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Unsecured Debt | Can Creditors Seize My Home?

A friend of mine is barely making enough to meet her living expenses. She uses her home to run a business. She is past due with

A friend of mine bought a house two years ago in Va. She has over $120,000 in credit card debt, which she quit paying one year ago. She is using her house to run a daycare business and is barely making enough income to survive on. She is worried about having her house seized. What should she do?

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Bill's Answer
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Although it is unlikely that a creditor for unsecured debt will seize real property such as a home, it is legally possible for a creditor to do so.

Here are the basic steps that a creditor would need to take to seize a property.

To start, a creditor must go to court to receive a judgment. A court (or in some states, a law firm for the plaintiff) is required to notify the debtor of the time and place of the hearing. This notice is called a "summons to appear" or a "summons and complaint." In some jurisdictions, a process server will present the summons personally. In others the sheriff's deputy will pay a visit with the summons, and in others the notice will appear in the mail. Each jurisdiction has different civil procedure rules regarding proper service of notice. (See Served Summons and Complaint to learn more about this process.)

In the hearing, the judge will decide if the creditor should be allowed to collect the debt. If the debtor fails to appear, the judge has no choice but to decide on behalf of the creditor.

A judgment is a declaration by a court that the creditor has the legal right to demand a wage garnishment, a levy on the debtor's bank accounts, and a lien on the debtor's property.

A lien is an encumbrance -- a claim -- on a property. For example, if the debtor owns a home, a creditor with a judgment has the right to place a lien on the home, meaning that if the debtor sells or refinance the home, the debtor will be required to pay the judgment out of the proceeds of the sale or refinance. If the amount of the judgment is more than the amount of equity in your home, then the lien may prevent the debtor from selling or refinancing until the debtor can pay off the judgment.

Alternatively, the lienholder has the right to foreclose on the property. However, in many situations foreclosure would be foolhardy because the lienholder would stand in line behind senior encumbrances, such as a first and second mortgages or first and second deeds of trust. These senior obligations would be paid first before the lien. Therefore, from an economics perspective, it makes little sense for a lienholder to foreclose on a property when they could play the waiting game and be paid when the property is sold or refinanced.

From a business perspective, it makes little sense to foreclose because of the public relations disaster that would result. Local news media would love to excoriate a credit card company for tossing a local family onto the street for failure to pay a relatively small credit card balance.

Regardless of the chances of foreclosure on a residence for credit card debt, every state has its own rules about property liens, so debtors with a judgment against them who own property should review their state's laws to learn creditor can and cannot do to enforce its judgment. See the Bills.com resource State Consumer Protection Laws and Exemptions for an overview of each state's rules.

Debt resolution

If you have a judgment against you, consult with an attorney licensed in your jurisdiction to learn how the judgment will affect you, based on your individual financial circumstances and your local rules.

I would encourage your friend to consult with a firm that negotiates reductions in unsecured debt. For a no-cost, quote from pre-screened service providers, go to the Bills.com debt relief savings center.

If the debt relief program is not one that will work for your friend, I encourage her to speak with an attorney in her state who has experience in bankruptcy to discuss her options.

I hope this information helps you Find, Save, and Learn.

Best,

Bill

www.Bills.com/blog

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9 Comments

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  • DM
    Feb, 2014
    Doug
    Grass Valley, CA
    The dip in the economy destroyed me and for the past 4 years I have had to rethink the way I make a living as all investment were lost and I have only S.S. to rely on. Past bills don't amount to much over 15000.00 but they are there and it is impossible to keep up with them and survive at the same time. Everything I owe is from unsecured loans, credit cards this sort of thing and everything I own is paid for including my home. (a mobile home valued at about 30,000) What can I expect my creditors to do considering the small amount owed if it gets to the point that I just can't make anymore payments?
    1 Votes

    • BA
      Feb, 2014
      Bill
      If you stop paying your creditors, you will receive collection calls and may be subject to legal action. In a worst-case scenario, creditors will sue you and obtain a judgment against you. If that happens, then federal law and the collection laws of your state will govern how they can collect. For instance, your Social Security income is protected from garnishment by this type of creditor. However, holdings you have in a bank account may be subject to bank levy (though the SSI has some protections, even after deposited). A judgment-creditor could attach a lien to your home, too. What you may want to do is to save up money, as best you can, if you choose to stop paying your creditors, to use that money to reach lump-sum settlements.
      0 Votes

    • BA
      Feb, 2014
      Bill
      Creditors are unpredictable. We have seen some who file small claims actions for less than $500, and others who ignore credit card balances in the mid five-figures. It's reasonable and understandable for you to ask for odds. But it's folly for anyone to predict what an original creditor or collection agent will do. The more delinquent accounts you have, the greater your chances for being sued.
      0 Votes

  • MI
    Nov, 2011
    Michelle
    Stanley, IA
    Had credit card debt of 5,600. Was taken to court. Collections hired by CC Co. attempted to garnish my wages but unable to do so because I dont make enough in disposable income. They Knew my bank account# and garnished $700 from it. I had my name removed from the bank account. The only thing my name is on is our home however our home is valued at $23,000 with $16,000 owed on it through our bank. Will or can the collections (cc company) take our home?
    0 Votes

    • BA
      Nov, 2011
      Bill
      A creditor can place a lien on your house, but would rarely seize it, especially in cases when limited equity is available. You should also familiarize yourself with the state laws regulating the exemptions on consumer debt.
      0 Votes

  • SD
    Oct, 2011
    Shannon
    Indianapolis, IN
    I am having trouble finding exemption laws for Indiana. I own a home and I have no mortgage. I am expecting several judgments in the next year over student loans (a bankruptcy caused them all to go into default). The total amount is over $200K, my home is worth about 60K. I also have a car. I am married and my husband's name is both on the house and car. Am I protected? I read somewhere that the marital property is completely exempted if it is the sole residence, but I am not sure about the car. And I am not sure if that information applies to Indiana. Thank you for your help!
    0 Votes

    • BA
      Oct, 2011
      Bill
      Consult with your bankruptcy lawyer to learn more about the exemptions that apply to you in your particular situation. Start here to learn Indiana Codes, your state's statutes.
      0 Votes

  • CW
    Jul, 2011
    CAROL
    Easton, PA
    If you have equity in your home that would cover the mortgage and unsecured debt would they be more apt to foreclose?
    0 Votes

    • BA
      Jul, 2011
      Bill
      Carol, I am not sure I understand your question. Your lender is the only one that can foreclose on you, if you miss your mortgage payments. If you have more equity in your home than you owe on the mortgage, it would be far better to sell the home and pocket the equity, than to let the home go into foreclosure. Your lender is the only one that can foreclose on you, if you miss your mortgage payments.
      0 Votes

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