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Delinquent debt is a debt on which the minimum payment due has not been paid on the date agreed to by both creditor and debtor. In general, delinquent debt can have significant and negative consequences for both debtor and creditor. When a debtor fails to pay his debts on time, his creditor, who has been counting on repayment, must absorb both the lack of funds as well as the cost of collecting the debt. The debtor usually incurs late fees and interest on his delinquent debt and may suffer damage to his credit.
Many countries carefully regulate debt as well as the extension of credit and lending. Typically, debt of any significance is documented by way of the written contract stating the terms of the debt. Debtors are usually instructed to pay all or at least some of the debt on or before a specific date. The contract may also state the consequences for delinquent debt, which can include extra charges, a higher interest rate, or a lawsuit.
Some creditors who are owed money begin their attempts to collect delinquent debt by contacting the debtor and asking for repayment or an explanation as to why a payment has not already been made. A creditor may want to begin efforts in a friendly way in order to preserve a business relationship. Good accounting practices, business necessity, and statute of limitation laws on debt collection may force a creditor to take stronger action in collecting a debt. If the original creditor is unsuccessful in collecting delinquent debt, the creditor may turn the account over to a collection agency or an attorney for further action.
For many debtors, paying off delinquent debt is the only way to restore their credit and financial health. Debtors may contact creditors in order to settle their debt either through a payment plan or a settlement offer. In some countries, the effects of debt that is delinquent can continue even after it has been paid off. If the debt was reported to credit reporting agencies, the debt may continue to appear on the debtor's credit report for some time, which may result in the debtor being turned down for credit. In many places, however, delinquent debt and other negative credit information is removed from credit reports after a specific period of time.