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Information on effects of default on credit card - The Bills.com Blog
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Information on effects of default on credit card
Saturday, Nov 10, 2007
Question: If I were to default on my credit card payments, will there be any adverse affect to my current mortgage loans? First, I'm a cosigner for my son's home, and the second is my motor home loan through my bank.
Answer: For credit card accounts that remain unpaid, the first 180 days involve what could be termed normal collections. The delinquent cardholder can expect to receive letters, phone calls and other similar methods requesting that they pay what is owed on their credit card.After the first 180 days have passed, the credit card account charges off. That means that although the cardholder continues to owe the money, for accounting purposes, the debt becomes considered a bad debt.
When the debt becomes a bad debt, the credit card user can expect to have negative marks on their credit report resulting in a bad credit history. Additionally, responsibility for collecting the debt can shift from the credit card issuer to an outside firm or an attorney. This is when a debt collection agency may get in touch with you.
After the debt goes unpaid for some time, the cardholder may eventually receive a court summons. The court will be asked to grant judgment in favor of the credit card issuer.
Beyond
that point, the cardholder may get hit with wage garnishment, property liens and more. While these are going on, the cardholder's fees will continue to mount. The credit card bill continues to grow as their credit score continue to fall.
Assuming all this sounds like something you'd rather read about than experience firsthand, be sure to stay on top of your monthly credit card payments. If you cannot afford to make at least a minimum payment, interest charges and fees could mean that your bill gets out of control very quickly.
In your case, in the initial period of default, your two other loans will not be affected as far as their interest rates are concerned. But if the credit card delinquency persists for more than 180 days then my only concern would be the home loan that you co-signed for your son, the creditors
Assuming all this sounds like something you'd rather read about than experience firsthand, be sure to stay on top of your monthly credit card payments. If you cannot afford to make at least a minimum payment, interest charges and fees could mean that your bill gets out of control very quickly.
In your case, in the initial period of default, your two other loans will not be affected as far as their interest rates are concerned. But if the credit card delinquency persists for more than 180 days then my only concern would be the home loan that you co-signed for your son, the creditors
might start to make collection calls to your son just because they see that you are a co-signer there.
Credit card debts are unsecured, meaning that the creditors do not have a collateral property to fall back on in case of your default, which also is the reason that the credit card's interest rates vary. Mortgages on the other hand are secured loans, and usually have a fixed rate of interest for the entire term of the loan.
Your default on one credit card will definitely increase the rates on your other credit cards. This is because, buried in the fine print of your agreement is a clause called "Universal Default", which simply means that if the creditor perceives a payment risk from you they have the right to jack up their interest rates.
I hope the information provided helps.
Best,
Bill
www.bills.com
Credit card debts are unsecured, meaning that the creditors do not have a collateral property to fall back on in case of your default, which also is the reason that the credit card's interest rates vary. Mortgages on the other hand are secured loans, and usually have a fixed rate of interest for the entire term of the loan.
Your default on one credit card will definitely increase the rates on your other credit cards. This is because, buried in the fine print of your agreement is a clause called "Universal Default", which simply means that if the creditor perceives a payment risk from you they have the right to jack up their interest rates.
I hope the information provided helps.
Best,
Bill
www.bills.com
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1. Posted by PJ Miller on Wednesday 21st January 2009 11:29
I have a 122,000 mortgage. and 60,000 in credit card debt. I amke 47k a year. I so stressed and ready to leave the keys on the counter and leave!!! What will the banks do. I don't care about my credit score, I have a great score now, but If im going to leave, Im going to leave everything and start over in cash. A debt plan will not work and Chapter 13 seems like a Bush friendly Scam.. Please help
2. Posted by Bill on Wednesday 21st January 2009 11:46
Apart from credit score, you are looking at a lot of calls from creditors and possible legal action which, depending on the state you live in, could lead to wage and bank account garnishments. You need to prepare written budget to see what your cash flow situation is. There are alternatives to bankruptcy such as credit counseling and debt settlement, which you can look into. If none of those plans work out, then bankruptcy will be the only option. You should consult with a qualified attorney who will be able to check if you qualify for a Chapter 13 or a Chapter 7.
