Can Credit Card Debt Take Your House?

Credit card debt can rise quickly sometimes, especially if you are experiencing a hardship. If you have lost your job or must use credit to pay your monthly bills for another reason, you may be anxious that the credit card companies can take your home if you can no longer afford the escalating payments. Not paying the minimum due on time will hurt your credit rating, but it won't take your house away.

Credit Type

There are typically two types of debt: secured and unsecured. Secured debt is money that you have borrowed by placing an item, such as your property, as collateral. If you don't pay the money back, then the lender can take your property in because you have defaulted on the loan.

Credit cards, for the most part, are unsecured debt. You have not promised the credit card companies anything in return if you don't pay your bills. You can be sued for not paying your credit card bill, a lien can be placed on your house and the company can report it to the credit rating bureaus, which will lower your credit score. However, since you did not promise the creditor anything in return for non-payment, your house cannot be taken away from you. On the other hand, if the creditor sues and you receive a judgment against you, the court may mandate that you sell possessions, such as your house, in order to pay your credit card bill. However, this is not a common occurrence.

Settle

You can negotiate unsecured debt and settle for less than what you owe, but you should have a lump sum available to pay the amount agreed upon. Call your credit card company and ask for the address where correspondence is received. Send a certified letter to your creditor explaining your hardship and why you can no longer afford the payments and that you would like to settle the account with an amount less than what you owe. After 180 days of non-payment, a credit card company must reduce your debt to zero. If you haven't made a payment for a while, your creditor may be more amenable to settle for a lower amount than to getting noting at all. Then you won't have to worry about being sued and having to sell your house to pay the card company the full amount that you owe.

Bankruptcy Option

Filing bankruptcy will stop all collections proceedings against you. You can choose Chapter 7 or Chapter 13 of the Bankruptcy Code. Chapter 7 is a total liquidation where your belongings are sold to pay your creditors. Some exemptions may apply, including your house, if you do not have much equity in it. When Chapter 7 is discharged, your credit card debt will be erased. Chapter 13 is a three- to five-year repayment plan. A court trustee will negotiate balances and oversee all payments made to creditors until they are settled.

Considerations

If you find that you are not able to afford your credit card payments, stop using your cards and pay your bills on time because payment history accounts for 35 percent of your credit score. Pay secured debt, like your mortgage, first because default will result in the lender taking your home. If you have been delinquent in paying your credit cards and the collections activity is more than seven years old, it should be removed from your credit report. Although a bankruptcy relieves you of your debt obligation and can save your house, it will stay on your credit history for seven to 10 years, depending on the type that you file.