When you are employed, handling your credit card bills is manageable, provided your spending has been within your budget. When you lose your job, however, tackling your payments becomes harder. If you do not work with the credit card company right away in this situation, your financial problem quickly can turn into a legal one.
The Contract
When you sign up for a credit card, you sign a contract with the credit card company. This contract details the terms of use for the card, but it also explains that the credit card company is a lender you repay. If you violate the terms of the contract, you are violating your lending agreement. The fact that the debt is associated with a credit card company is not the issue -- the fact you have a legal contract indicating you will pay is. The credit card company legally can hold you to this contract even if you lose employment.
Unsecured Vs. Secured Cards
Secured credit cards require collateral and therefore usually are better for individuals with poor credit. Unsecured credit cards do not require collateral and usually have better interest rates. If you have a secured credit card, the credit card company probably won't sue you. Instead, they will probably just collect the collateral you provided. If the credit card is unsecured, however, it is more likely that the credit card company will sue. This is because suing provides a court judgment that very specifically indicates what the credit card company can and cannot take from your assets according to state laws. Credit card companies need this with unsecured debt because the contracts for these kinds of cards don't specify any collateral even though the company is entitled to payment.
Negotiation
When you cannot make payments on your credit card balance due to job loss, the best thing to do is to approach the credit card company right away on your own and explain your situation. Depending on the terms of your contract and the company you use, you may be able to negotiate with the company to have your monthly payments temporarily deferred -- for a fee, of course. The company also may lower your minimum payment amount or interest rate if you ask, although the company is not obligated to do so. This won't guarantee the company won't sue later on if you really get behind, but the fact you communicate well with the company and take steps to try to improve your situation looks favorable to the company. This may buy you some time in which you can find new employment and catch up on your payments. In many cases the company would rather negotiate than lose a customer or go to court. Consolidating your debt also may help.
Statute of Limitations
Sometimes credit card companies try to collect debt after the statute of limitations for collection has expired. The statute of limitations varies from state to state. However, regardless of where you live, if the statute of limitations expires during your job loss, you are not obligated to pay the debt, regardless of the amount. People often pay credit card companies money they legally no longer owe because they are not aware of this. Do not let the credit card company intimidate you with the threat of a lawsuit if the statute on the debt has expired. Instead, use the statute of limitations as your defense against having to pay.
Considerations
Just because a credit card company can sue you does not mean that it will do so. Suing is a time-consuming and costly process, and in some cases, the credit card company may determine that suing is not in the company's financial best interests. In addition, different states handle credit card judgments differently. For instance, some states allow wages to be garnished. If you don't have a job or your state doesn't permit garnishment, the courts may seize bank accounts, or they may sell or put liens on non-exempt property.
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