5 Unexpected legal outcomes of ignoring credit card debt

It’s important to remember that you are almost always able to control the situation to some degree when a credit card bill is tough to pay.

Often, the most challenging situations are the ones you don’t expect. Knowing the potential legal outcomes of unpaid credit card debt might help you handle the situation more confidently.

Unpaid credit card debt can lead to penalties and other issues

You may be aware of the routine ways your account can be affected when you have unpaid credit card debt. These include:

• Late fees

• Interest penalties

• Reporting non-payment to credit bureaus

• Lowering your credit limit

• Canceling your account

There are also legal actions a credit card company can take. Legal measures can seemingly occur out of the blue, so if you have unpaid credit card debt, it’s important to know what actions you might expect.

1. You can be sued

When credit card debt is overdue, it may be handed over to a debt collector. Debt collectors sometimes sue debtors, especially if the debt is relatively large and way overdue.

A debt collector cannot sue you until they’ve sent you a written notice detailing what you owe, who you owe it to, and how to dispute the debt. 

You have 30 days to respond before the debt collector can sue you. If you receive one of these notices, it may be a tip that the debt collector could sue. At that point, it’s wise to respond. 

Read more: Sued for credit card debt: Learn the steps to protect yourself

2. You may get a “default judgment”

Getting sued is usually an unfamiliar, sometimes expensive experience. To avoid the cost of hiring a lawyer and going through a civil trial, some people don’t respond to the lawsuit. That’s the worst thing you can do.

If you don’t respond to a lawsuit, a judge may make a default judgment against you. This is a decision in the plaintiff’s (the debt collector’s) favor because the person they’re suing didn’t respond. In other words, you lose without getting to make your case. 

3. Your wages may be garnished

Wage garnishment is a court order or other official ruling that requires your employer to send part of your paycheck to a creditor.

This reduces your take-home pay, and makes it harder to pay other bills. It also makes your employer aware of your financial situation.

4. Money may be removed from your bank accounts

A creditor who wins a legal judgment can get a court order to garnish your bank account. They could freeze your accounts and collect the money you owe.

While there are legal limits to how much can be taken this way, it could mean a creditor takes away money you needed for something else. Also, having an account frozen interferes with your access to that account until the situation is settled. 

5. Creditors can put a lien on your home

You might think of credit card debt as unsecured debt—the credit card company doesn’t have a claim on your property the way a mortgage lender would. However, there are times when unpaid credit card debt can result in a claim on your property.

When you sign up for a mortgage, you agree to put the property up as collateral. This is a “voluntary lien,” meaning you’ve consented to giving the creditor a claim on the property.

An “involuntary lien” is a claim that’s put on your property without your consent. If a creditor obtains a court judgment against you that you can’t pay, it can get an involuntary lien on your property. 

Having an involuntary lien on your home can interfere with your ability to sell the home. It could also prevent refinancing your mortgage or getting a home equity loan. 

Alternatives to legal outcomes

If you can’t pay a credit card debt, you do still have choices. They include:

• Credit card hardship programs. Ask your credit card company if they have programs to help customers struggling to pay their bills. This won’t reduce what you owe, but it may change the payment terms to make them more affordable.

• Refinancing. If your credit is good, you may find a new form of credit to pay off your old debts. This can make payments more affordable.

• Debt settlement. Settling debts means negotiating an agreement to pay less than the full amount you owe. 

• Bankruptcy. This might seem like just another legal avenue. However, bankruptcy may be the most manageable way of handling debt. It can also organize claims from multiple creditors and pause a foreclosure.

Considering each of these alternatives is better than not acting. There may be consequences to unpaid credit card debt, but you can have some control over how things play out.