Life Stages of Unsecured Debt

If you have a credit card or medical bills, you have unsecured debt. Unsecured debt is any sort of debt that does not have collateral as payment backup. If you don’t pay off your credit card bill, your creditor does not have another way of being repaid. If the debt were secured, they would. A mortgage is an example of a secured debt, which has collateral. If your house is your collateral on your mortgage, in the event that you do not pay off your mortgage loan, your house could be seized as a backup payment.

Unsecured debt has different stages based on how removed from the due date you are. We’ll walk through the different stages of unsecured debt in case you find yourself in one of them and are unsure what to do or what could happen next.

During some of these steps, you’ll want to keep in contact with your creditor. Kredit can help you do this all in one place.


When you opened a credit card account, for example, you made an agreement with the credit card company about how much it would loan you and how you would pay it back. If you do not adhere to the payment plan laid out by this agreement, you create a delinquency. The later your bill is, the more severe the consequences. You should pay off as much as you can as soon as you can to avoid repercussions, including consistent outreach by the creditor to facilitate payment.

Charged off

When it looks like a creditor won’t be repaid after six months, they remove the debt from their balance sheet. This classifies the debt as a “charge-off,” or “bad debt.” This doesn’t mean that you won’t need to repay the money. It’s just no longer considered likely to be repaid or they’ve decided to sell your account for a fraction of the total balance owed them. It will still benefit you to pay off this debt, regardless of its new title.

Lawsuit pending

You may be sued over your late payments. Creditors hope that a lawsuit, and the headache it can cause, will force you to pay back what you owe. Now, in addition to late fees, you’ll also have legal fees to tend with. You want to be sure you attend your court date. Ask the judge if they will consider overseeing a repayment plan, to avoid having the creditor seize assets for repayment.

Within the statute of limitations

A statute of limitations is a validity time period. A collections agency has within the statute of limitations put in place by your state to work on getting its money back. After that time period expires, the agency can no longer sue you over the debt, and the delinquency falls off your credit report. Each state has their own statute of limitation -- but they all typically fall between 6 to 10 years. 

You should stay up-to-date on what the statute of limitations is in your state. If you are contacted after the statute of limitations, do not acknowledge your bill. If you do, you could re-age your debt, which means you’re restarting the clock on its due date.

Outside the statute of limitations ("zombie debt")

Once your statute of limitations has passed and the debt has fallen off your credit report, you shouldn’t hear from creditors asking to be repaid. If you do, you have zombie debt, or debt that has been brought back from the dead. You have no obligations to pay this debt. You should ignore collections calls and other attempts to get in touch regarding payment.

Debt restructuring and debt collections agencies

If you find that the payment terms you initially agreed to are no longer realistic, you should talk with your creditor about restructuring options. Consider debt consolidation, debt settlement, and bankruptcy. All of these will either change who your debt is owed to or the amount you owe. Make sure you go through your budget and cut out unnecessary expenses so you can make bill repayment a top priority.

If you fail to reach out to your creditors and they have exhausted means of contact, they will then pass the debt off to a collection agency, who will again be in touch about payments.