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.
Dear Opening Credits,
I’m being sued for credit card debt. My son’s house is in both of our names because I co-signed for him in 2005. I had to go out on permanent disability in 2006. It’s a debt of somewhere around $7,000. My question is can they do anything to my son’s house? I don’t have anything of value or any money, but, I’m just worried about his house. — Cathy
For cardholders, that piece of plastic comes with a hidden silver lining that goes into effect in case of emergency. Yes, you are under a contractual obligation to repay what you borrow, but if you have no way to pay (that emergency situation I just mentioned), the credit card company can have a hard time forcing you to do so.
As you now are fully aware, your creditor can sue you. If it wins the case, it may be granted the right to recoup its losses by attaching your wages or taking assets. However, if you have no income to garnish or property to claim, the consequences for being sued are not dire. There will be credit report damage, as a judgment would appear in the public records section of your report for a total of seven years. Still, your file is probably already showing missed payments and high debts, so it’s already not looking so hot.
But as you fear, problems can erupt when you do have something that the judgment creditor can seize through a levy. That may be cash or things. Of course that’s a positive for the lender, since it will get back at least some of what you owe.
The first thing you need to do now is inventory all of what you own and understand which of those items are at risk. You say you have nothing, but many times people have more than they think they have. Some property is considered exempt, meaning that it may remain in your possession. Exemption laws vary by state, but people who are sued for unsecured debts typically get to keep:
- Welfare benefits
- Supplemental Security Income
- Social Security distributions
- Unemployment and workers’ compensation
- Pension and retirement benefits
- A portion of their wages
- Household goods, appliances, furniture
- A few thousand dollars in cash for one person, about twice that for married couples
- A vehicle (equity varies considerably by state but it’s usually a few thousand dollars)
- A home (also dependent on the state but often around $100,000)
- Tools you might need for a business, worth up to a few thousand dollars
So what happens when you are a co-signer on a piece of property and you are sued for an unsecured debt? If the title is in both of your names, making you truly joint owners, and you have significant equity in it, then yes, it is possible for a judgment creditor to force a sale. Mind you, though, that people rarely lose their homes this way. What is more likely to happen is that a lien may be placed on the property, making the title unclear until the liability is paid.
On the other hand, if the house is in your son’s name and you only helped him get the mortgage with your signature, then neither of you have anything to worry about.
Whatever the case, contact the creditor immediately to see if something can be worked out. Explain your financial circumstances and explain that you have no income to garnish nor things to take (if that’s accurate, of course). After hearing you out, they may decide that suing you is a waste of time and resources.
See related:Protect funds from garnishment when disabled
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