Sally Herigstad is a certified public accountant and the author of “Help! I Can’t Pay My Bills: Surviving a Financial Crisis” (St. Martin’s Press, 2006). She writes “To Her Credit,” a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also wrote for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs.
Dear To Her Credit,
My husband got behind on his credit card, and it has gone to a collection agency. They refused to set up a payment plan with him and wanted the full balance of $1,100, which we don’t have. They are threatening to put a lien on our property. What does that mean for us? — Sheila
If they follow through with the legal process of putting a lien on your property, it will mean you can’t sell, transfer or refinance the property without paying the balance plus legal fees and interest, which could turn into more than the original bill. It also means a judgment will show up on your credit report, seriously impacting your credit score and raising red flags any place you apply for new credit in the near future.
Fortunately, the collection agency doesn’t really want to put a lien on your property, despite what they say, because it costs the collection agency money to go through the legal process of getting a lien. They just want to get paid, and they know that talking about a lien scares people enough to get them to pay.
That doesn’t mean you can stop worrying about it. They will place a lien if you put them off long enough and make no effort to pay. The FTC prohibits collectors from threatening to attach a lien to your property unless they intend to do so. Even though proving their intentions is difficult, you need to take immediate action to reach an agreement and stop them from going to court.
From now on, don’t try to negotiate or set up a payment plan on the phone. Instead, follow these steps:
- Before having any more contact with the agency, figure out how much you can afford to pay toward the debt every month. You can enter your income and expenses in this online home budget calculator. Make sure you include everything you spend money on, including infrequent expenses such as car repairs. One way to plan for periodic expenses is to take the amount you spent last year and divide it by 12. That’s your monthly amount for this year. If your budget shows no money left over or a negative balance, look closely at spending categories you can live without temporarily. Or better yet, think of a way you can make a few bucks. Several evenings of babysitting, for example, should reward you with enough money to make a credit card payment.
- Send the first payment to the agency by certified mail. Accompany it with a letter stating you will pay that amount until the balance is paid. Be sure to save a copy of the check and your letter. Chances are, the collection agency will accept the payment.
- If they don’t accept payment, consider finding a legal assistance program for low-income individuals and families in your state to send a letter on your behalf.
- If they take you to court anyway, be sure to go to your appointment and show the letter you sent as proof you tried to make payment. If you show in court that you are trying to make good on your debt, you may still be given a payment plan you can afford.
- Once you have a payment plan, stick to it. It should be the first bill you pay after your rent or mortgage.
Take care of your credit!
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