Advice on Consequences of Credit Card Default - The Bills.com Blog

If delinquent on credit card debt and card company sues, can they successfully attach social security and corporate pensions?

No, retirement income is protected from creditor garnishment.

I have not been able to pay back a credit card that is now from approx. $2400.00 o approx. $7,000. I just received a letter stating that if I do not contact an attorneys office, a constable will arrest me to appear in court. This credit card was initially opened approx 5 yrs. ago. Could I really be arrested?

No one in the US has been imprisoned for debt since the Civil War. Do not believe legal advice from collection agents. Their advice is usually incomplete or wrong, and is always self-serving. See my answer to another reader for more information about the collections process: Collections Agencies, Collections Laws and Your State's Statute of Limitations.

Hi Bill, What about this scenario - My husband and I are divorcing. He is "taking" all the assets and all the debt. However, after agreeing to that he defaulted on about $97,000 in credit cards (spread across about 6 cards.) I am an authorized user on the cards, not the primary card holder. I have been getting calls on the 2 B of A cards. Is it likely they will proceed with actions to collect from me? Is there any way to protect myself? He also let 3 of our rental properties go to foreclosure and didn't pay the property taxes, HOAs, water bill, etc. 2 of the properties have my name on the loan papers, so I have received collection letters. If the properties are sold they are upside down so there will be outstanding debt due the bank, the county for the taxes, etc. How can I protect myself against being held responsible for his decisions on these matters?

You need to look carefully at the documentation for the credit cards. If you are a co-signer on the cards -- in other words, a joint account holder -- then you are responsible for the balance due on those accounts. However, if you are merely an authorized user then you have no liability. Assuming for the sake of argument that you are a joint account holder, the fact that you have a divorce decree signed by a judge declaring that your ex-spouse is responsible for the credit cards means next to nothing for the credit card companies. The credit card companies have a contract with you and your ex-spouse and unless or until a judge orders that the contract are changed, the contracts' terms remain.

If I default on my credit cards but continue paying my home and car. How long will it take to repair my credit

Credit scores are calculated using a proprietary formula. Therefore, it is impossible for anyone to say with certainty how much one event will increase or decrease your credit score. To learn more about how credit scores are calculated, see FICO Score Calculation.

hello - Since credit card default merely tarnishes my credit score and gives me a few annoying phone calls, why shouldn't I just default on $50k worth of charges, and keep the goods ? For $50k worth of free merchandise, which I won't pay for, it appears to me that credit-card-default is a simple option ! mark ondrake "buy more, pay less"

First, default can do a great deal more than "tarnish" your credit score. Second, default will create more than a "few" annoying phone calls. Third, debtors who default face wage garnishment, levy of their bank accounts, and liens on their property. See Collections Advice for more information on the rights of creditors and debtors.

Hello, I really need some advice. Basically my question is: would it be worse to foreclose on a second home or just stop paying some of my credit cards? I just cant keep up with both, on top of the mortgage for the house I am currently living in. Story: I'll try to be brief:). 5 years ago I was living in another state. I wanted to keep the house as an investment. Unfortunately shortly after I moved it flooded and was damaged to the tune of $20K. I kept hoping I would someday have the money for repairs but to date I have not been able to save a penny, though I have not missed a single mortgage payment. In the meantime various unfortunate circumstances have arisen which have resulted in the accumulation of about $50K of credit card debt spread over 8 cards. When the APR's were at a reasonable rate, I was able to slowly chip away at this debt. However, over the last several months, they have all raised the APR's to the range of 15-25%, making it impossible for me to pay anything more than interest! Something has to give. Currently I am paying $800/month for the mortgage for the damaged, unrentable house and about $1000-$1200 /month for the credit cards. I woke up in a cold sweat last night when I realized I cant keep doing both. So back to my question..which would be worse? to let the house foreclose? or to default on the credit cards? Please help!

