Can I lose my house over credit card debt?

By  |  Published: February 25, 2017

Credit Smart
Credit Smart columnist Susan C. Keating
Susan C. Keating is the president and chief executive officer of the National Foundation for Credit Counseling. Prior to joining the NFCC, Keating spent 29 years in financial services. She was the highest ranking female CEO of a U.S. bank holding company, serving as president and chief executive of Allfirst Financial Inc., the largest U.S. holding of AIB Group. She currently serves on Bank of America's National Consumer Advisory Council and is a board member of the Council on Accreditation. Keating also participates in the Financial Regulation Reform Collaborative, a nonpartisan group committed to finding solutions for reforming financial services regulation.

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Question

Dear Credit Smart,
Can I lose my house over credit card debt? – Glenda

Answer

Dear Glenda,
Let me say right at the outset that I am not an attorney and can’t give you legal advice. However, the answer to your question is: probably not.

Credit card debt is unsecured debt. In order to lose your home, several things would have to happen. First, you would have to be sued in court and lose. If that were to happen your creditors would receive a judgment against you ordering you to pay. If you could not pay, a card issuer could take further action to enforce the order. That is when you might face the prospect of losing your home.

But creditors rarely employ such drastic measures, in part because there is usually a mortgage attached to a home. Mortgages are secured debt, and the mortgage holder would have first rights if the home were foreclosed on to pay a debt. Once that happens, there is often not enough money left over to pay anyone else. This is a long and complicated process for the creditors and usually not worth it to them in the end.

I am not saying you can simply ignore your debt and it will go away. If you don’t pay, there will be consequences. And if it gets to the point of you receiving a summons to appear in court you should never ignore that. If you don’t show up, the chances are pretty good that you will lose. That would be the time to seek the advice and help of an attorney.

Your debt settlement options
Before it comes to that, I want you to know that there are several options available for handling your credit card debt. These include:

  • Handling the debt on your own, which might involve calling your credit card companies and negotiating a lump sum payment.
  • Many creditors have internal hardship programs to help struggling consumers. The help they offer may be short-term, but may be enough to get you back on track. 
  • Debt settlement is another option, but you should know that this will damage your credit score and also carries tax implications.
  • Bankruptcy is usually considered the last resort option for handling credit card debt, because while bankruptcy exists for very good reasons it also causes serious and long-lasting damage to your credit. Bankruptcy is another situation that would require you to seek a lawyer’s help.
  • The other option you have – and the one I would advise you do first – would be a call to a certified, nonprofit credit counseling agency with The National Foundation for Credit Counseling. After reviewing your income, expenses and debts, the counselor will go over all of your options. This will include those I have already mentioned as well as a debt management plan with their agency. This is a systematic method of repaying credit card debt in full but usually at reduced interest rates and often reduced monthly payments.

Every option has its pros and cons, and your counselor should go over all of those with you. If they don’t, be sure to ask what those are so that you can make an informed decision. You need to do what is right for you and put your mind at ease with regard to keeping your home safe from seizure.

Remember to always use your credit smarts!

See related: 6 tips for choosing a credit counseling agency, Your options after a court judgment

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Updated: 10-23-2017

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