When managing credit card debt, many people worry about the potential consequences of unpaid balances. One of the most severe actions a credit card company can take is placing a lien on your property — a situation that has many negative consequences and challenges.
Read on to learn how a credit card company can put a lien on your house, the legal processes involved, and the steps you can take to prevent this situation.
What Is a Credit Card Lien?
A credit card lien is a legal claim that a credit card issuer, debt collector, or collection law firm can place on a borrower’s property or assets as collateral to secure repayment of a debt. If a borrower defaults on their credit card payments, the lender may seek a court judgment to obtain a lien against the borrower’s property or real estate. This means the lender has a legal right to sue, and if they win, take possession of the property if the debt remains unpaid.
The Legal Process Involved
A credit card company can place a lien on your house only under specific conditions. The following steps need to happen first:
Default
The process of having a lien placed on your property starts with you defaulting on your credit card debt. This means you failed to make payments for a certain period of time — at least 30 days, but usually 180 days or more.
Lawsuit
The credit card company must then file a lawsuit against you to recover the unpaid debt. This involves taking the case to court and seeking a legal judgment. This is often done through debt collection attorneys hired by the creditor.
Court Judgment
The court must rule in favor of the credit card company, granting them a judgment for the amount owed. This judgment legally recognizes the debt and your obligation to pay. If you fail to appear in court or do not respond to the lawsuit documents after being served, you’ll end up with a default judgment against you.
Obtaining a Lien
After obtaining a judgment, the credit card company can request the court to place a lien on your property. This step may involve additional legal processes, depending on the jurisdiction. A judgment can also lead to other actions such as wage garnishment or bank account levies, where funds in your bank account are frozen without warning.
Recording the Lien
The lien must be recorded with the appropriate local government office, such as the county recorder or clerk’s office, to be legally binding. This public record notifies other creditors and potential buyers of the lien on the property.
Notification
You’re typically notified of the lien placement, and it becomes part of the public record. This can affect your credit report and ability to sell or refinance the property or obtain other credit you apply for.
Possible Defenses Against a Lien
If you’re facing a lien on your property due to unpaid credit card debt, several options are available to address the situation.
Contesting the Debt
Disputing the debt is one option; you can request that the credit card company validate the debt to ensure accuracy. Under the Fair Debt Collection Practices Act (FDCPA), you have the right to request validation in writing within 30 days of receiving the initial notice of the debt.
In your letter, ask for detailed information about the debt, including the original creditor, the amount owed, and any documentation proving that the debt is yours and that the company has the right to collect it.
If the credit card company or debt collection agency can’t prove you owe the specified amount and/or that they are the rightful owners of the debt, you could have the case dismissed.
Settling Out of Court
Another option is to negotiate with the credit card company by offering a lump-sum settlement or requesting a structured repayment plan. First, determine how much you can realistically afford to pay toward settling your debt. Then reach out to the credit card company or collection agency to discuss your situation. Express your willingness to settle the debt and propose a lump-sum payment or a payment plan.
Start with an offer that’s lower than the total amount owed — but within your budget. Be prepared to negotiate, as the creditor may counter with a higher amount.
Once you reach an agreement, get the settlement terms in writing, including the payment amount, schedule, and confirmation of debt settlement. Creditors aren’t obligated to accept a settlement and often won’t unless you’re behind on payments. They might prefer settling over pursuing a lawsuit or facing bankruptcy. However, creditors are less likely to agree to a settlement if you can repay your debt within a reasonable time.
If you’re considering debt settlement, working with a debt help attorney is a good idea. An attorney has strong negotiation skills and existing relationships that can ensure you reach a favorable deal that makes sense for your budget and financial situation.
Bankruptcy Considerations
Deciding whether to file for bankruptcy to resolve unpaid credit card debt is a significant decision that can have long-lasting consequences for your finances.
There are two common types of bankruptcy you could consider, assuming you qualify:
- Chapter 7 bankruptcy: This can discharge most unsecured debts, including credit card debt, giving you a fresh start. However, you may have to liquidate some of your assets to repay creditors (although some assets may be exempt).
- Chapter 13 bankruptcy: Allows you to create a repayment plan to pay off your debts over three to five years, with any remaining unsecured debt potentially discharged at the end. This option requires you to commit to a budget and make regular payments.
Filing for bankruptcy also triggers an automatic stay, which stops most collection activities, including lawsuits and liens. However, bankruptcy significantly affects your credit score and remains on your credit report for seven to 10 years, making it harder to obtain credit in the short term. Additionally, bankruptcy filings are public records, which means the information is accessible to anyone who searches for it. This can make obtaining future credit more difficult and expensive.