The answer to your question is "neither." You have options for dealing with the unsecured debt (the credit cards) and the mortgage debt. It is not an either/or decision -- you can resolve both sets of debt simultaneously. First, read What Are My Debt Consolidation Options? to understand your options for resolving the unsecured debt. Second, go to the Home Affordable Refinance Program home page and start the process of renegotiating your mortgage. Now is a good time for you to work on reducing your mortgage payment. Create a plan for resolving both sets of debt, work the plan, and you will emerge from your predicament intact.

Is a good credit score really the Holy Grail of achievements we once valued it to be? Considering that so many good intentioned American families (and many more to come) are in serious financial peril and have devasted their credit standings just trying to survive these days, will there be any lienency in the forgiveness cycle by the big institutions in the near future? These are extrodinary times. Consider our situation. In late 2007, we borrowed 150K on a ELOC to specically pay for a remodel we had been planning for years. We budgeted exactly what we needed nd borrowed that amount after getting multiple bids from General contractors. We awarded the contract and commenced construction immediately upon funding. March 2008, the institution that we had the Equity Line with, froze our account not letting us use it anymore. The reasoning was stated as "declining property values in our area". We still had another $60K+ needed to complete the project. We opted to pay the remaing contractor's fees etc on our fantastically convenient low interest rate credit cards. We had no credit card debt at the time and impeccable FICO scores. We thought it would be simple to refinance in a month or two and just roll it all into a new mortgage. We were incorrect. We have been paying relegiously on these cards trying to always pay more than the minimum pymnt req.d. We have been rewarded with steadily increasing rates and a reduced available credit limit everytime we get a chunk paid off. My husband and I are both college educated, professional commissioned salesmen for large well established American companies. Sales have tanked and we are now making 2/3 of what we used to make.His company even put into effect a 10% salary decrease across the board to delay mass lay offs. We are maxed out credit wise and have no access to credit if there were to be some type of family emergency. Money is so tight and we have trimmed every scrap of fat off our spending just to attempt to make ends meet and are still not quite making it every month. We are considering defaulting on our credit cards. Kissing what's left of what's now a compromised credit standing behind. This is a paradigm shift for us. We want to keep our home and cars and protect our 8 year olds Education IRA, our 401Ks and Roth IRAs. (who knows if we'll have Social Security when its our time to retire) Is bankrupcy any less of severe judgement by the once revered credit reporting companies than say just defauling all together on making anymore payments on these cards???

You have options other than default or bankruptcy for resolving your unsecured debt. See What Are My Debt Consolidation Options? Default is not a long-term solution. See Collections Advice to see some of the consequences of defaulting on an unsecured loan, so I think you should eliminate that option from your thinking. Bankruptcy can be an effective solution if you qualify. See Advice on filing chapter 13 bankruptcy with home equity to start learning more about bankruptcy. Regarding your question about credit scores, you already understand your credit score is going to decrease. The question is not which debt resolution option you choose is most damaging to your score, but how long your score is damaged. The answer is complex and varies by each person. If you can show positive activity on other credit accounts, your score will rebound relatively quickly. If you can't stay current on other accounts, the fall-out will linger for a longer period. See FICO Score Calculation to learn more about how your credit score is calculated, and the steps you can take to improve it.

Hi Bill, I've been living in the US for 9 years, first with a student visa, then a working visa, but due to the economic situation my sponsor for the work visa have decided no to extended any more. Then, I've been forced to leave the country next year, now, I have a credit card debt of 15K among 3 credit cards, what is the worst case scenario?because I've decided to stop sending any payment to the banks. Thank you for your help

You did not mention your home country, so I cannot say for certain what is your worst-case scenario. In theory, US creditors may have the right to domesticate the debt in a debtor's home country and initiate the collections processes that are allowed by the debtor's country's court system. In practice, the chances of this happening depend on the laws of the debtor's home country, how much the debtor owes, and how easy it is to locate the debtor. One thought to consider is your long-term plans. You may wish to return to the US in the future, and it will be easier for you to get credit in the future in the US if you resolve the debt now. See What Are My Debt Resolution Options? to see what you can do to resolve the debt.

Sorry Bill, I'm from Peru, and regarding long term plans, I do not close de possibility to come back to the US under a working visa again once the economy gets better, but I am not thinking in coming back to the US in the near future. If I just stop paying my credit cards, what is the damage on my credit? and how long it takes for the credit officials to marked as a default? Also, I heard that after 7-10 years all that credit informations goes away, is that true? Once again, thank you.

