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Credit card debt is by its very nature an unsecured facility. This means that the credit card company bears a higher level of the risk in case an individual is unable to make payments towards settling the debt more than the risk the company is faced with in the case of a secured facility such as a mortgage. In an effort to mitigate this, the credit card company gives a credit limit to individuals based on their ability to repay.
However, if one is unable to make the debts such as in the case of a sudden loss of employment and/or reduction in total income, the card company has to either write off the debt or find alternative ways of recovering it. Since the loan is not secured, the credit company would not be able to sell your personal property such as your car or your house in order to recover the balance. However, the company can file for a lien on your personal real estate.
A lien on your real estate is effectively a legal obligation that requires the full settlement of a debt in case you sell or refinance your property. Therefore, if a credit card company is successful in filing for a lien on your real estate, the outstanding debt balance will then be attached to your real estate. Though the credit company cannot foreclose on your house so as to recover the debt, the lien on your real estate property will remain in place as long as the debt remains outstanding.
Once you sell your house, the repayment of this debt takes legal precedence but only after paying off any outstanding mortgage balance. Having a lien on your property has consequences. For instance, anyone searching for your property will be able to see the lien attached. This can have the effect of lowering the resale value of your house and the costs of refinancing due to the additional process complications associated with a lien. Furthermore, a lien on your property will negatively affect your credit rating. A bad credit rating will increase the interest rate you pay on loans and other credit cards as well as make financial services organizations such as your bank, less willing to advance credit to you based on your reduced credit rating. This will indirectly increase the distance to the credit card debt relief and cause you more economical problems.
Note that even though generally foreclosure is not an option, there are some US states where the law does permit the foreclosure of real estate property in order to settle outstanding and defaulted credit card debt. It is important that you seek the advice of your attorney when you get your credit card so as to confirm whether such a law applies in your state. To avoid having a lien on your real estate due to credit card debt, you can consider pursuing other debt management options. Credit card companies are for example willing to have discussions on rescheduling your debt in order to enable you to pay. | 