Liens on Property Due to Credit Card Debt

May 4th, 2010 | Posted in Debt Help

Lein for Credit Card DebtA lien is a legal claim on your property for some form of outstanding debt or obligation…in this case unpaid credit card debt. Credit card companies extend a borrower credit without any form of collateral, so in order to recover their debts they sometimes have to get a legal judgement that may include a lien on property.

Getting a legal judgement involves court costs, attorney’s fees, and labor. This court action would be a step of last resort for the credit card company because of the high costs and risk of losing the judgement.

It is possible for a lien to be placed on your home due to unpaid credit card debt, but is very unlikely because of time and high costs.

Can i sell my home if i have a lien, because of credit card debt?

Selling a home with a lien is more difficult. In many cases a lien will need to be payed off before the property is sold. Or, sometimes the lien will be paid out of the proceeds of the home sale. If for some reason the lien isn’t taken care of by the revenue of the sale, the buyer will inherit the lien. In this case they will acquire your debt as the property changes ownership.

A property lien can only be removed by negotiating with the lien holder (paying the debt in full, working out an agreement) or winning a judgement in court to remove it.

Can a credit card company force me into foreclosure?

In certain situations a lien-holder could force the property into foreclosure. But, this becomes very unlikely when it comes to credit card debt. Here’s why:

If a credit card company forced your home into foreclosure, they would be responsible for alot of debt. They would first need to pay off the outstanding liens including the mortgages and/or home equity loans. Once these liens were paid off, the property would be sold at auction. In an auction, homes do not usually generate the same type of revenue that they would if they were listed conventionally by the homeowner. This all gets very expensive and in the end the lien-holder might lose money after all the expenses are paid.

For a credit card company to take control of the property though foreclosure, they would have to be the “only existing lien on the property“. This will almost never be the case! 90% of the time their will be a mortgage or other type of loan that gets priority over the credit card debt.

Also most states require a certain amount from the sale to be held for “creditor exemption“. Which means that a portion of the sale cannot be touched by creditors. This amount varies from state to state and ranges from around $5000 to $100,000. This would create even less incentive to foreclose, because of there is a greater possibility of losing money.

The main way that a lien on property can lead to the debtor to losing their home, is if the debtor settles debt by filing for bankruptcy. If you choose to liquidate your assets through Chapter 7 bankruptcy, your home (and assets) will be sold at auction to pay off your debt. When you go through this process, your credit card debt will be discharged. Unsecured debt holders (i.e. credit card companies) will have no claim to this revenue because debt holders that used your home as collateral, get priority.

How will a lien affect my credit score?

If a lien is placed on your property, it will affect your credit score severely. Liens for credit card debt show up on your credit report for up to 7 years. No matter if the lien is due to unpaid credit card debt, tax debt, or unpaid construction costs, it will still show up on your report and affect your credit rating negatively. Once this debt lien is completely resolved, it will still be on your report until the 7 year time limit is up (10 years for a tax lien). The best way to work through it is to pay all your bills on time and slowly gain back the trust of the 3 major credit bureaus.

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