Credit Card Debt & Foreclosure Advice

Will I have to give up my home because of credit card debt?

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Bill's Answer: Answered by Bills.com Staff

The answer is most likely no, a delinquent credit card debt will not cause you to lose your home to foreclosure.

Very few consumers lose their homes because of delinquent credit card debt. In fact, I would say that it almost never happens, except in certain bankruptcy cases in which the consumers voluntarily gives up his or her home. Although forcing the sale of a consumer’s home due to credit card debt is technically possible in some states, it is a very costly and risky undertaking for creditors.

In addition, forcing the sale of debtors’ homes would be extremely bad public relations, as many people would be much less likely to use credit cards if they thought their use may result in them to losing their homes.

Unless your financial situation is somewhat extraordinary, you probably do not need to worry about losing your home due to credit card debt. Only if you own your home outright, or if you have a very large amount of equity in the house, could the taking of your home become a concern. Even in those cases, it is extremely unusual for credit card companies to seize property due to the time and cost involved.

Before going into detail, I can advise you to seek a debt consultation to see if you can get help with your debts. Bills.com has many pre-qualified debt counselors who can help you sort out your problems. Visit the Bills.com Debt Help page for more information.

Credit Card Foreclosure

Before seizing any property, a credit card company would first need to file a lawsuit against you in your county courts in an attempt to obtain a judgment against you. The court process alone can take many months to complete, and there is no guarantee that the creditor will win a judgment against you, though it probably will win if you owe the debt. Once a creditor obtains a judgment, it can initiate further court proceedings to collect on the judgment.

Although the execution of a judgment could theoretically involve a creditor seizing your home, there are several much easier ways to collect on a judgment which creditors usually prefer. These methods include wage garnishment and levies on bank accounts. Also a creditor with a judgment against you will likely place a lien on your home, meaning that when (or if) you sell or refinance the home, you would be required to pay the judgment out of the proceeds of the sale.

Your state law dictates what methods are available to creditors to collect on judgments. For example, Texas, Pennsylvania, and North and South Carolina do not allow wage garnishment for the collection of most judgments. Keep in mind that before taking any of these actions, a creditor must sue you and be awarded a judgment by a court with jurisdiction over the case, which usually means the courts in your county of residence.

Falling behind on a credit card does not always result in a lawsuit. Many people unable to make their payments suffer nothing worse than collection calls. Also, keep in mind that creditor threatens you with a lawsuit does not mean that they will actually sue you.

Frequently, collectors will threaten people with wage garnishment, bank levies, or even the seizure of a home, even though the collector has absolutely no ability to follow through with the threats. See the Bills.com resource Collections Advice to learn more about your rights in collections.

Wise Advice Each state legislature created unique foreclosure and anti-deficiency laws. Follow the links just mentioned to learn the foreclosure rules relevant to you.

Why a Creditor May Not Try to Seize Your Home

If a creditor with a judgment against you wanted to seize you home, it would first be required to pay off any mortgages or home equity loans you have on the home. Only after paying off the secured creditors could the credit card company sell the home at auction. Since auctions frequently bring less than half of the actual value of the home, creditors are taking a huge risk. Since they must pay the mortgage company up front for the entire amount owed on the mortgage, if the home brings less than expected at mortgage, they can actually lose money on the deal.

In addition, almost all states exempt a certain portion of the equity in a home from creditor execution; this amount ranges from $5,000 in some states to several hundred thousand dollars in others. If a creditor sells your home at auction, they must pay you your exemption amount, regardless of whether or not the creditor made that much money at the sale.

As you can see, this is a complicated and risky proposition for creditors, which is why it is almost unheard of for a consumer to have his or her home seized to repay delinquent credit card debt. Some states, such as Texas, do not allow creditors to seize primary residences to repay judgments regardless of the amount of equity in the home.

If you are being sued by a creditor, or think that a lawsuit may be filed against you in the near future, you should consult with an attorney to discuss your states exemption laws and what action a creditor could take against you under those laws, and what you can do to protect yourself. After speaking with an attorney, some consumers find that they are "judgment proof," meaning they have no assets a creditor could take to repay a judgment against them. This is especially common among elderly and disabled individuals.

The bottom line is that, while possible legally in some states, it is unlikely a creditor will take your home to repay your credit card debts. However, as mentioned before, creditors will take other actions to collect on delinquent accounts, so you should look into ways to resolve your debts if you are struggling to repay them.

Tip Debt distressing you? The Bills.com Debt Coach is a no-cost online tool that will analyze your debts and show you the options available to resolve them and the costs and benefits of each.

