What are consequences of defaulting on credit cards?

[cityish]

Hello,
I had a Chapter 7 bankruptcy 6 years ago and managed to rebuild my credit over time.

Unfortunately everything is going downhill again because of a series of devastating issues that happened with my house -- repairs, emergencies, structural and electric issues, etc. I charged the repairs to credit cards and refinanced the house with a Countrywide/HELOC to cover some of it as well.

Long story short, I am now losing my house to foreclosure, and am saddled with about $17,000 in credit card debt that was racked up for repairs on a property I can't even afford.

When the house goes to foreclosure, the primary mortgage with Chase Home Finance will probably be covered. But the second loan, the Countrywide/HELOC, is going to get the shaft -- which means that Countrywide will be able to sue me for the difference. (this is in Florida)

I am worried about getting sued by Countrywide/HELOC after the foreclosure. I am overwhelmed with this credit card debt. I wish I could file Chapter 7 again and just give it all up now. But legally, the earliest I can file Chapter 7 again is the summer of 2009.

Can't I just go ahead and start defaulting on the credit cards now and then roll them into the Chapter 7 next summer?

I don't see how it could make my situation any worse. My FICO went from 700 at Christmas to 546 this month.

Any advice or perspective would be much appreciated. It scares me that I have no money set aside right now.

BTW just before the foreclosure got started, I moved into an apartment complex, so housing is not an issue for me. My job is also very secure right now so I don't have to worry about prospective employers or landlords pulling credit checks on me. Thanks.

[Stilltheone]

If you default on credit cards and can't file bankruptcy again, I'm pretty sure the creditors can take you to court to garnish your wages.

It's too bad that you can't file another ch7 until next summer.

I hope things turn out for you!

[treehugger1]

I don't think it works against you to call your C companies and attempt to explain your current situation. You don't need to share any other than, "I'm just not able to pay this at this time." They may, or may not, have an option for you.

I agree with BigBoy. As long as you are speaking with them, they seem less apt to send you to their contracted collections company. This is no guarantee, but in my experience, as long as I kept speaking with them on occassion, they would back off.

While I can not speak from personal experience as to how long it takes from default to wage garnishment, I do think there is some connection to your place of residence and where the biggest city is. In some cases, it appears that if you live in some far-removed rural area where the creditor or collection agency has to spend a large sum to work through your local court system, then you might have many months before you see a court summons, judgment, and eventual wage garnishment. There are no absolutes.

Can you afford a wage garnishment (check your state laws via a google search) for several months if you pay nothing on your unsecured debt? If so, you might have to withstand this while you wait out the time to file for BK. If nothing else, I've learned that if you are attempting to protect a secured asset, pay this first, and let the unsecured "rot."

Have you spoken with any attorneys to get a sense of where you stand considering you filed "recently."

One of the things I've learned through this process of not being able to pay your bills, is that many attorneys seem to want you to file BK. This is especially true if they know you can afford the attorney fees. Hey, we live in a capitalistic country.

Keep in mind that in most states someone will need to serve you a summons and eventually get a judgment to get to your wages or bank accounts. As BB stated, there are some ( I am one of them) who can survive a 25% wage garnishment. If you can get by on a 25% wage garnishment, then other creditors/CA's have to wait in line for their garnishment. The wild card in all of this is how much tolerance your employer has toward continuing wage garnishment.

[cityish]

Thanks for your responses.

I am starting to lean toward letting the credit cards go to charge-off. If a creditor ends up suing me I think I will be exempt from wage garnishment. I live in Florida and I just found some info on WikiAnswers that says in Florida, if you are the head of household, then they can't garnish your wages.

****"Florida allows wage garnishment. The basics are, income earned by the head of household (single w/dependants or married)is totally exempt. If there are two incomes and joint marital debt the person with the lowest income can be subject to wage garnishment."*****

(Stupid question here -- I'm single with NO dependents so I guess legally that means I'm classified as head of the household --right???)


In addition I only make $38k a year as a single school teacher so for me to be owing $17k in credit card debt is a huge chunk of my after-tax take-home pay.

I am sinking under the weight of these credit cards. It's not like I went out and spent a bunch of money at the mall. The credit cards were for electric repair, appliances that broke, rats in the attic, handyman repairs, etc. etc.

Right now I am positive I have a couple of cavities; my teeth have been aching. I have dental benefits and I'm going to the dentist next week but I'm expecting they will tell me my out of pocket will be at least several hundred dollars to get these cavities taken care of. I don't even have that money. I am a college grad with a decent job and I can't get my cavities fixed??? How screwed up is that????

