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What Authorities Does a Bank Hold When You’re Indebted to Them?

These are the authorities banks hold when you are indebted to them

Not many people take out personal loans with the intention of not paying the amount back. Being indebted to a bank and not paying them back would mean accumulating late fees and having debt collectors harass you. It could also end in a courtroom with wage garnishment or if it’s a serious amount of money, even jail time.

But it still happens. Most of the time, it is unintentional. Maybe you got into a car accident or had an unexpected health issue, and now everything you had planned is out the window, and you have no money left to pay back your loans. What happens then? What authorities does a bank hold when you’re indebted to them? Read on and find out.

What Can a Bank Do If You Owe Them Money?

After you are indebted to a bank and you have stopped paying them back, the first thing they will do is send you a letter to notify you of your defaulting. They will urge you to resume making payments towards your loan. Once they notified you of your defaulting, they will report your defaulting to the appropriate credit reporting agencies. This will make your credit score drop significantly, which in turn causes a host of other issues.

If the loan was collateralized, then the bank can repossess the collateral. It can sell the property, take the money, and put it towards your repayment. The bank will also charge you for the collateral’s possession, storage, and sale.

Right of Offset

Banks also have a right of offset clause included in the contracts when you take out loans. This right of offset clause gives the banks the right to take the money you might have on deposit in the bank or in one of its affiliated banks to pay off the debt. This clause is usually included in the most bank account, credit card, and loan agreements.

Debt Collection Agencies

Another thing banks can do is sell your loan to a debt collection agency. These debt collectors have the legal right to contact you to make you pay back the loan. They can bother you at home, at work (unless told specifically not to call at work), and they can try and meet you in person if you aren’t contactable by any other means.

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Collection agencies also file lawsuits in court. Once they file a lawsuit, whether you show up to court or not, you will likely lose the case. Once you lose the suit, a court order requires you to pay back the amount owed. This judgment will also make its way to the credit reporting agency, affecting your credit score in the process.

The collection agency can then, with court orders, start garnishing your wages. This is when your wages or a part of your wages are withheld or sent to the bank to balance your debt. They can put liens on your property, which means if and when your property sells, the bank can take the amount you owe from the sale. Your bank accounts can also be levied, which is when a bank can take amounts out of your account to fulfill the repayment. You will receive charges for the fees and costs associated with all these too.

Also, an important thing to keep in mind, the money that you don’t pay back is considered an income. The IRS will tax you for it. This is why you should always pay back your loans since the amount you owe will only keep on adding up, whether in penalties, fees, or taxes!

Written By

Travis Barnett is an expert in finances backed by 10 years of experience as a financial analyst at CNB. He graduated from UCLA's Anderson School of Management in 2010 and has been in the field ever since. Travis now enjoys sharing his business experience with others as a financial writer in San Diego. In his spare time, he enjoys hitting the links and working on his golf swing.

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