Debt Resolution Options

The first option that comes to many people’s minds is bankruptcy — if you are considering bankruptcy, I encourage you to consult with a qualified bankruptcy attorney in your area to find out if filing bankruptcy is a viable options for you.

If you find that you cannot file bankruptcy, or simply do not want to file, there are several alternatives available, such as consumer credit counseling and debt settlement. To read more about these options, I invite you to visit the Bills.com Debt Help page.

I hope this information helps you Find. Learn & Save.

Best,

Bill

Bills.com

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Comments (63)


Anthony B.
Melrose Park, IL  |  February 18, 2012
Hello Bill, My question is regarding forclosure due to delinquent property taxes. I was laid off for a year now and have fallen behind on taxes. I have until October 2012 to pay two years of delinquent taxes or be foreclosed on. Can I file bankruptcy and add the taxes on it? or will the tax company who bought it able to do a 5 year plan alone with me? Also, If they do take property and I do not file chapter 13 due to being unemployed and not approved, will I still get my 15,000 exeption homestead in Illinois? Thank You, Anthony
Bills.com
February 19, 2012
Anthony, because your house is at risk, I strongly advise you to seek professional legal advice. If you can't afford to pay for it, seek legal aid through Illinois Legal Aid.

I don't think a long-term payment plan will be offered on your delinquent property taxes. I also do not believe that you can discharge the debt in bankruptcy, though you should discuss that with a bankruptcy attorney, as well as whether filing for BK can delay any actions against you.

I do believe that your homestead exemption applies, but as I am not able to give you legal advice, please also discuss this with an attorney.
Brittany L.
Wadesboro, NC  |  February 04, 2012
I live in NC and have a lien against my car for some bad credit card debt. Can they take my tax refund to pay this debt?
Bills.com
February 04, 2012
Private judgment-creditors do not have an inside track with the IRS. What you suggested does not occur. You mentioned North Carolina. See the Bills.com resource North Carolina Collection Laws to learn more.
J W.
Morgan City, LA  |  January 23, 2012
I was in a car accident in 2003, and my lawyer said he would take care of my creditors. Now, after 9 years, I received a letter saying I owe almost double the original debt. I own a mobile home and property that is on my name and a friend's name. Can they put a lien or anything on my property?
Bills.com
January 23, 2012
You indicated you reside in Louisiana. Louisiana law is unique among the 50 states because it is based on Napoleonic code, (the French civil code), Roman law, and Spanish civil law. The other states are rooted in English common law. I barely scratched the surface studying Louisiana law, and would be doing you a disservice by guessing at your rights and liabilities. Consult with a Louisiana lawyer who has consumer law or civil litigation experience. Please return here to share what you learned.

In the meantime, validate the debt because a debt that cannot be validated may not be collected.
Killermery C.
Houston, TX  |  December 22, 2011
I live in Texas I have a debt of $4000, I try to work a payment plan with the collectors, but they told me I had intill the end of the year or they will place a lean on my house I am still paying for and don't want to sell. This calls just started a couple of weeks ago and I haven't receive any letters from them in the mail. Can they do that?
Bills.com
December 22, 2011
A lender or collection agency can place a lien on your property only after they receive a court judgment in their favor. I recommend that you read about collection laws in Texas. This article will help you understand the tools available to your creditor. For example, Texas does not allow, in general, wage garnishments.

The collection agency is obliged to work within the framework of the law, in a fair manner. Read Bill.com article about collections advice.

It is my understanding that, in Texas, you can have a lien against your home removed, through the local county court, due to the home being your homestead and the exemptions in Texas. I believe that even if you sell the house and there was a lien present that you can keep the proceeds from the sale and they are protected for up to 90 days from garnishment. I am not an attorney, so you should speak with one if you want an authoritative answer.
Andrea Vanizu S.
Stockton, CA  |  November 30, 2011
Hello, My uncle made a contract with a law firm to settle his credit card debt. He had to conform to 3 payments. He made the first one but unfortunately was unable to make the second one. Now the law firm is refusing to make an adjustment and are threatening to sue him in court. If he was taken to court can the judge ask the law firm to consider a new arrangement plan since he was willing to make the payments instead of wage garnishing and the other consequences. Thank You.
Bills.com
December 01, 2011
As your uncle defaulted on the payment arrangements he set up with the law firm, it seems the likeliest event, if the law firm does sue him, is that a judgment will be entered against him. A judgment could lead to a wage garnishment and a bank levy, depending on the state collection laws.

