When it comes to debt there are two kinds of debt, secured and unsecured.  Secured debt is a debt that is backed by some form of collateral.  A mortgage is a great example of a secured debt.  A mortgage is a loan that is backed by your home.  If you can not make the payments on your mortgage then the bank can make their money by selling your house.  A secured loan is every other type of loan that is not backed by some form of collateral. 

  • Normal credit card debt, personal loans and bank overdrafts are perfect examples of unsecured debts.

Since unsecured debts are the most common forms of debts it is possible for creditors to sue you for nonpayment of unsecured debts.  The way that this usually takes place is that a creditor will first issue a complaint against you stating that you owe a certain amount of debt.  If you fail to respond to this complaint then the creditor has the right to pursue legal action to reclaim the debt owed.  This is known as a Default Judgement. 

If the creditor wins this Default Judgement then a judge can order to repay the loan.  Often times the court will determine a schedule and amount for which you will have to repay the loan based on your current circumstances.  In certain circumstances it might be possible for the creditor to garnish your wages until the debt has been repaid.  

While it is possible for a creditor to sue you for an unsecured debt it is probably less likely than you think.  Many creditors will not go through this hassle for small unsecured loans as there will be legal fees and certain hassles that they do not feel are worth your small debt amount. 

If this is the case then creditors can sell your debt for a fraction of what you owe to a collection agency who then also reserves the right to sue you for the unsecured debt.  The process with the collection agency will be the same as the one with the original creditor.

If you are fearful of a creditor suing you to recoup any unsecured debts you might want to think about contacting your creditor and seeing if they will work with you and your situation.  Many times creditors will assist people by lowering the amount of the debt owed or setting up reduced payment plans so that people can actually pay back the debts that they owe.  This would be a much better option than being taken to court and ordered to repay the loan at a schedule determined by the courts.

If you have a lot of unpaid unsecured debt then it is possible for creditors to sue you when looking to recover their debts.  It is not likely that these creditors will come after small amounts of unsecured debts due to the various legal fees and other hassles associated with suing someone but it is always a possibility.  If you think you might be sued over an unsecured debt then it might be wise to contact your creditor directly and see what can be worked out between you two and possibly set up a structured repayment plan that you can actually follow.

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.