If you fail to make your monthly mortgage payments, your mortgage lender can repossess your home. Other creditors cannot repossess your home even if you default on the debt. However, defaulting does increase your financial burden, and in some cases, you may find yourself having to file for bankruptcy. These problems put you at greater risk of being unable to pay your mortgage.
Home as Secured Debt
Your home is considered collateral of your mortgage. Thus, if you do not pay your mortgage, your creditor can repossess your home. However, a creditor cannot repossess property that is not attached to a particular debt. Thus, if you have a credit card through the same bank that financed your mortgage, the bank cannot repossess your home if you fall behind on your credit card as long as your mortgage payments are current.
Credit Card Purchases
All credit card purchases are unsecured debt. Thus, the creditor cannot repossess anything you purchased with the credit card if you default on your credit card agreement. For example, if you take a cash advance out on your credit card to pay your mortgage and then default on repaying the cash advance, your creditor cannot seize your home. Similarly, the creditor cannot repossess anything in your home, such as a television, that you used credit to purchase even if you default on your debt.
Consequences of Default
If you default on your credit card payments, your creditor can sue you in court for the balance you owe. Once the creditor receives a judgment against you, he can request that the court order wage garnishment. If the court agrees, it orders your employer to withhold a certain portion of your wages each pay period and forward them to your creditor. However, your creditor cannot garnish so much of your wages that you cannot pay your mortgage and thus lose your home.
Chapter 7 Bankruptcy
If you owe a significant amount to credit card companies and cannot pay it back, you may file for Chapter 7 bankruptcy. Chapter 7 requires you to liquidate your assets to repay your debts. You may lose your home under certain circumstances when filing for Chapter 7; however, most homeowners are able to claim an exemption for their home and thus keep it. You may also be able to reaffirm your mortgage, meaning that you agree to keep making mortgage payments after filing for bankruptcy.
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