3. Posted by Joyce on Monday 23rd February 2009 21:39
My husband & I are on disability. Sorry to say we had to default on our credit cards, for we do have to eat. We are unable to work, but do own our home. I am 60, he is 67. We are in poor health. Can they take our home from us? We are on a very low income. Can you please give us advise as to what to do. I wrote each company and presented a hardship case, but continue to pay them 10.00 (ten dollars) a month , but skipped this month, lack of funds for medicine. Please help. Thanks
4. Posted by Bill on Tuesday 24th February 2009 14:22
What the creditors can do will depend a lot on your state laws. In most states creditors go after your wages, but fixed income such as disability and social security is protected from creditor garnishments. In some states creditors are able to place liens on your home, which does not mean that they get the ownership of your home, just a partial right of ownership if and when you sell the home. But all of these things can only happen once the creditor gets a judgment from court. If ever you get a notice to appear in court, do not ignore it. You should present your side of the story in front of the judge and I am sure the judge will pass an order that is amicable to both parties.
5. Posted by Dave on Tuesday 24th February 2009 20:01
Thanks Bill I had a n equity line of $100,000 for a while until the housing meltdown, I had used my special promotion offer of %2 on my credit card for 6 months to pay off my mortgage of %6. I thought i will use the equity line of %4.5 after the 6 months, but the bank had cut $80,000 due to the housing meltdown, now I'm stuck, because the promotional offer about to expire in a week and the equity line is gone , what should I do. Thank you
6. Posted by Bill on Wednesday 25th February 2009 18:04
It is unfortunate that this has happened, but your only choice is to get another loan and pay off the credit card debt. if that is not possible, you will have to wait till you have sufficient equity in your home, which you can then use to pay off the credit card debt.
7. Posted by larry blake on Saturday 28th February 2009 03:43
My wife and I have about 40,000 in credit card debt.Until October 08 we were paying our bills and doing fine.I lost my job and while searching for another one ,my truck was totalled in a hit and run.It will be some time before the insurance company settles this and the credit card companies don't care.I called Bank of America and they would not even think of working with us even though we have been a great cuastomer all these years.Up untill now we had no late fees,payments,etc..I've had to let go of the cards and their payments.What can we do as Americans when the banks try to put the screws to us?
8. Posted by Bill on Sunday 1st March 2009 16:34
You sound like a good candidate to explore debt relief options, and maybe debt settlement trhough someone like Freedom Debt Relief is a good option for you (www.freedomdebtrelief.com ) Check out some of the information on debt consolidation, debt settlement, and credit counseling... there is a ton on our site. Good luck Larry and know that you are not alone. Millions of Americans are really frustrated with the exact same issues. Hang in there.
9. Posted by Laura on Wednesday 4th March 2009 10:12
My husband lost his job July 2008 and has been unable to find a job. I am a homemaker and care for the kid. We have $18,000.00 in credit card debt but our home is paid for. Are there any tools that help people that have limited income to pay off CC's for a lesser amount? I am looking for a job, but there are none out there with my limitied qualifications.
10. Posted by Bill on Wednesday 4th March 2009 10:34
There are many programs that deal with reducing credit card debt, but it all depends on the type of help you're looking for, your finances, and the monthly payment you can afford. We have summarized all the options on our debt help page at: http://www.bills.com/debt-help/.
11. Posted by Richard Hsu on Monday 9th March 2009 16:56
Hi, I have $120,000 in credit card loan. I borrowed the credit card loan in a fixed low rate (3% interest rate) as the downpayment for my house purchase in California. I have been paying my credit card loan on time for the past four years. Due to the financial storm, my house value dropped $200,000 so that the credit card money that I borrowed to pay as downpayment for my house is lost, but I still have the large credit card loan. Unfortunately, I lost my job recently. I am unable to keep up on my credit card payment. If I default on my credit card loan, I wonder if the credit card company would go after my IRA retirement fund when they get a court judgment order. Thanks. Richard
12. Posted by Bill on Tuesday 10th March 2009 10:10
That really depends on the State laws regarding credit card default. In most states, the recourses available for credit card companies are limited to wage garnishments or liens on your home, you can check for the state information here: http://www.bills.com/blog/. You also have to keep in mind that creditor will look at several factors when deciding how to proceed and one of the big ones in your case is just simply - the amount of the loan, which is fairly large. You can breathe easy about your retirement income, as most forms of retirement income are protected from creditor garnishment.
13. Posted by sandy on Friday 13th March 2009 12:37
Hi Bill,we live on a fixed income and due to some unforseen medical bills mounting up we have been living on credit cards. we recently sold our house buthave credit card debts of 50,000.can they take personal pocessions or money in a bank account to settle their bill.their was no money gain onthe sale of the house.
