There are loads of crazy debt statistics that show the majority of households owe money in some capacity. Just over 63% of couples with at least one child have mortgage debt, while 45% of adults aged between 18-29 have credit card debt.
Debt is everywhere, so you don’t have to feel alone if you’re in a tricky financial situation.
You could be in debt for all sorts of reasons, though the biggest struggle is understanding your rights when the creditors come calling. People and institutions will want the money you owe them, but what power do they hold? For many of you, the most seismic worry relates to your home; can a creditor legally take your house from you to repay your debts?
Unfortunately this is one of those yes and no questions. Yes, there are cases when a creditor can seize your house, but you’ll also find many situations when it’s not legally possible. Keep reading to learn more.
No, creditors can’t seize your home
99% of the time, a creditor can’t seize your home if you’ve taken out a line of unsecured credit. This refers to any credit that doesn’t use your home as collateral, such as credit card debt, student loan debt, or general unsecured personal loans.
Moreover, you may qualify for a homestead exemption in some cases, which means a creditor can’t take your home even if you owe money on a secured debt. It’s a rare scenario, but it’s well worth reading up on the topic to see if you qualify for the exemption. You get some added peace of mind and can even file for bankruptcy without having to give up your home.
Yes, creditors can seize your home
A creditor can legally seize your home in a couple of scenarios:
- When you’ve taken out a secured loan
- They’ve sued for not paying debt and obtained a court judgment
The first is the more common scenario; secured loans – like mortgages – often use your property as collateral. This means you agree to let the creditor take your home if you can’t repay the loan when you sign on the dotted line. To be fair, it’s usually only mortgage loans or other housing loans that use your property as collateral. Other secured loans may use other assets. For instance, an auto loan will likely only use your car as collateral, so the creditor couldn’t take your house.
Creditors are only likely to sue you if you refuse to pay off your debt. In this case, they can go to the court and open a lawsuit to reclaim their money. Even in this scenario, the court judgment is only given if you don’t respond to the lawsuit. It’s the only way a creditor can claim your house for unsecured debts.
On the whole, your house is unlikely to be at risk if you have unsecured debt in your name. It’s mainly only ever an issue when you can’t repay your mortgage. Still, you should always be cautious when taking out any secured loans that use your house as collateral. Be 100% sure you can repay the money to avoid being in this situation.