My question is theoretical, I don't understand why people say that big piles of debt are dangerous. If one has a lot of unsecured debt and ends up defaulting on it then one does not even have to declare bankruptcy and part with one's assets. What are the bad consequences of defaulting on unsecured debt? I understand that there would be a certain difficulty getting new debt down the road, but what if one decides to never deal with the credit system again?

Some think that dealing with collectors is unpleasant, but that is probably the least unpleasant thing in this whole scenario. Nothing prevents one from just not responding to collectors' calls at all.

Update: Some have mentioned about or hinted irresponsibility with handling of money, but my question was not about it, I think too many personal emotions have been introduced into some responses. But even with that, consider a situation when lockdowns cause massive unemployment and it's not people's fault that they default on their debt when they are just forced out of their jobs and unemployment rate rises to all time highs (think about the Great Depression).

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    You've just cheated your creditors out of a lot of money, and have to live with that. – jamesqf Oct 23 '20 at 3:40
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    What country are you interested in, hypothetically? Bankruptcy laws vary across countries. – D Stanley Oct 23 '20 at 12:55
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    Did you know that in most cases you are not released from the obligation to pay student loans when you declare bankruptcy? And that there are certain debts that are never discharged even in bankruptcy? – Zibbobz Oct 23 '20 at 16:01
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    If you get taken to court without declaring bankruptcy you will then have a legal obligation to pay the judgement. Creditors and collectors don't give a flying F about you and there's no reason they should; you've spent their money and are not paying it back. They will happily call your work, family, friends, and anyone else they can get a hold of to get their money. When this happens you have not only damaged your report but also all of your relationships because EVERYONE will know that you are flaky with money. New employers run background checks for a reason, too. – MonkeyZeus Oct 23 '20 at 17:31
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    I don't understand your edit. I don't see blaming in the answers, just some examples of consequences of piling up debt and then not paying it. Creditors don't care if you were unemployed through no fault of your own, they still want their money back. People deciding whether to trust you with their money or property will take the person who pays back money as promised over you, it won't matter how good your reason is for not doing so. – Kat Oct 23 '20 at 22:59

Your assets can be seized anyway

The main difference between secured and unsecured debt is that secured debt has a simplified priority claim on the specific assets. However, unsecured debt still has a claim on all your assets - it's just that collecting them is more involved and may require a court judgement. For small debts, the lender might choose not to spend too much effort, at least initially - a few calls from a debt collector are cheaper than going to court. However, if they consider that the effort is worth it, they can sue you for debt collection and get a civil judgement with a lien on your property, your bank accounts and garnish part of your wages, even if you don't respond to collectors calls and don't want to get credit ever again.

The main difference between losing your assets in a bankruptcy and losing your assets this way is that bankruptcy erases the remainder of unpaid debt. If you simply have your assets seized, but that's not sufficient to repay the debt, then you still owe them money that can be seized from your future paychecks over a long time.

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    @sequence The bank can foreclose on a house (or repossess a car for another example of seizure). And a judge can force you to sell assets to pay of debts as part of a judgment. – D Stanley Oct 23 '20 at 12:56
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    And the answer tells you that it doesn't matter in the end result. You owe them money, you have stuff, either you give them stuff or you sell the stuff and give them money. – Nij Oct 23 '20 at 20:29
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    @sequence while usually other means of collection will be preferred, it is possible for the court to order to sell your primary residence to cover unsecured debt in certain conditions which depend on where you live. For example, in California the 'homestead exemption' for an unmarried individual under age 65 with no dependents should be $75,000, so your home is protected only if it is worth less than that (minus any mortgage), but if your equity in your primary residence is, say, $200,000 then creditors can force the sale to pay off your debts and you'd need to move somewhere cheaper. – Peteris Oct 23 '20 at 20:45
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    One additional point along this line, is that a judgement may also result in garnishing your wages. Moving to a new job may give temporary relief until your new employer has the correct paperwork sent to them. – Michael Richardson Oct 23 '20 at 21:08
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    @sequence I was interested as well so I looked it up. Evidently its called 'non-earnings garnishment' in the US. And it covers creditors collecting income from sources other than wages. – jmathew Oct 23 '20 at 22:16

Yes, you can choose not to deal with the credit system ever again, but this privilege evaporates if you need to rent a house, own a house via mortgage, lease a car, or own a car via loan.

If you don't have the cash then you have substantially worse options.

If you do have the cash then you will be fine. You can also pay off your old creditors to get even better options.

Even if you do have the cash and merely want to rent a place to live, many landlords will turn you away and you wind up in less desirable neighborhoods which are often correlated to poverty and crime.

