What Happens When You Miss a Credit Card Payment?

Missing a credit card payment can happen to anyone, but it’s important to understand the consequences and take action quickly to minimize the damage. It is important to understand what happens after a missed payment, what creditors and debt collectors can do, and how to protect yourself from long-term financial harm.

1. Immediate Impact When You Miss a Credit Card Payment: Late Fees and Interest

Most credit card issuers charge a late fee as soon as your payment is past due. This fee can range from $8 to $40, depending on your card’s terms. Additionally, you’ll continue to accrue interest on the unpaid balance, which can add up quickly.

If you’re still within a few days of the due date, some card issuers may waive the late fee if you contact them and make the payment immediately. If you never have missed a payment before, most credit card companies will waive the first late fee, upon request.

2. After 30 Days: Credit Score Damage

If your payment is more than 30 days late, your creditor can report the late payment to the credit bureaus. This can cause a significant drop in your credit score. Depending on your payment history and credit profile, the impact could be anywhere from 60 to 100 points.

Late payments stay on your credit report for seven years, though their impact decreases over time.

3. 60+ Days Late: Higher Penalty APR

Once your account is 60 days late, many credit card issuers will apply a penalty APR. This is a much higher interest rate (often around 29% or more) that can increase your monthly payment and make it harder to pay off your balance.

This penalty APR can remain in place indefinitely unless you make at least six consecutive on-time payments.

4. 90+ Days Late: Account Delinquency and Charge-Off

At around 90 to 180 days of missed payments, the creditor may charge off your account. A charge-off occurs when the creditor writes off the debt as a loss, but that doesn’t mean you’re off the hook. Instead, the debt is often sent to collections or sold to a third-party collection agency.

A charge-off is reported to the credit bureaus and will severely damage your credit score. It stays on your credit report for seven years, and can have a negative impact on your credit.

Many people incorrectly believe that a charge-off means you no longer owe the money. It is just an internal accounting process done by the creditor. The creditor is basically establishing that the borrower likely will not be paying off the debt as agreed and the creditor is writing the debt off their taxes as bad debt. If the creditor collects in the future, it is no longer consider debt repayment to them, but income. This does not change the borrower’s legal obligation.

5. After a Charge-Off: Collections

Once your debt enters collections, you may start receiving frequent calls and letters from a collection agency. Collections can feel overwhelming, but it’s important to understand your rights under the Fair Debt Collection Practices Act (FDCPA). Debt collectors are legally prohibited from:

• Harassing you with constant calls.
• Threatening violence or using abusive language.
• Contacting you at unreasonable hours.

However, they are allowed to negotiate payment terms and may offer to settle the debt for less than the full amount owed. If you can reach an agreement, get it in writing before making any payments.

6. Potential Lawsuit

If the debt is not resolved in collections, the creditor or collection agency may file a lawsuit to recover the debt. You will receive legal documents notifying you of the lawsuit and your obligation to respond. If you don’t respond, the creditor can obtain a default judgment against you.

7. What Can a Creditor Do with a Judgment?

Once a creditor obtains a judgment, they have several tools to collect the debt, including:

1. Wage Garnishment: In many states, including Virginia, a creditor can garnish your wages, meaning a portion of your paycheck is withheld and sent directly to them. Federal law typically limits garnishment to 25% of your disposable income, but state laws may vary.
2. Bank Account Levy: The creditor may be able to freeze and withdraw funds from your bank account to satisfy the judgment. This can be particularly stressful if it happens without warning.
3. Property Liens: A creditor can place a lien on your property, such as your home. While this usually won’t force a sale, it can prevent you from selling or refinancing the property without first paying the debt.
4. Seizure of Non-Exempt Assets: In rare cases, a creditor may be able to seize non-exempt personal property, though this depends on state laws and exemption protections.

Judgments typically remain enforceable for at least 10 years in Virginia and can be renewed, allowing creditors to pursue collection efforts for an extended period. Many states also allow for extended collection periods for judgments. Stopping a garnishment can be very difficult after a judgment.

Defending Against a Lawsuit

If you’re sued, you don’t have to accept a default judgment. You may have legal defenses such as:

1. Statute of Limitations: If the debt is too old (in Virginia, typically 3 to 5 years for most unsecured debt), you can raise this defense to have the case dismissed.
2. Improper Documentation: Collection agencies sometimes fail to provide proper documentation showing they legally own the debt.
3. Incorrect Debt Amount: The debt amount claimed may be inflated due to improper fees, interest, or errors.

Responding to a lawsuit is crucial. Failure to appear or respond can result in an automatic judgment against you.

The Impact of a Judgment on Your Credit Report

Judgments themselves may not appear on your credit report under current rules. However, the events leading up to the judgment—such as late payments, charge-offs, and collections—remain on your credit report for seven years. Lenders may still discover judgments through public records or background checks.

How to Prevent Future Missed Credit Card Payments

1. Set Up AutoPay: Automatic payments can help ensure you never miss a due date.
2. Track Your Bills: Use a budgeting app or payment calendar.
3. Prioritize Minimum Payments: Paying at least the minimum amount can prevent late fees and credit damage.
4. Communicate Early: Contact your creditor if you can’t make a payment. Many offer hardship programs that can reduce or defer payments.

When Bankruptcy Might Be the Best Option

If you’re facing multiple lawsuits, garnishments, or overwhelming debt, bankruptcy can provide relief:

1. Automatic Stay: Filing bankruptcy immediately stops all collection efforts, including lawsuits, garnishments, and creditor harassment.
2. Debt Discharge: In Chapter 7 bankruptcy, unsecured debts like credit cards are often discharged, meaning you no longer have to repay them.
3. Structured Payment Plan: In Chapter 13 bankruptcy, you can catch up on debts through a manageable payment plan while halting further collection actions.

FAQs About Missing Credit Card Payments and Collections

1. Can I negotiate a debt settlement after a charge-off?
   Yes, but be aware that forgiven debt over $600 may be reported to the IRS, and you may receive a 1099-C for taxable income.
2. What happens if I ignore a debt lawsuit?
   Ignoring a lawsuit usually results in a default judgment, allowing the creditor to garnish wages, freeze accounts, or place property liens.
3. Will paying a charged-off debt improve my credit?
   It may. It usually depends on what else is reporting on your credit, how old the charged off debt is, and other factors.

Need Help Managing Debt or Stopping Collections? Contact Us Today!

Call Ashley F. Morgan Law, PC at 703-880-4881 or schedule a free consultation.