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Issuers may freeze, seize your bank account if you pay late on card

Depending on where you live, extreme means of getting past due funds may be OK

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Opening Credits,
I just read that a credit card company can take money from your bank account if they go through court. What if there are other names on the bank account? How can the credit card company do this? -- Anonymous

Answer for the CreditCards.com expert Dear Anonymous,
That's the funny thing about credit card companies: When they lend people money, they expect to be repaid according to the terms of the contract. If you, as the cardholder, fail to do so, they have the right to drag you into court and collect the hard way.

Getting sued for a debt is never pleasant. If you value your peace, property and credit score at all, it's best to do everything possible to prevent legal action from happening.

So, can a judgment creditor (one that that has sued you in a court of law and won the case) levy a conjoined bank account by freezing it and seizing due funds? The answer: It depends on the state you live in. For example, in Pennsylvania, they wouldn't be able to touch the money if it is also owned by a spouse. However, if the account also belongs to a friend, child or anyone else, you and they are out of luck. To know what the laws are in your area, contact a local law firm or attorney that specializes in consumer issues and ask.

Of course, claiming nonexempt assets -- the property a creditor may take after a lawsuit -- isn't the only method available to judgment creditors. Depending on the state, they also may be able to garnish a portion of your wages until the debt is cleared. Wage garnishment isn't just embarrassing; it could mean that you'll have to wait a long time before you take home your full paycheck again. 

No job or property to speak of right now? They can wait. Again, according to state law, court orders can remain in effect for many years. In California, for instance, a judgment creditor has 10 years to collect through whatever means is allowed, and they can easily renew their collection authority for another 10.

I must also point out that the actual sum you'll be required to repay will be considerably more after the lawsuit than it was before. Court costs, accumulated interest and attorney's fees can greatly increase the amount you'll end up owing. Oh, and most states also allow for post-judgment annual percentage rates (APRs) to be tacked on to the balance.

Of course, all the activity will show up on your credit report, too -- from the first time you missed a payment to the date when the judgment was entered. The latter will be noted in the report's public records section.

Clearly, even a co-owned bank account is protected from a levy, all sorts of rotten things can happen to you if you allow an unsecured debt to go bad. To prevent egregious legal repercussions:

 

  1. Confront problems quickly and directly. Hiding from those you owe only worsens the situation.
  2. Work out a hardship plan. If you can't pay the full amount, ask to make smaller payments. Be specific and honest about what you can do and be clear about when you'll be able to get back on track.
  3. Continue to make those smaller payments on a monthly basis. Even if the creditors say they won't accept anything less than what you're supposed to pay, carry on. If they do take you to court, your efforts will likely look positive to a judge. You may be eligible for a stipulated judgment, which can offset those nasty post-judgment collection actions.

 

Now, I realize that this is more information than you requested, but I'd be remiss if I didn't provide the complete story. After all, when you know exactly what can happen if you don't pay as agreed, you may be more motivated to treat that loan super-seriously.

See related: 8 things to know about credit scores and reports, A guide to the Credit CARD Act of 2009, Credit card hardship plans: a little-known alternative, 11 tips for dealing with debt collectors, collection agencies, Stipulated judgments: The secret savior, What types of income are protected from wage garnishment?

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: January 5, 2011


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