  • Leasing a car or getting a car loan is also part of dealing with the credit system. – sequence Oct 23 '20 at 7:26
  • Even if you intend to rent and pay cash, a lot of landlords will still run a credit check before renting the place to you - if you've got a history of bailing on debts, good luck even renting a place with cash. Your options are to buy a house with cash or live in a van or other sketchy rentals that don't ask questions. – J... Oct 23 '20 at 15:34
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    @sequence thats what it says? it says the privilege evaporates, which is because those are all credit objects. you think it needs to explicitly say that? The point is that these are common occurrences in people's lives so there are ongoing consequences for not paying off debt. – CQM Oct 23 '20 at 15:47
  • @J... From my experience it's only in about 20% of cases that landlords run credit checks. And I'm not talking about "sketchy" places. – sequence Oct 23 '20 at 20:28
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    @sequence I understand that. You simply need a lot of cash to get the best of society without credit, but if you can't get that and ever need to rent/lease/mortgage, then you don't have as many options and your quest fails. That's the answer. – CQM Oct 23 '20 at 21:03

In addition to the possibility that you may be forced to pay the debt (plus substantial court fees) whether you want to or not, there are also jobs which you'll be disqualified from if your credit history is terrible. It makes you vulnerable to bribes and temptations to steal/embezzle. Definitely kiss goodbye any sort of security clearance.

It's easy to say "oh I don't care to get more debt, so my credit history doesn't matter", but your credit history is used for lots of things. Some phone plans will run credit checks (since you can charge stuff to your phone bill). Some insurance companies charge you higher rates if your credit history is bad. You might even have trouble with relationships because getting married to someone with a lot of debt is a big gamble. And, of course, if you die with any assets left, they'll go to pay off your debt (along with hefty fees and interest) instead of your heirs.

It's possible to get around all these things and run out the statute of limitations, but it'll likely make your life a lot more difficult.

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    Some jobs also use credit history in it's hiring decisions. I've seen a variety of positions that routinely handle money that requite a credit history check. From cashiers to bank tellers, to working with accountants, and many higher end management (like CxO) positions. They use the logic that if you can't handle your own money, you won't know how to handle their money; and you'll also statistically have a higher probability of stealing from the company than someone with good credit. – computercarguy Oct 23 '20 at 19:04
  • @computercarguy That's why it's much more preferable to be self-employed. However, I've never had a credit check on me done by an employer, and the jobs were qualified. – sequence Oct 23 '20 at 21:40
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    @sequence as someone who runs their own business, as a side gig, I know that your credit score is even more important as an owner so that you can get loans to grow your business. Your first business loans are going to be based off your personal score, since the business doesn't have one yet. If you trash your personal credit, you aren't going to be able to get a business loan. That includes trying to buy or rent a location, secure any large or medium scale manufacturing runs, and all kinds of other stuff. You might not even be able to qualify for a business credit card. – computercarguy Oct 23 '20 at 21:51
  • @computercarguy isn't that what my answer says? Or are you responding to something besides my answer? – Kat Oct 23 '20 at 22:49
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    @sequence neither of us said all jobs require a credit check, just that it's common, at least in the USA (you didn't include a location so maybe it's different where you are). – Kat Oct 23 '20 at 22:55

Potentially, you could (eventually) face jail time.

If you live in a state that allows it, when you fail to follow a court's order to appear for a hearing or make a payment, then you may be held in civil contempt of court. If you are in contempt because you failed to follow an order, the court can issue a warrant for your arrest. Once arrested, you go to jail and remain there until you post a bond. Interestingly, the bond is set in an amount that just so happens to equal the amount of the judgment that he creditor took against you.

Technically, this does not amount to a debtor's prison because you are going to jail not for failing to pay the debt, but for failing to follow a court order. However, for the debtor, the end result is the same.


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    What if you are unable to pay, do you get indefinite jail time for that? Why would this be considered to be in contempt simply if you are physically unable to pay? – sequence Oct 23 '20 at 22:49

The main difference between secured debt and unsecured debt is that the ones with secured debt come first. The other difference is that it is slightly harder to make you pay unsecured debt, but not much. In the end, you’ll have to pay your debt.

And if you consider that you somehow can get away with not paying: if you owed me £10,000 and I was sufficiently annoyed, I’d find someone who calls himself “debt collector” and buys the debt off me for £3,000. And who would make you pay (if you value your health).

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    You mean you'd hire a criminal? – sequence Oct 25 '20 at 0:01
  • @sequence yes, that was the implication: that he will hire thugs to go to your house and beat you up. Of course, not easily traceable back to him. – user253751 Oct 26 '20 at 10:36
  • @user253751 Not that it's likely that banks would go the same route. Also depends on what country gnasher729 lives in, maybe there hiring a criminal debt collector is widespread. – sequence Oct 26 '20 at 21:24

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