An attorney can help you determine if bankruptcy is the right choice. They can also assist in filing and navigating the legal process.
Implications of a Lien on Your House
Having a lien placed on your house for unpaid credit card debt has several serious implications.
- Impact on homeowners: The lien amount is deducted from your home equity. This can reduce the financial benefits you might gain from selling or refinancing your property. Also, if you plan to make improvements to your home, a lien can complicate securing financing for these projects. Lenders may be unwilling to provide loans with a lien in place.
- Effect on credit score: A lien on your property is a public record that can negatively impact your credit score, making it harder to obtain new credit or loans.
- Selling or refinancing your home: A lien clouds your property’s title, complicating the process of selling or refinancing your home until you pay off the debt and remove the lien.
How to Remove a Lien
If there’s a lien on your home, it’s in your best interest to have it removed as soon as possible. Here are some options to consider.
- Pay off the debt: The most straightforward way to remove a lien is to pay off the debt in full, including any accrued interest and fees.
- Negotiate a settlement: You can also contact the creditor to try and negotiate a settlement. Creditors may agree to accept a reduced amount in exchange for releasing the lien.
- File for bankruptcy: In some cases, filing for bankruptcy can eliminate unsecured debts, including those leading to a lien. Consult with a bankruptcy attorney to explore this option.
- Legal challenge: If you believe the lien is invalid or improperly filed, you can challenge it in court. It is highly recommended that you hire an attorney for assistance.
- Sell the property: Selling your home can satisfy the lien if the sale proceeds cover the debt. However, the lien will need to be addressed before the sale can be finalized.
Preventative Measures
Preventing a lien from being placed on your house for unpaid credit card debt involves taking a proactive approach. It’s important to resolve debt issues before they escalate. Here are some effective strategies:
Make Your Payments on Time
Make sure to pay your credit card bills on time to avoid defaulting, even if it means paying just the minimum. Consider setting up automatic payments or reminders to ensure you never miss a due date.
Create and Stick to a Budget
Create a realistic budget that accounts for all your expenses and income, ensuring you can consistently cover your credit card payments. Monitor your spending to stay within your budget and avoid unnecessary debt. If you’re struggling to stick to your budget, it may be worth consulting with a financial professional. They can help you find ways to cut back on expenses or reduce your overall debt burden.
Reach out to your Creditors
If you’re struggling to make payments, contact your credit card issuer to discuss alternative payment plans or hardship programs. You may be able to negotiate lower interest rates or request temporary relief to make managing your debt more manageable.
Debt Consolidation
Consider consolidating your credit card debt into a single loan with a lower interest rate. This can simplify payments and potentially reduce overall interest costs. Another option is to transfer high-interest credit card balances to a card with a lower interest rate or introductory 0% APR. Keep in mind that you usually need good credit to qualify for these offers and there are costs associated with both.
Credit Counseling
Seek help from a reputable, nonprofit credit counseling agency to create a debt management plan and negotiate with creditors. Be aware that there may be fees involved, and not all creditors will work with these organizations.
Look into Legal Protections
Be aware of state and federal exemptions that protect certain assets, including your home, from creditors. Understanding these protections can help you make informed decisions about how to handle your debt. In some states, for example, filing a homestead declaration can provide additional protection for your primary residence from creditors. A debt relief attorney with knowledge of local laws may be able to help.
Debt Settlement
If you have significant debt and can’t make regular payments, negotiating with creditors to settle the debt for a lower amount before it escalates to legal action could be a good move. Since debt settlement has many ramifications, it makes sense to seek assistance from a reputable debt settlement attorney. Your attorney knows the laws and nuances involved in the debt settlement process.
Get Legal Help
Given the complexities and serious implications of having a lien on your property, it’s a good idea to contact a debt help attorney for advice. They can provide personalized guidance and help you navigate the best course of action to resolve the lien and manage your overall financial situation and debt effectively.
Tayne Law Group is a New York-based debt relief law firm. We’ve been helping clients find resolutions for their credit card debt for over 20 years. If a creditor is suing you or has placed a lien on your property, call us today. We may be able to help you put together a strategy to resolve your debt. Give us a call at (866) 890-7337 for a free phone consultation with our experienced and helpful staff. You can also fill out our short contact form, and someone from the office will contact you. We never sell or share your information and all discussions are confidential. All work is done by our in-house team at the Tayne Law Group, P.C.
