Can Credit Card Companies Take your House: If You Don’t Pay

Credit card debt is what’s called unsecured debt. Therefore, any garnishing or property seizure is not a given but not impossible. So credit card companies can take your house but it depends on a lot of factors and is exceedingly unlikely. This is one of the possibilities that could result from creditors suing clients that consecutively fail to pay their credit card debt and default. 

The trend of creditors or debt collectors filing lawsuits against defaulting clients is on the rise. A 2017 Consumer Financial Protection Bureau report shows that 15% of Americans were sued by their creditors after they consecutively failed to pay off their debt.

What Do Creditors Do If You Don’t Pay

When you default on your credit card debt, the situation usually goes in one direction only, that is, legal action or your debt getting sold to debt collection agencies which have the means to pursue legal action and it happens fairly often but this measure is reserved as a last resort. 

The first measures include late fees and increased interest rates. If you still fail to pay your debt, credit card cancellation follows, coupled with bad credit reports.

Depending on the credit card company, it would report the delinquency to the three credit bureaus, namely, Experian, TransUnion and Equifax and write your balance off as bad debt expense in order to remove it from the books. 

The creditor could either file a lawsuit against you, or sell your debt, albeit at a discounted rate, to a debt collection agency which would do the same and usually within the period specified in Statute of Limitations (Varies from state to state) if they fail to recover the debt.

Statistically, it takes about 6-8 months for the court to give a verdict on the case and given that creditors’ cases are self-evidently strong, the verdict usually goes in favor of the creditors or the debt collection agency. The court order facilitates debt collectors to cover the debt through various legal means that also vary state by state.

Can Credit Card Debt Put a Lien on Your House

Credit card debt can, in fact, lead to a lien on your house when debt collectors get a court verdict against you but it’s usually the last resort, not to mention getting a lien order is lengthy and cumbersome for debt collectors and may in fact be useless given property protection laws (more on this later) from state to state. This is why it’s unlikely but again, possible. The initial verdict usually allows garnishment of your wages or levy on your bank account.

A house lien is a legally enforced right of debt collectors to own home equity in your house. Home equity is the portion of your home value that you own. For instance, if you financed your house deal fully through a mortgage and later paid back 70% of it, you own 70% equity in your home. The lien is lifted if you pay the debt collectors who put a lien on your house. 

A lien limits what you can do with your house. For instance, you can’t sell or refinance your home until it has a lien on. The debt collector can in theory, also sell your house to cover the debt but it isn’t a cost effective option since they’d have to pay off any mortgages against your house before the foreclosure. 

It is generally more preferable to collectors that you pay your debt and the lien is lifted against your house than selling your house to cover for your debt. 

But this is where the Homestead Exemption comes in. It is the legal protection of residential property from credit debt (with the exception of mortgages) in most US states. However, homestead exemption laws protect only your essential residence and not secondary residences (if any). 

The level of protection varies from state to state. For instance, Texas and Florida laws have unlimited protection against foreclosure. Only two states, New Jersey and Pennsylvania offer no legal protection. The rest of the states offer limited protection i.e debt default ranging from $5000 to $500,000. In some states, homestead exemption is automatic whereas in other states, you’d have to file a legal claim to the state. 

How to Protect Your House from Creditors?

As mentioned earlier, laws in New Jersey and Pennsylvania do not offer homestead protection. Besides, a few states have very low limits of outstanding debt which homestead protection can be claimed for and those limits might keep you from getting out of the woods. 

Fortunately, there are ways you can protect yourself if you live in the two states that offer no protection or the states that offer low protection. 

Debt Settlement

This option works prior to your debt getting sold to a collection agency. If you can’t pay the full outstanding debt but can manage to pay half or slightly more than half, you can negotiate with the creditor to agree on getting paid less than what they are entitled to and write off the rest of the debt. The rationale for why it works is the simple calculus of costs and benefits. 

The credit card companies do not have much in options when you default other than to sell your debt at far less than its face value to debt collection agencies. If you can pay your creditor more than what they’d receive from a debt purchaser, they’re more likely to agree to your offer. You can either negotiate yourself or hire a professional debt relief negotiation firm for the job. 


You can file for bankruptcy if the lawsuit has been filed against you pertaining to credit card debt. Bankruptcy comes in many flavors. Two of these are Chapter-7 and Chapter-13. Chapter-7 bankruptcy discharges all of your unsecured debt but your non-exempt assets will be auctioned off to pay your debt collectors. Non-exempt assets do not include essential assets. If you only have one house and it’s your sole means of shelter, it would qualify as an essential/exempt asset. 

The Chapter-7 comes with one drawback, it damages your credit reputation and score and you’d likely have to start with a secured credit card if you want to rebuild your credit post a Chapter-7. 

If you want to avoid garnishment or property lien and you’re confident that you can pay your credit card debt given enough time and want relatively less damage to your credit reputation, you can go for chapter-13 bankruptcy. Chapter-13 allows the duration in which you can pay your unsecured debt to be extended for 3 to 5 years. The outstanding debt that remains unpaid after this period, is discharged.  

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Habib Ur Rehman
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