If you, much like the average American consumer, are juggling a variety of debt, you might be hard-pressed to handle it at some point. If you own your primary residence, you may be wondering if creditors could get their hands on it.
Reader Mike is concerned about how his wife might be impacted financially in case of his death. He asks, “What happens with our jointly owned home that she will live in? Can the credit card companies come after any portion of the home? We live in New York. I have no assets except our shared home.” It seems the credit card debt is entirely in Mike’s name.
Secured debt vs. unsecured debt
Debt could be secured debt or unsecured debt. Secured debt is debt that is backed by property, such as a mortgage loan or an auto loan that is backed by a car. In case you don’t make payments on your auto loan, your lender could repossess, or take back, the car. And in case you become delinquent on your mortgage payment, your lender could also foreclose on your house.
Credit card debt, on the other hand, is typically unsecured debt. This means there is no property backing the loan. Other types of debt, such as student loan debt and medical debt, are also unsecured. In common law states such as New York, a person would generally not be responsible for their spouse’s credit card debt that is not in their name. However, the card companies can pursue the cardholder’s share in jointly owned property to fulfill the debt.
Creditor would have to file suit
Debt collectors are bound by the Fair Debt Collection Practices Act and they cannot make empty threats against you, such as threatening to take your house to fulfill an unsecured debt, attorney Paul Mankin advises in an online post.
Before a debt collector can touch your home equity, they have to go to court and observe all the formalities to get a judgment against you. If you are notified about a court case against you, be sure to take appropriate action so you stay on top of the proceedings. For one, you may be served with court papers that typically set up deadlines for you to respond. You would have to keep up with such deadlines.
There is also a defined period of time beyond which a debt collector cannot legally pursue a debt, called a statute of limitations. If you don’t go to court to make your case, the court could well rule in favor of the debt collector so they can continue the collection proceedings anew.
In case the debt collector prevails in a court of law, they would get a judgment against you. That’s when they could place a judgment lien on your house. In New York, a judgment is valid for 20 years, according to Legal Assistance of Western New York. This means the debt can be collected on for up to 20 years or until it is paid off.
If you have a mortgage on your house, that’s also a lien against it. There can be more than one lien on a house. For instance, a home contractor could have placed a mechanic’s lien if they did not get paid for work done on the property.
The mechanics of collecting on a judgment vary by state, as well as the maximum amount of lien that can be placed. The good news is there are homestead exemptions that vary by state, protecting a certain portion of your home equity from court judgments. In New York, the exemption runs to $150,000 for those in New York City and certain Westchester and Long Island areas. It varies from $125,000 to $75,000 for other areas of the state. Married people get double this exemption too.
According to Legal Assistance of New York, most creditors will not force you to sell your house to pay a judgment lien. It may not be worth the trouble considering that a judgment lien will typically be paid off only if there’s any money left over after paying other types of liens and after applying the homestead exemption.
The bottom line
Mike, it seems credit card companies cannot easily go after your house to pursue their debt. They would have to get a court judgment first and place a lien on the property. Even then, they would only get money if there’s equity left above the homestead exemption, after paying off any mortgages and other liens. So it seems your wife will have adequate protections in case of your death.
Contact me at email@example.com with your credit card-related questions.