The worst penalty that people could get for failing to pay their debt is imprisonment. Creditors can pursue debtors for unpaid loans by filing a lawsuit especially if it is their only option to get paid. It's worth noting, though, that this option is barely taken unless it is necessary.
If getting imprisoned for not paying debt seems to be a far-fetched idea, then what are the immediate and direct penalties that borrowers may encounter for not paying their debts?
First off, loan penalties depend on the type of loan a person applied for and the terms and condition. The penalties that are stated in loan agreements are often not in any form of criminal offence.
Based on typical loan agreements, the first type of penalty that a borrower may encounter is the acceleration clause. Acceleration clause is a contract provision that gives creditors the right to require borrowers to pay the outstanding loan under certain conditions, such as failure to make payments.
So if a person fails to pay his or her outstanding balance, the entire balance becomes due and payable immediately. The lender will send a notice to the borrower reminding the latter of his or her unpaid due balance and the options that the firm's legal department would take in case of the borrower's failure to pay.
The penalties that moneylenders may impose vary. Some add interest to the outstanding balance as a penalty for not settling the balance within the specified period of time. If the moneylender did not receive any payment, a legal suit may be filed against the borrower. For secured types of loans, however, the lender can seize the collateral instead of filing legal charges against the borrower for failing to pay.
If in case the money lender wins against the borrower, the punishment that a borrower may face would be wage garnishment. Through this, the moneylender will be able to take a percentage of the borrower's salary until the entire debt or loan is paid off.
If getting imprisoned for not paying debt seems to be a far-fetched idea, then what are the immediate and direct penalties that borrowers may encounter for not paying their debts?
First off, loan penalties depend on the type of loan a person applied for and the terms and condition. The penalties that are stated in loan agreements are often not in any form of criminal offence.
Based on typical loan agreements, the first type of penalty that a borrower may encounter is the acceleration clause. Acceleration clause is a contract provision that gives creditors the right to require borrowers to pay the outstanding loan under certain conditions, such as failure to make payments.
So if a person fails to pay his or her outstanding balance, the entire balance becomes due and payable immediately. The lender will send a notice to the borrower reminding the latter of his or her unpaid due balance and the options that the firm's legal department would take in case of the borrower's failure to pay.
The penalties that moneylenders may impose vary. Some add interest to the outstanding balance as a penalty for not settling the balance within the specified period of time. If the moneylender did not receive any payment, a legal suit may be filed against the borrower. For secured types of loans, however, the lender can seize the collateral instead of filing legal charges against the borrower for failing to pay.
If in case the money lender wins against the borrower, the punishment that a borrower may face would be wage garnishment. Through this, the moneylender will be able to take a percentage of the borrower's salary until the entire debt or loan is paid off.
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