan or credit. Normal personal loans, credit card debts, bank overdrafts, catalogue debts, etc are all forms of unsecured debt. You will generally need to have a reasonable credit rating to get this kind of loan in the first place. This is because the lender does not have the valuable asset to fall back on, so they wants to be sure you have a good track record and the means to repay what you have borrowed.
Can A Creditor Sue Me For Unsecured Debt – The Likelihood of Legal Action
If you legitimately owe money to a company then the bottom line is that they are entitled to sue you to get it back. This would normally involve court action that could result in a court order against you ordering you to repay the money. The court would decide what you could afford and how much the repayments would need to be. Whether the company does decide to sue you is another matter, and will depend on many things. Legal advice and court action cost money, so it is unlikely that a company will want to spend a lot to recover a very small debt (though they will probably threaten it in an attempt to get you to pay up).
They will probably try to assess your situation and how likely and capable you are of repaying what you owe. If you have a steady job, own your own home and have lived in the same place for a while, they may well decide you should be able to pay and that it would be worth suing you. Alternatively, they may cut their losses and sell your debt to a collection agency for a small proportion of what you owe. Your debt will then be with the collection agency, who will do all they can to get the money from you, and may in turn take legal action themselves.
Can A Creditor Sue Me For Unsecured Debt – The Process of Being Sued
If you are about to be sued for an unsecured debt it is important to take proper legal advice. The processes of being sued for debt are very similar in the UK and the US. In the UK the creditor will make what is called a Money Only Claim through the county court. You will know this has happened if you receive notification from the court, and this will include a form which you must complete and return.
If the court finds in favour of the creditor, a County Court Judgement will be made against you. This is clearly not a good thing, but may not be as bad as you think. In practice what it means is that you will be ordered by the court to repay what you owe. The court ought to look at your circumstances in detail and come up with a repayment schedule that is based on what you can actually afford. The county court judgement will obviously show up on your credit record.
Can A Creditor Sue Me For Unsecured Debt – After Being Sued
If you are sued and a judgement is made against you, it is then particularly important to stick to the terms of what the court has ordered you to do. It really is vital that you do all you can to keep up with the repayment schedule that has been set, otherwise the possible penalties can go to a whole new level. If your circumstances change or you are not able to keep up with payments, you must tell the court straight away and see if the terms can be renegotiated. Never ignore the issue or just stop paying.
The possible consequences for not complying with the court order include having your assets taken by bailiffs or having money deducted directly from your wages (known as an Attachment of Earnings in the UK or Wage Garnishment in the US). Not complying with such an order could then lead to imprisonment.
Can A Creditor Sue Me For Unsecured Debt – Conclusions
Clearly it is preferable to take steps to deal with your debt before getting to the stage of being sued. The best starting point is always to speak to your creditors and make them aware of exactly why you are unable to keep up with repayments, and try to negotiate new terms for paying back the debt. It will never help to just stop paying and not communicate with them. Most debt problems can be dealt with in this way, and free help is available to guide you through that process.
K.D. Garrow has been a senior manager for the last twenty years, with considerable financial responsibility and experience. His website dealing with debt cures provides a detailed step by step guide on getting out of debt without borrowing or spending more money. It also has information on many other debt related issues including debt consolidation, credit cards, loans, IVAs, bankruptcy, etc.