What happens to people with bad karma?

All souls will be taught the necessity for fuller knowledge. 

It is necessary for you to know of the conditions of life in the spirit world. Fuller knowledge would save so many souls from so much that is not exactly terrifying, but very trying when you first come within the veil. There are all sorts of definite evils to be faced here even for those who do not have to undergo long training, and for those who must be more severely disciplined, the dangers and terrors are very great indeed.

All the terrors come from your life on earth―they take form and torment in every possible way. 

You have no physical body to be hurt, but you can suffer just the same. There was something at the bottom of the old Calvinistic idea of a place of torment, only it means mental suffering.

There is no burning fire, only the remembrance of all the wrong done on earth scorches the soul like a real flame.

Some souls in the very sad places who have a terrible amount of bad Karma to work off have been there for hundreds of years. They cannot be helped much until the knowledge that they deserve their penance comes to them. Always near them are the powerful spirits from higher worlds, waiting and praying for that time to come because although these souls suffer terribly, it is not ordinary punishment, but a consequence of their own actions in past lives. 

And in the fullness of time, they will work through and ultimately reach the higher spheres.

―The Witness