Because the law firm is threatening to sue him, but has yet to do so, he should try again to work out a payment schedule before he is sued.
Serena E.
Tinton Falls, NJ  |  November 14, 2011
I received a collection call from a credit card debt of five thousand dollars. I agreed to payment arrangements with the collection company but refused to have the money drafted from my checking account. The collection agency than refused to speak to me any longer. Told me to either get a lawyer or file bankruptcy and dismissed the payment arrangement that we both agreed on. He said I could not be trusted to pay on my own. I am afraid that now he will sue me for payment. Can they do this even after I agreed to pay? He said I have 24 hrs to give them permission to go into my bank account. And the entire conversation was recorded.
Bills.com
November 14, 2011
Bills.com has received enough messages from people who have agreed to allow a collection agent make an ACH withdrawal from their accounts for $X, and then the collection agent withdraws "$X+much more" that I discourage the practice. Send the collection agent a money order or certified check, which are much more difficult to alter than a personal check.

But before you send the collection agent a penny, read the following Bills.com resources:

One last thought: Recommending someone file bankruptcy may be considered legal advice. The last person a consumer should accept legal advice from is a collection agent. Read the links I mentioned above to arm yourself with knowledge of your rights and liabilities so that you can decide whether bankruptcy is a viable strategy for your situation.

Sasha B.
Washington, DC  |  October 15, 2011
Hi, I made arrangements with a debt collector to pay on one of my credit cards. After making arrangements, I received notification that they are suing me. Since making the arrangements I have been paying them everyone month the amount we agreed upon as they are automatically taking it out of my bank account. Why are they still trying to pursue me in court, if I have already made arrangements and I am living up to the agreement we have made?
Bills.com
October 15, 2011
I can only surmise that you did not get an agreement in writing. It may be a case where one hand does not know what the other is doing. Start by speaking to the collector, explaining the situation and hearing what they have to say. If the collector is inflexible you can try explaining your side in court, but the collector may deny that any formal arrangement was in place, if you lack the ability to prove that it was. It does seem that your allowing automatic deductions from your account is one piece of evidence, but I can't say whether or not it is enough to prove that a formal agreement existed.

I can't explain why the collector is acting this way, but it may be a case of lack of ethics and greed. It is not fair to break an arrangement the two of you made, but the collector may be doing so in order to collect more money from you more quickly. Your situation is a reminder to get all agreements in writing.
Cristy E.
Plainview, NY  |  October 10, 2011
My father was diagnosed with cancer and my parents have over $30,000 in credit card bills. They also have a mortgage they are paying. They cant pay the credit card bills will they be forced to sell the house? Should i continue paying the min amnts on the cards?
Bills.com
October 10, 2011
As I tried to convey in the original answer above, there is not a direct path from credit card default to home foreclosure. Please reread the original answer above to gain a better understanding of what happens during the collections process. See also the Bills.com resource Collections Advice to learn more details about collections.

You asked if you should continue to pay the minimum balances on their credit cards. I cannot answer that question without learning more about your parents finances and their goals. Consult with a lawyer who has wills, trusts, and estate planning experience. You may say, "My parents do not own all that much." That may be true, but a lawyer with estate planning experience will look at the big picture, including the credit card debt and mortgage, and recommend a plan for resolving the debt with a minimum of liability for the family and each spouse.

I realize this may not be the answer you were seeking. However, your parents need a good plan that takes into account their entire situation, and not a quick yes or no or a snappy one-line answer.
Sean D.
Amherst, NY  |  August 23, 2011
My car and home is titled in my name as well as my girlfriends. I have an outstanding debt of 8,000 to a collection agency. They have a judgment against me from 9 years ago. Can they repo my car or put a lein on our home?
Bills.com
August 23, 2011
They cannot take property or garnish wages without first obtaining a judgment against you and then applying that judgement.
Chuck R.
Leander, TX  |  August 23, 2011
I live in Texas and recently took a major salary cut. Needless to say, I fell way behind on my bills. One of my credit cards has served me with papers and is taking me to court to place a judgment on me. I don.t have any money to pay them. What is going to happen?
Bills.com
August 23, 2011
Texas has very strong wage protections for collection of a credit card debt, so a wage garnishment is not a major concern. (If you are paid by an out-of-state entity, it could be more complicated.)

A bigger concern, if a judgment is entered against you is a bank levy. Keep funds to a minimum, if you receive a judgment.

Because of Texas' wage protections, you are in a favorable position to negotiate a debt settlement, even post-judgment.
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