Unlike secured creditors, which retain possessory interest in collateral under a loan until you pay it off, credit card lenders do not have the option of repossessing secured property to satisfy an unpaid debt. However, if you do not pay your credit card bills, unsecured creditors have several options available to collect on unpaid debt.
Personal Contact
After you miss a payment, a credit card company can attempt to collect from you by making personal contact through mail, email or telephone calls. A collection representative will notify you that your payment is past due and encourage you to make an immediate payment to bring your account current. However, a creditor cannot contact you before 8 a.m. or after 9 p.m., and cannot call your work if you prohibit the creditor to do so.
Collection Agency Referral
Although most credit card companies handle collection calls and letters in-house, the creditor may refer your account to an outside collection agency. Typically, this occurs when your account has reached 30 or more days past-due. The collection agency will handle all of the calls and letters on behalf of the credit card company --- it usually receives a commission from the creditor for any amounts it recovers through personal contact with you.
Legal Action
In most cases, credit card companies prefer to recover unsecured debt without resorting to legal action. However, if you have not made any effort to bring your account current and the debt has become severely past-due --- usually six months or more --- the creditor may file a civil suit for the debt in a county or district court. Most commonly, the creditor must bring this legal action in the county where you live. After giving you a chance to respond, the court will issue a judgment, which gives the creditor secured status --- that is, it can claim possessory rights to some of your assets and earning.
Post-Judgment Collection
After obtaining a judgment for debt, the credit card company can place a lien on your personal property, including real estate. This prevents you from transferring or selling the property until you satisfy the debt. Most states permit judgment creditors to garnish up to 25 percent of your wages, and take some or all of your bank account balances. The creditor may also force the sale of your home or other personal property, subject to state exemptions, to recover your debt.
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