Most credit cards are unsecured debt (although consumers rebuilding their credit scores may get a secured card with a cash deposit as collateral). Only a promise to pay and a good credit history backs unsecured credit cards. This makes underwriting credit card debt risky and contributes to the high interest rates issuers charge for these unsecured lines of credit. Despite the initial unsecured status, a credit card debt can attach to the debtor's real estate after a payment default if the credit card lender sues the customer and obtains a judgment in court.
Referral to a Collection Attorney
When a consumer stops paying on a credit card debt, the credit card company attempts to collect the debt through informal means. This typically involves phone calls and letters from the collections department within the credit card company. The issuer may turn over the collection process to a third-party collection agency. If these efforts fail, the holder of the debt may hire a collection attorney to pursue the borrower.
Filing of Collection Lawsuit
Once engaged, the collection attorney will usually send a letter demanding payment. If the debtor does not pay, the credit card company's attorney will file a lawsuit against him. Lawsuits begin with filing a complaint in court and serving a copy of the complaint on the debtor. The debtor has a limited number of days to file an answer to the complaint.
Judgment Lien
If the borrower ignores the complaint, the collection attorney can apply for a default judgment. Otherwise, the parties will continue the litigation until they settle or the court rules on the case. Unless the credit card borrower has a valid defense or agrees to a voluntary settlement, the credit card company will eventually receive a judgment from the court confirming the amount owed. The judgment can become a lien on the debtor's real estate. Once the credit card company records its judgment, the credit card company's judgment lien will show up in title reports. Then the debtor will not be able to sell the real estate without paying the judgment.
Homestead Law Protections
Many states have homestead laws that protect some or all of a debtor's primary residence from judgment liens. Homestead laws don't affect voluntary liens that are secured by a home (like a mortgage). But they can prevent a credit card company or other judgment creditor from foreclosing on the debtor's home and forcing him to leave.
Other Creditor Remedies
Although many people worry primarily about credit card debts reaching their home, the credit card companies have other powerful collection tools after the court awards a judgment. A judgment allows the credit card company to garnish wages and bank accounts until the judgment is paid in full.
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