14. Posted by Bill on Friday 13th March 2009 15:10
Sandy, fixed income is protected from creditor garnishment, but they may be able to garnish your bank account, but that depends a lot on the prevailing state laws. You can check for the summary of state laws here: http://www.bills.com/collection-laws/. Even before they can garnish anything, they will have to go through the court process and successfully get a judgment against you. If and when they do, the court will see that you are on fixed income and will probably ask the creditor to work it out with you.
15. Posted by Patel on Friday 27th March 2009 10:38
HI Bill, Can you mention some of the Debt settlement agency that I should look in to . You mentioned: freedomdebtrelief. I would like to read about other debt settlement companies and inquire accordingly. I've heard about some of them. So any help would be appreciated. I'm thinking about using their service to settle my debt.
16. Posted by Bill on Friday 27th March 2009 11:02
Freedom Debt Relief is by far the most reputable company in the space of debt settlement. Don't take my word for it, give them a call at 1-800-544-7211, they will give you a free consultation and a savings estimate based on who your creditors are. We have also done a review of them here: http://www.bills.com/blog/freedom-debt-relief/
17. Posted by Brooke on Tuesday 31st March 2009 08:52
Bill, Can you still use the services of Freedom Debt Relief if you have already defaulted on your credit cards and you've received notices from attorneys?
18. Posted by Bill on Tuesday 31st March 2009 13:56
Frequently companies like Freedom Debt Relief are a little hamstrung if you are already facing lawsuits, since you will not have saved up any funds for a settlement... however, you can still call them and apply and see if they could try to lump sum settle your legal account or even put it on a payment plan and then settle it when all of your other debts are resolved. Good luck. Their number is: 800-544-7211
19. Posted by suzanne bond on Wednesday 15th April 2009 01:12
i'm sure you've heard this before! i have 40,000.00 in credit card debt. my head is barely above water. i am not behind on any cards at this point. i can't get citicards to even discuss helping me because i am not behind. i contacted Credit Answers and discussed this with them. their program involves me not paying my credit card bill, putting a dollar amount in a savings account and when there is enough saved they will negotiate a payoff amount. does this sound right? what are the consequences of this. i live in oklahoma, can they take my home, i have a hard time defaulting, i have never done such a thing before! i need help and answers, asap!
20. Posted by Bill on Thursday 16th April 2009 12:35
Yes, that type of a program is called a debt settlement program. This type of a program is designed mainly for folks who are already behind on their payments or who know they will not be able to afford their payments soon. If you have a well paying job then you risk getting sued by the creditors on your inability to prove your hardship to get a settlement. If you are interested, we are friends with Freedom Debt Relief (www.freedomdebtrelief.com), they are the leaders in this space, I suggest that you get a free consultation with the. After looking at who your creditors are, they will be able to tell you if this is good idea or not. you will also be able to compare your potential savings, with this other company.
21. Posted by sara on Saturday 16th May 2009 14:05
I lost my job and i have 4000 dollars in credit card debt and i can't pay it. I call the credit card company and they don't want to work with me. I not sure what to do. I have never been late on a payment. It seems like the only option really is to default and wait for the collection agency to call and try to work out a payment plan with them
22. Posted by Bill on Monday 18th May 2009 12:27
Unfortunately, credit card companies do not put much effort in dealing with customers with payment problems, they are of the attitude "If we have to charge off the account anyways, why bother".
23. Posted by den on Friday 5th June 2009 15:06
if someone defaults on a CC and the CC company is awarded a judgment. Can a person file BK7 on that judgement in the future if they need to?
24. Posted by Bill on Friday 5th June 2009 16:58
It is possible, but will depend if you qualify for Chapter 7. You should confirm with a bankruptcy attorney.
25. Posted by Omi Shankar on Wednesday 29th July 2009 04:23
Due to some unfortunate circumstances I done default on Personal Loan. I have a home loan also, the emi of which is getting continously paid by me. Bank for both loans are different. Is there any process where Bank can debit EMI amount from the salary (totally different bank). What can I do now as the collection agency people continously following me up for this. Is there any way-out for this ?
26. Posted by Bill on Wednesday 29th July 2009 09:00
You need to understand your rights as a consumer and collections law. The first thing you should know is that collections agents are not your attorney, and any legal advice a collections person gives you will probably be wrong and will certainly be self-serving. A good place to start to learn your rights can be found in my answer to another reader, Collections Agencies, Collections Laws and Your State's Statute of Limitations. The facts in that reader's case are different from yours, but the laws and processes are fundamentally the same. Go to State Consumer Protection Laws and Exemptions to learn more about the laws in your state.