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The worst kind of penalty that people could get for failing to pay their debt is imprisonment. Lending companies can file a lawsuit against debtors for unpaid loans and hear the case on court. It is worth noting, though, that lenders take this option only when it is necessary.
If getting imprisoned for not paying debt appears to be a far-fetched idea, then what are the immediate and direct penalties that borrowers may encounter for not settling their debts?
The types of penalty that a debtor would encounter for not being able to pay his or her due balance would depend on the terms and conditions and the type of loan a person applied for. Usually the penalties that are stated in loan agreements are not in any form of criminal offence.
Based on typical loan agreements, the first type of penalty that a borrower may incur is the acceleration clause. It is a contract provision that allows lenders to require borrowers to pay the outstanding loan or ask for additional collateral under certain conditions, such as failure to make payments.
This means that if a borrower fails to pay his or her due balance, the entire balance becomes due and payable immediately. The creditor will send a letter to the borrower informing the latter of his or her unpaid outstanding balance and the steps that the company's legal department would take if the borrower fails to make payments.
The penalties that moneylenders may impose differ. Some add interest to the outstanding balance as a fine 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 suing the borrower for failing to pay.
If in case the money lender wins against the borrower, the most common punishment that a borrower may face would be wage garnishment. Through this, the moneylender will be able to get a percentage of the borrower's salary until the entire debt or loan is paid off.
If getting imprisoned for not paying debt appears to be a far-fetched idea, then what are the immediate and direct penalties that borrowers may encounter for not settling their debts?
The types of penalty that a debtor would encounter for not being able to pay his or her due balance would depend on the terms and conditions and the type of loan a person applied for. Usually the penalties that are stated in loan agreements are not in any form of criminal offence.
Based on typical loan agreements, the first type of penalty that a borrower may incur is the acceleration clause. It is a contract provision that allows lenders to require borrowers to pay the outstanding loan or ask for additional collateral under certain conditions, such as failure to make payments.
This means that if a borrower fails to pay his or her due balance, the entire balance becomes due and payable immediately. The creditor will send a letter to the borrower informing the latter of his or her unpaid outstanding balance and the steps that the company's legal department would take if the borrower fails to make payments.
The penalties that moneylenders may impose differ. Some add interest to the outstanding balance as a fine 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 suing the borrower for failing to pay.
If in case the money lender wins against the borrower, the most common punishment that a borrower may face would be wage garnishment. Through this, the moneylender will be able to get a percentage of the borrower's salary until the entire debt or loan is paid off.
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