Debt is a subject that many people find difficult to discuss. But the failure to clarify questions can cause confusion and needless worry.
A recent USA Today story listed these five questions that are common among debtors and the answers:
Will my debt ever get so old I don’t’ have to pay it? Many debt types, including credit card and medical bill balances, have a statute of limitations. The guidelines vary from state to state, but in general, these debts are dropped three to six years from the first missed payment or most recent payment. After seven years in most cases, the negative reports fall off your credit rating. But the debt is still collectible and you could be dunned by debt collectors. However, they are not able to sue you.
When family members die, might I be stuck with their debt? How the death of the debtor affects the debt varies, including how dependable the finances are of the person who might then become liable. The assets of the deceased may have to go toward paying off debt. The creditor has to absorb the loss if there is not enough to cover the debt. If you co-sign on a debt, chances are you will be liable if the major debt holder dies. Co-signing on mortgages and other loans may make you responsible. Don’t co-sign on credit accounts unless you have enough life insurance to cover the debt.
Can I be arrested for debt? Federal law prohibits debt collectors from threatening you with arrest or jail. Some collectors may threaten you with an arrest warrant but it’s uncommon. But you can be sued. About 90 percent of those sued for debt fail to appear in court, leading to a default judgment ordering repayment. Ignoring a court summons is a mistake. The court may order that payments be made directly from your wages or bank account.
Is there a maximum amount of debt I can accrue? No. Lenders may offer more credit than you can reasonably repay. Debt may be necessary to purchase a home or to build a business, but be realistic about your ability to repay. Avoiding the issue is easier than dealing with it after the fact.
Will bankruptcy erase all my debt? Some debts, including alimony and child support, cannot be erased by bankruptcy. Student loans, tax debt and judgments also are difficult, though not impossible, depending on the circumstances. If you are buried in debt and struggling to stay afloat, consult a credit counselor (there are those who are available through non-profit agencies) to see if bankruptcy is the answer for you.