Home ownership won't prevent you from settling your debts, though some creditors and bill collectors may pressure you to borrow against your home to pay your bills. However, if your settlement attempts fail, and your creditors take you to court, they may be able to get a lien on your home. By contacting your creditors in the early stages of your financial problems, or seeking outside help, you may be able to avoid court and get your debts settled.
Settling Credit Card Debt
Your credit card company isn't under any obligation to settle your balance for less than what you owe. However, if your financial situation is precarious, and your credit card company's collection specialists believe that you may file for bankruptcy, they may accept a settlement and write off your balance.
Home Equity Loan
If a collection agency or creditor investigates your finances, it may discover that you own a home. In an attempt to collect your debt, the agency may suggest that you take out a home equity loan to repay what you owe. However, home equity loans are risky because your home serves as collateral. If you can't pay back the home equity loan, you can lose your house.
Judgment Liens
If a credit card company or collection agency successfully sues you, it can collect its judgment using several methods. It may garnish your wages or bank account and can get a lien on your home. If you try to sell or refinance your home while the lien is still in effect, your creditor can seize the proceeds to satisfy your debt. This can make selling your home or getting a new mortgage very difficult. A judgment and property lien can also appear on your credit report and cause significant damage to your credit score.
Alternatives
If your creditors refuse your settlement offers and you are concerned about the possibility of a lawsuit, seek outside help. A credit counselor may be able to intercede on your behalf and work out a payment arrangement with your creditors. You can also talk to an attorney about the possibility of filing for Chapter 13 bankruptcy. Chapter 13 bankruptcy allows you to keep your home while repaying creditors, at least in part, over a fixed period. Once you file for bankruptcy, your creditors have to stop their collection effort, which means that they can't take you to court. However, if a creditor already has a lien on your home, it may not be possible to remove it in bankruptcy.
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