Can Unsecured Creditors Take Your Home?

When you owe debt, creditors may be able to seize your property. While a secured creditor can take the collateral you pledged when you obtained the loan, an unsecured creditor must typically obtain a judgment before he can garnish your wages or take possession of your assets. Unsecured creditors with judgments can garnish your wages or seize funds in your bank account, but they can't usually take your home unless you have a large amount of equity.

About Judgments

Most states require unsecured creditors to obtain a judgment before they can take your property. To do this, they must file a lawsuit against you for unpaid debt. If the court determines that you owe the debt, it will grant the creditor the right to take your nonexempt property. The creditor may take money from your paycheck, remove funds from your bank account or take possession of personal property, such as jewelry or a vehicle.

Exemptions

Certain property is exempt from garnishment by an unsecured creditor with a judgment. In most states, you can file an exemption for your home, a certain amount of cash and a portion of your other personal property, such as clothes, vehicles and household goods. Most states only allow you to exempt a portion of your home, so if your equity exceeds your exemption, a creditor may be able to force the sale of your home.

Liens and Forced Sale

The portion of your home exempt from creditors differs by state. If your equity is substantially more than your exemption, the court may grant the creditor a writ of execution to take possession of your home and sell it. If your equity isn't much more than your exemption or if the court won't grant a writ of execution, a creditor may put a lien on your home. The lien will prevent you from selling the home until you repay the debt.

Considerations

In most states, your property won't be exempt from seizure unless you file for exemptions in court. Homestead exemptions don't apply to loans you secured using your home as collateral, such as mortgages or home equity loans. If you default on a mortgage or home equity loan, the creditor can foreclose on your home and sell it to repay the debt.