To learn what will happen to your credit score if you default on your credit cards, see FICO Score Calculation. A credit card (or any account for that matter) can be considered in default the moment you miss or are late on one payment. However, credit card companies will usually give customers with consistent payment history a grace period before considering their account in default. According to generally accepted accounting principles, an account is no longer current if there is no payment after 120-180 days. To learn more about charge-off, statute of limitations, and how long defaulted accounts appear on a credit report, read Charge Off, Credit Report, Statute of Limitations & Merged Creditors.

Dear Bill, My husband and I have under 10,000 in un-secured, and medical debt. All of which we have defualted on about 5 years or more ago. There were 3 credit cards, and various medical debts. We have been renting for 7 years, never late on payments to bills and rent. We saved up and bought our car outright, we do not, and have not had any credit cards for 5-6 years. We have three children and are talking of buying a house. Is this even possible? Our credit is prolly so bad at this point we wouldn't qualify for a loan at all, OR it would come with a HUGE interest rate. We were told that most of our debt is close, or past the statute of limitations for years in default, and that after 7 years it would be taken off our history. Is this true? Do we have a chance at a home or is it a pipe dream?should we clean up the debt or wait for the rest to clear off the history report and rebuild from there if that's possible? We currently live in Oregon state, but all the debt was accrued in Wa. state. Any advice would be helpful! Thanks!

You can buy a house -- not today -- but sooner than you think. First, go to AnnualCreditReport.com and get a free, no-obligation copy of your credit report. Second, review Collections Agencies, Collections Laws and Your State's Statute of Limitations to understand if your derogatory entries are about to roll-off your credit report. If so, the passage of time alone will help in the repair of your credit score. Third, read FICO Score Calculation to see how to boost your credit score. I recommend getting a credit card from your bank or credit union, or get a secured credit card. Make small charges and pay the balance early. Fourth, review your credit report again after the derogatory items are scheduled to roll-off your report to make sure they do. Finally, dispute any errors on your credit report, including derogatory items that are more than seven years old. The Federal Trade Commission provides a comprehensive guide to disputing items on your credit report.

Hi, thanks for your excellent advice. I live in TX, i am 150000K in credit card dept which i cannot afford to pay back. I am employed. I am aware that my fico score will take a massive hit for default. 1. For how long? 2. In TX , what is the history of litigation like? and do most creditors sue here?

I assume you meant to write you have $150,000 in credit card debt, because if you really meant "150000K" that would equal $150 million, which would probably be a record for credit card debt. Still, even in Texas, $150,000 in credit card debt is a large amount. I do not want to speculate on your odds of being sued because every creditor has different criteria for making that determination, and every situation is different. For example, your chances of being sued are higher if you made large purchases or cash withdrawals before defaulting, which would lead the creditor to conclude you intended to defraud the company as opposed to just falling on hard times. I am not aware of any difference in the credit card companies' rate of lawsuits by state, so I do not know if Texas has a higher rate of lawsuits than the other jurisdictions. Regarding the drop in your FICO score for defaulting, that is difficult for me to say without knowing your credit score before your default. If your score was in the 700s, you can expect it to drop more than 100 points. If your score was already in the 500s, then a default's impact will be less.

Thank you,, yes $150 000. My score FICO is already low cos of the debt to credit ratio now of 100%, I was at 800 until late 2008. Also, considering the record number of cc / mortgate delinquencies as a result of the economy, wouldn't it take a few years before a case actually went to court? And I have a debt of $ 90 000 with one cc, 40 000 , 20 000. Would this split make a difference in the outcome? ie chances of being sued. Thank you Sir.

Glass half-empty or half-full? With three creditors, are your chances three times greater for a lawsuit than if you had one creditor? Or is each creditor less likely to sue given they are owed smaller amounts? Again, you need to analyze each debt and creditor alone. Each creditor will analyze your history, the amount of debt, and apply those to the creditor's policies. If you work out a payment plan with the creditor your chances of being sued are tiny. If you shut-down all communications with the creditor your chances of getting sued are much higher. Ignoring the debt will not make it go away. Develop a plan for resolving it. See What are my debt resolution options? and Collections Advice to learn more.