I am going to do some more research on wage garnishment in Florida law, and talk to a Chapter 7 attorney. Depending on what the attorney advises, --- right now I am leaning toward rolling the dice, letting the credit cards go, let them go to charge-off status, and if someone sues me, I'll do what I can to hold them off, and if necessary I'll wait the two years until I can have the judgments dismissed in a Chapter 7 BK. Or who knows -- maybe the bankruptcy won't even be necessary at that point if the creditors back off. I hope it will work out that I can pull it off. It's sad that I have to drag it out like this but frankly I don't know what my options are. I'm just at the end of my rope. I can't print money in the basement. I don't make enough money to afford all my bills!

[WhatMoney]

I'm single with NO dependents so I guess legally that means I'm classified as head of the household --right???

Nope - you have no household to support - you file as single.

(A person is head of household if he provides more than 50% of the support of another person.)

If you stop paying on the credit cards, you might be sued after 6 months and could have your wages garnished. Or, you may be lucky and they will only haress you to pay. All depends on what they think you can afford to pay. You can try to delay them with the partial payments as BB4U suggested, although that's just wasted money if you do eventually file BK7.

[cityish]

You've raised some good points. I slept on it and thought about it some more this morning.

Yesterday I was thinking I could just let the credit cards go and start saving piles of money for emergencies... but -- you're right --- it sounds like what with my income, it would only be a matter of time before I'd end up in court. Plus, I'd be mortified if they contacted my employer.

Maybe I could default for six months or so -- instead of paying the credit cards every month, I could spend that money get my dental bills taken care of and stash the rest in a shoebox or something --- and then right around the time I start to get lawsuit notices, hold them off by going into credit counseling, or do a Chapter 13?


I really would like to avoid doing a Chapter 13 though. First of all it would cost about $2,000 to retain an attorney just to get started; then if I converted it to a Chapter 7 a year or so later, then that would cost another $1500 or so... might as well just stick with the Chapter 13 and/or pay the friggin' debt.

God. I'm in a such a mess. Right now I'm leanign toward defaulting on the credit cards for about five months and then just go straight into credit counseling and let them do their best to clean up this mess. I've heard they can negotiate to cancel out late fees, etc. And that creditors are less likely to start a lawsuit if you are going into credit counseling...

Plus credit counseling is cheaper than doing a 13. No attorney fees. And, later on , if my HELOC lender comes after me with a deficiency judgment, I could wipe it out with a Chapter 7.

[treehugger1]

Florida abides by the Federal wage garnishment laws; 25% of after-tax income or 30 times the minimum wage, whichever is less.

In addition, if you have defaulted student loans, the agency can get a 15% garnishment without a lawsuit. This can be good or bad. Since defaulted student loans require extreme hardship to be forgiven, a garnishment can last a long time. On the other hand, if you have to live through a wage garnishment for a time, then only 10% additional wages can be garnbished by other creditors. This is somewhat complicated from state-to-state, but this is the jist of what can happen if you also have defaulted student loans. The real question comes down to whether or not you can ride out a short-term or potentially long-term wage garnishment.

In addition, you will have to deal with creditors/collection agencies. Do some research as to protect your rights under state and federal civil laws/statutes.

[cityish]

Thanks Treehugger.

I don't have any student loans. It is one of the few things I have going for me. LOL

I think I am going to default just long enough to pay my dental bills and then start aggressively saving up for attorney fees.

I should have enough saved up in 5 months or so. At that point I will attempt credit counseling. If credit counseling is unable to help, well then, I guess I'll be forced to take the money I saved up and get an attorney and do a 13.

It would really suck if I did a Chapter 13 and was not able to roll the HELOC into it. Christ.

[danaf]

Florida exemptions are really bad (I've heard). You could default, save up enough money and move to a state where they can't garnish....like Texas....then wait out your time until you can file. Hey - it's not the best idea but an idea.

[cityish]

That is a good idea. I think I will try to get started with that early next week.

I called Consumer Credit Counseling today and they said they would set me up with a debt management payment plan even if I were 4 or 5 months past due... but I understand that if a lawsuit were pending that could screw things up.

As it is, this is already starting to consume my life. I have pretty much spent the entire day today googling and hunting around on the web for info; tallying up all my debts; weighing and measuring the pros and cons of this or that tactic.

It is exhausting. At some point, I feel I need to let all of this go. Just do whatever I'm going to do - whether it's Chapter 13, or credit counseling -- and just move on with my life. All of these money worries are just not worth it.