Credit cards help you to establish your credit, but when you default on them, you may face serious consequences. Credit card companies can garnish your wages and your bank account. They can also put a lien on your house or try to foreclose on the house in certain situations. By taking proactive measures, you can protect your home from creditors, and you can rebuild your credit to avoid facing similar consequences in the future.
Avoid secured credit cards. Most credit cards are unsecured, meaning that you are not using any type of collateral to secure the credit. Secured debt is backed by collateral, such as a home, and allows the creditor to foreclose on the property when you default. If your creditor offers to transfer your existing unsecured balance to a secured card with a lower interest rate, refuse this offer. However, even unsecured debt can result in a lien being placed against your property if the creditor sues you.
Attempt to pay off your debt. Contact your creditors and ask to get on a payment plan. A credit counseling company may be able to negotiate a favorable interest rate or have fees waived for you. Creditors may be willing to accept a lump sum debt settlement.
Attend any applicable court proceedings. If a creditor wants to garnish your wages, garnish your bank account or place a lien against your house, he has to get a court judgment to that effect. Present any defense that you have, such as attempts that you made to pay the debt, extenuating circumstances or a statute of limitations within which the company did not collect. You may also assert your state's Homestead Act, if applicable. This act protects homeowners from having to sell off their primary home to pay off unsecured debt.
File for Chapter 7 bankruptcy if necessary. This type of bankruptcy may allow you to remove your personal liability to unsecured debts while still allowing you to retain your home, depending on your state laws and how much equity you have in it. A bankruptcy attorney may be able to remove a lien on your house during the bankruptcy proceedings.
Items you will need
- Credit card statements
- The credit card company's best interest may not be served by foreclosing on your home. The credit card company has to pay off any existing mortgage and then sell your home at an auction to recover any of the money that was owed to them. Use this information to help you when you are negotiating with the company. Each state has its own set of rules pertaining to the steps that creditors can take to collect on debt owed to them and whether lienholders can foreclose on a property. Check the laws of your state about the rights and limitations of creditors.
- Advantage Credit Counseling Service: Unsecured Vs. Secured Debt
- Bills.com: Credit Card Debt and Foreclosure Advice
- Federal Trade Commission: Knee Deep in Debt
- The Bankruptcy Center: Chapter 7 Bankruptcy
- Fox Business: What Is Unsecured Debt?
- MassResources.org: Massachusetts Homestead Act
- Bills.com: Credit Card Company and Lien on My House
- Law Office of Kate Owen: Avoiding a Judgment Lien on House
- Jupiterimages/Comstock/Getty Images
- What Is a 506 When It Comes to Bankruptcy?
- Can Unsecured Debt Be Collected Through the Court?
- Do-it-Yourself Credit Card Secured & Unsecured Debt Elimination & Redemption
- How Does a Bankruptcy Affect Credit After 2 Years?
- How to Stop Collection Suits on Credit Cards
- Can They Garnish Your IRS Refund to Fulfill a Judgment?