Can Credit Card Companies Take Your House?

Falling behind on credit card payments can have serious consequences. Unpaid debts can damage your credit score result in late fees and higher interest rates, and even lead to legal action. But can a credit card company actually take your house if you default on your payments?

The short answer is yes, it is possible, but not common. Credit card debt is generally unsecured meaning it is not tied to any collateral. However, if a credit card company sues you for non-payment and wins a court judgment they may be able to place a lien on your property. This gives them a legal right to seize your home if you cannot pay off the lien.

How Credit Card Companies Can Take Your House

They would need to do the following things in order to seize your home:

• You default on your credit card payments. If the bill isn’t paid for a few months, it will probably be sent to collections. Your debt is written off by the credit card company as a loss.

• The company sues you. The credit card company can file a lawsuit against you to recover the debt. They would need to provide proof that you owe the money.

• The court rules in their favor. If you do not respond to the lawsuit or make your case in court, the judge will likely award a judgment to the credit card company. This gives them the right to collect through legal means.

• A lien is placed on your home. With a court judgment, the credit card company can request a lien against your property. This gives them a security interest in your home.

• Your home is foreclosed on. As a last resort, the credit card company may force the sale of your home to pay off the lien. This is rare, but legally possible.

So while credit cards are unsecured debt, long-term non-payment could potentially put your home at risk. However, there are consumer protections in place to limit this outcome.

Consumer Protections Against Losing Your Home

Taking someone’s home is an extreme measure that most creditors wish to avoid. Here are some of the barriers that make it difficult for credit card companies to foreclose:

• Statute of limitations. Most credit card debt has a statute of limitations that lasts between 3 and 6 years. After that time period, creditors cannot sue to collect.

• Bankruptcy protection. Chapter 7 or Chapter 13 bankruptcy stops debt collectors from trying to get your money and can get rid of all of your credit card debts.

• Settlement agreements. Creditors often agree to settle debts for less than what is owed. This avoids legal action.

• Homestead exemptions. Every state has homestead exemptions that protect a portion of home equity from creditors.

• Cost of legal action. Lawsuits and foreclosures come with legal fees and uncertainty. Creditors pick cases carefully.

So even if a credit card company wins a judgment against you, there are still protections that make it difficult for them to take your home. But it’s best to avoid legal action altogether.

Preventing Credit Card Companies From Taking Action

If you are struggling with credit card debt, there are steps you can take to protect yourself:

• Communicate with your creditors. Explain your situation and try to work out alternative payment arrangements.

• Pay something each month. Even small payments show good faith effort and may prevent accounts from being sent to collections.

• Prioritize paying secured debts first. Mortgages, auto loans and other secured debt should take priority over unsecured credit card bills.

• Seek credit counseling help. Non-profit credit counselors can help you manage payments and negotiate with creditors.

• Consider debt consolidation. Balance transfer cards or personal loans can reduce interest rates on credit card balances.

• Look into debt settlement. You may qualify to settle credit card debts for less than the full amount owed.

• Explore bankruptcy. While damaging to your credit, bankruptcy stops collection activity and discharges eligible debts.

The worst thing you can do is ignore calls and letters from creditors. Communication and action is key to avoiding legal consequences like liens and foreclosures.

Can You Sell Your Home if a Lien is Placed?

If a credit card company is awarded a judgment against you and places a lien on your property, is it still possible to sell your home?

The answer is yes, you can sell a home with a lien, but it makes the process more complicated. Here is what happens in a sale with an outstanding lien:

• The lien must be settled first. The lien amount plus fees and interest will be deducted from the sale proceeds.

• Any mortgages are paid next. You cannot sell a home without first paying off any remaining mortgage debt.

• Remaining proceeds pay you. After settling the lien and mortgage, any leftover funds belong to you.

• Short sales may be an option. If the liens and mortgage exceed your home value, your lender may approve a short sale to release the home.

So it is possible to sell, but liens reduce the equity you gain from the sale. And buyers often do not want to take on properties with outstanding judgment liens. This can make finding a buyer more difficult compared to a home without liens.

Alternatives to Saving Your Home

Losing your home is the worst-case scenario with unmanaged credit card debt. But even if you want to avoid foreclosure, you may still choose to give up ownership of the property. Some alternatives include:

• Renting out your home. You can move out and rent your home to generate income to pay down debts.

• Refinancing or a home equity loan. Tap available equity to pay off credit cards without giving up ownership.

• Selling on your terms. If you sell willingly, you can access equity and protect your credit.

• Deed in lieu of foreclosure. Voluntarily deed the property to the lender to avoid foreclosure process.

• Walking away. As a last option, people sometimes walk away from underwater homes they cannot pay for.

While painful to give up your home, voluntarily releasing the property early can help you avoid bigger credit problems and legal consequences down the line.

Key Takeaways

While rare, it is legally possible for credit card companies to take your home if you default on unsecured debts. They must go through a lengthy legal process first and overcome several consumer protections. Your best bet is communicating with creditors early and taking steps to manage debts before they escalate. Seeking credit counseling or legal advice can also help protect you and your property from worst case outcomes like foreclosure.

In Summary:

• Credit card companies cannot immediately seize your home for unpaid debts.
• They must first sue you and win a court judgment.
• A lien can then be placed on your property to recover the debt.
• Consumer protections make it hard for creditors to foreclose.
• Avoid legal action by communicating with creditors early.
• Get credit counseling or legal help if you are struggling with debt.
• It is possible but difficult to sell a home with an outstanding lien.
• Explore all options before allowing your home to go into foreclosure.