The ramifications of defaulting on credit card debt and other credit accounts can be significant. Creditors who follow the correct procedures can put a lien on your property, garnish your wages, take money from your bank account and seize any personal property that is not exempt. Each state has specific guidelines and timelines that creditors must follow to collect credit debt.
Judgments
The lender that initially issued the credit account or a third-party collection agency can file a lawsuit against you for unpaid debt on the account. Winning a judgment court order enables the creditor or collector to take legal steps against your property and your income to satisfy the debt. Judgments automatically attach a lien on your real property in some states. In others, creditors with judgments must make a separate filing to attach a lien to the property. Each state stipulates a specific filing process.
Liens
A lien put on real property must be paid at the time the property is sold. Liens are paid satisfied based on the filing date, but they are always paid before the seller receives proceeds from the sale. A lien from credit debt is valid for as long as the judgment awarded to the creditor remains valid. In some states, liens from judgments are valid for up to 20 years. Liens are also listed in the public information section of your credit report. Liens negatively affect your credit score.
Statute of Limitations
Before a creditor can put a lien on your real property, it must win a judgment. Each state has specific statutes of limitation relating to debt from credit accounts. The four classifications are open credit agreements, written agreements, promissory notes and oral agreements. Credit card debts, as well as other unsecured credit accounts, are included in the open credit account category in most states. If the statute of limitations for collecting the type of credit debt that you owe has passed, the creditor cannot win a judgment except by default. Default judgments are awarded if the defendant does not appear in court to present a defense.
Collecting on a Lien
Creditors with judgments who have put a lien on your real property can only collect when the property is sold. If the property with the lien attached is your primary place of residence, chances are that your state has homestead exemption statutes to help you protect your equity. If the equity in the property exceeds the homestead exemption amount in your state, the creditor can force a sale to collect the lien. For example, if your states homestead exemption amount is $50,000 and your equity in the property is $45,000, the creditor cannot force you to sell the home to collect on the lien. If your equity is $55,000, the creditor can force a sale.
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