My wife & I live in Oregon. Our only income is two small pensions & Soc. Security & Disability. Our Credit Cards are goin up from 7 % to 30 % with no apparent reason. I can't even afford Medicare at age 66. I we default on our CC can they come after out pension & Social Security Checks?

Please see Garnish Social Security Income and Garnish Pension to learn more about Social Security and pension garnishments. See Collections Advice to learn more about your rights in the collections process.

I HAVE A FRIEND THAT IS GOING THROUGH DIFFICULT TIMES, SHE OWNS A CAR AND MAKES HER MORTGAGE PAYMENTS, BUT BECAUSE OF THE ECONOMY SHE HAS GOTTEN BEHIND ON CREDIT CARDS, THE CREDIT CARD COMPANIES WILL NOT LOWER PAYMENTS AND INSTEREST RATES...IF SHE WERE TO JUST MAKE HER MORTGAGE PAYMENTS AND LET CREDIT CARDS GO UNPAID...CAN THEY COME AFTER HER HOME? FORCE TO SELL? SHE IS A SINGLE MOM WITH NO OTHER INCOME DUE TO HER EX-HUSBAND BEING UNEMPLOYED.

You friend needs to develop a plan for resolving her debt. See What are my debt resolution options? to learn about her options, and Collections Advice to learn more about her rights regarding the collections process.

My partner and I are moving to Australia. We have about 32K of credit card debt in Canada. If we default on this debt, can the creditors come after us in Australia?

Creditors can domesticate a judgment in another country assuming the countries have a treaty allowing such. I am far from an expert in international law, but it would surprise me greatly if Canada and Australia had no such treaty given their common heritage. For a definitive answer you need to find Australian attorney who has experience in domesticating Canadian judgments. Start with The Australian Bar Association and then move on to the local bar association Web sites to see a list of lawyers and barristers in Australia.

Hello Bill, I am being sued over a credit card I defaulted on in the state of Florida. I was unemployed for over year and accrued most of the debt in this time as I was living off the card. I am now working and earn $700.00 a week and the amount in default is $7000. My question is, what is the worst case garnishment scenario the court might impose? Thanks

If you are a head of household in Florida, 100% of your wages are exempt. If you are a non-head of household, 75% of your wages are exempt from garnishment. See State Consumer Protection Laws and Exemptions for more information.

A credit card company raised my interest rate to 30%, then closed my account. I have not sent a payment to them in over five months and have tried, unsucessfully, to negotiate a settlement with them. I live on a pension and income from social security. My question is: can they attach my pension and/or social security payments?

"Garnish" is the legal term you are looking for. Please see the Bills.com resource Garnish Social Security Income for more information.

My wife and I have accrued 25k in credit card debt.All the cards are in my name,will the CC companies be able to affect my wife's fico score,or take any action against her?

There is no "marital credit score" or merger of credit scores when people marry. If you alone are on the contract for the credit card, and she is not an authorized user, then your delinquency on this card will have no effect on her credit score. However, if she is an authorized user, remove her as an authorized user immediately so that as this account goes bad it does not drag down her credit score. See an answer I gave a fellow reader who had a similar question but with the situation reversed: Will My Spouse's Bad Credit Affect My Credit Score? Although the facts are slightly different from your situation, the concepts and analysis underlying my answer will help you understand your situation. See also Is My Spouse Liable for My Credit Card Debt?

Hi Bill, Iam going through a very difficult situation in Ottawa, Canada. I can no longer pay my debt amounting to $ 110,000 originating from 7 different credit cards. Iam left with no options but leave back for my country and never return back. Please advise me if the collections agencies or law suites may chase me in Asia. Thanks for you help

Consult with a lawyer in Ottawa who is experienced in consumer law, who will advise you in detail on the treaties that exist between Canada and the countries in Asia you are considering. These treaties govern the circumstances and procedures for domesticating Canadian debt in foreign countries.