- Credit cards are considered to be an unsecured debt. This means that when you charge something on your credit card, you are simply charging it to your credit profile. If you default on the credit card, the company cannot directly come and take any of your property. By comparison, with a home loan or an auto loan, when you default, the lender can simply take the collateral that is tied to the debt to get the money back.
- If you default on your credit card debt, the credit card company could eventually use many tactics to try to get the money back. One option that the credit card company has is to file a lawsuit against you. If the credit card company gets a judgment against you through a lawsuit, it can then use that judgment to file a lien on your property. This is a legal claim against your home, car or other property that it places the lien on.
- When the credit card company files a lien against your home, it places an encumbrance on your house. This means that the credit card company has a legal claim against part of the equity in your house. If you sell the home, you cannot simply keep all of the money. The credit card company is entitled to take the amount that you owe out of the proceeds of the sale. You can get the lien removed by paying off the debt with the credit card company.
- In some cases, you can attach credit card debt to your house voluntarily. This happens all the time when people use a home-equity loan to consolidate debt. With this approach, you borrow against the equity in your house, and then use the money to pay off your credit cards. At that point, you are technically putting your home at risk for credit card debt. If you cannot afford to pay off your home-equity loan, the lender can take your house.
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