To Her Credit
Sally Herigstad is a certified public accountant and the author of "Help! I Can't Pay My Bills: Surviving a Financial Crisis" (St. Martin's Press, 2006). She writes "To Her Credit," a weekly reader Q&A column about issues involving women, credit and debt, for CreditCards.com, and also writes regularly for MSN Money, Interest.com and Bankrate.com, and has guested on Martha Stewart Radio and other programs. See her website SallyHerigstad.com
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Dear To Her Credit,
I'm on disability payments. I've had cancer twice and owe a
lot on credit cards that I can't pay. What will they do if I don't pay? Can they put a lien on my
home if the loan is in my husband's name? We have paid off the mortgage on our
home. -- Joyce
You can rest easy about your house. Credit card companies do
not have the power to kick you out of your home. The person is listed on the original
mortgage has nothing to do with it.
However, eventually, creditors can put a lien on your home.
Then, when you sell your home, the amount you owe will be deducted from any
profits you receive. That amount will include legal fees and interest, so it
may take a much larger chunk out of your home proceeds than you expect.
If you plan to live in your home for the rest of your life,
it may not make any difference to you if your home has a lien on it. On the
other hand, if you should ever decide to move, the lien could make it much harder
for you to sell and buy elsewhere. A lien could also diminish your estate and make it impossible
for your children to inherit your home, if that's the plan.
If you live in a community property state, your creditors
may also try to get money from your husband. They may go to court to garnish
his wages or other income. (Community debt laws vary by state -- seek local
legal help if necessary.)
It's important to resolve these debts, rather than let the
legal system run its course. Simply stopping payments on debts is never a good
idea, as attractive as the idea may sound. The emotional stress alone is reason
enough to seek a resolution.
In your situation, you may have the following options:
- Ask for a temporary hardship plan. With proof of a serious
health crisis such as cancer, you may convince the credit card companies to let
you make reduced payments for a time. This works best if you expect your health
to improve so you can resume payments later.
- Refinance. A home equity loan or a reverse mortgage is
likely to have a much lower rate of interest than you are paying on the credit
cards. A reverse mortgage could provide you with a stream of income so you can pay
your debts and live more comfortably, too. If you have a lot of equity in your home, you
may want to explore rolling your card debt into a lower-interest refinance.
You'll have to sit down with the bank, though, and figure out the math to see
if the new payments will be something you can afford.
- Pay the debt off. If you and your husband can find more
income or reduce expenses, you may be able to keep up with the payments or
accelerate them to pay off the debts. Perhaps as your health improves, you can
work part time or start a small business. You may have something you can sell, too,
such as a second car.
- Consider bankruptcy. Catastrophic medical events, such as
two bouts of cancer, are a perfectly valid reason to seek protection from
creditors by filing for bankruptcy. I don't recommend bankruptcy lightly, but
the laws were made to help people in your situation. Make sure you won't lose
your house in bankruptcy. Some states exempt your home from the bankruptcy
estate and others don't -- a local lawyer can tell you if bankruptcy would help
your situation or make it worse.
If you need help sorting out your options, consider talking
with a credit counselor affiliated with either the National Foundation for
Credit Counseling or
the Association of Independent Consumer Credit Counseling Agencies.
See related: 14 factors when considering bankruptcy
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