MYTH 4: Unpaid Credit Cards Debt Can Put You in Jail
In the Philippines, unpaid debts are considered as civil liability. It is in accordance with the Philippine Constitution, Sec. 20 Article III, stating that no person can be imprisoned due to debt.
Impact on Credit Score and Creditworthiness
Non-payment of credit card debt negatively affects a borrower's credit history. This may hinder future applications for loans or other credit facilities. Additionally, a poor credit score may lead to higher interest rates and less favorable terms in future credit agreements.
Under Philippine law, failing to pay credit card debt, even when it is sent to collections, does not automatically lead to imprisonment. However, this does not mean that the debt can be ignored, as creditors have legal remedies to recover what is owed.
This means that a credit card company has a ten-year period within which to file a case against the cardholder to collect unpaid debts. Once the prescriptive period lapses, the creditor may no longer legally compel the debtor to pay through court action.
For credit card debt, which is considered a personal obligation under contract law, the prescriptive period is typically ten (10) years. This means that the creditor has up to ten years to file a lawsuit to recover the debt, starting from the time the debtor defaulted or failed to meet payment obligations.
In general, most debt will fall off your credit report after seven years, but some types of debt can stay for up to 10 years or even indefinitely. Certain types of debt or derogatory marks, such as tax liens and paid medical debt collections, will not typically show up on your credit report.
Prohibition of Harassment and Coercion
Debt collection practices, including home visits, must not amount to harassment. BSP Circular No. 1048 explicitly prohibits debt collectors from using any form of threat, intimidation, or undue influence to coerce debtors into paying.
The longer you go without paying, the more likely you are to rack up fees, damage your credit score, see your interest rate soar, be harassed by debt collectors, and even face legal issues.
You may also request a credit report from the Credit Information Corporation (CIC) or relevant agencies that monitor financial history in the Philippines. Such reports may include details of any adverse records, including check-related blacklisting.
As a result of the consequences of credit card defaulter, you will have to pay high interest charges on your outstanding balance, your credit card will be blocked, you may be blacklisted from taking any other credits in the future. Moreover, legal actions may also be taken against you.
A fair settlement offer typically falls between 30% and 50% of the total amount owed. However, it's imperative to note that this can vary based on several factors, including how delinquent the account is.
Technically, nothing happens to your debt when you leave the country. It's still your debt, and your creditors and collectors will continue trying to get you to pay it back. Just as they would before, those efforts may include phone calls and letters.
In most cases, you should still be able to repay your debts while living abroad as long as you keep in touch with your creditors and inform them of your change of circumstances. However, depending on your new country of residence, you may encounter problems if you want to pay with your usual bank account.
Your credit score will drop, making it harder for you to get approved for loans, mortgages, or other credit products in the future. Your credit card issuer will charge you late fees, penalties, and higher interest rates, increasing your debt burden.
Unfortunately, it is still technically possible to serve time in jail for credit card debt. However, it is not simply for having debt. It is not legal to criminally charge someone for not paying their debts. It is possible to go to prison for fraud for attempting to use a CPN, however.
Walking away from your debt, also known as defaulting, could seem like your best option if you're struggling to keep up with bills. However, walking away from debt won't solve all of your problems. Your lender can still try to sue you for the remaining amount or sell the loan to a collection agency.
And if your credit card account goes 180 days—or six months—past due, your card issuer will close and charge off the account. In this case, the account is permanently closed and written off as a loss for the company.
If you continue not to pay, you'll hurt your credit score and you risk losing your property or having your wages or bank account garnished.
Debt collectors are not permitted to try to publicly shame you into paying money that you may or may not owe. In fact, they're not even allowed to contact you by postcard. They cannot publish the names of people who owe money. They can't even discuss the matter with anyone other than you, your spouse, or your attorney.
Imprisonment for debt is prohibited by the Philippine Constitution. What is the non-payment of debt consequences in the Philippines? Consequences for non-payments on debt in the Philippines include a civil case for a sum of money, foreclosure, collection fees, and a lower credit score.
So – can a debt collector come to your house? The answer is yes, but they have to follow the rules laid out in the Fair Debt Collection Practices Act. They cannot use profane language or threats, and they can't knock on the door during “unreasonable hours,” which are before 8 a.m. or after 9 p.m.
When it comes to unpaid bank loans, a financial institution may request a travel ban to prevent the debtor from leaving the country until the debt is settled. This legal mechanism is usually rooted in ensuring that the debtor does not evade their financial obligations.
Under the Fair Credit Reporting Act (FCRA), most negative information, including unpaid credit card debt, must be removed from your credit report after seven years. This seven-year period typically begins 180 days after the account first becomes delinquent.
You cannot be arrested or sentenced to prison for not paying off debt such as student loans, credit cards, personal loans, car loans, home loans or medical bills. A debt collector can, however, file a lawsuit against you in state civil court to collect money that you owe.