Can a credit card lender come after my rental property?
This page was originally published in late 2022 and still contains relevant reader questions from that time. The rest of the article has since been updated.
Key takeaways
- Because rental properties aren’t protected in the same way that primary residences are, a creditor could potentially go after your rental property to satisfy a debt.
- However, doing so is a costly process, and it might not be worthwhile to the creditor to pursue.
- To keep your property safe, talk to a credit counselor or bankruptcy attorney to see what options you have when it comes to debt management.
Falling behind on your credit card bills can bring up a lot of stressful questions, especially if those bills go to collections. Gery in Florida wonders if credit card lenders can come after his Florida rental property if he is not able to make his card payments. He also owns a primary residence on which he claims a homestead exemption.
“With everything that has been going on, my wife faces possible employment loss,” Gery writes. “We carry a significant amount of credit card debt, and we fear if she loses her job, we might not be able to make ends meet, let alone be able to pay our balances. If she loses her job and the impact becomes too heavy to bear, will credit card companies force us to sell the property we rent to pay off the credit card obligations?”
Let’s break down Gery’s question, as well as the limitations that their creditors would have in this situation.
Can creditors legally seize your rental property to pay off your debt?
Lenders will want you to pay off your debts, but they can’t directly seize your property to satisfy their claims. They will have to go to court and present their case.
What happens if creditors take you to court?
If they file a case against you, you’ll get a court summons to respond to the case.
You’ll be given a deadline to provide your input, so you should respond to the summons quickly. The time frame to respond varies and will depend on your local laws. If you don’t respond at all, you’ll likely lose the case by default.
What happens if creditors get a court judgment against you?
If they win the court case, you’ll have a court judgment against you.
Armed with this judgment, the creditor can take a variety of actions to collect payment from you, such as wage garnishment. They could also place a lien on your real estate that will taint the title to the property. This means you’ll have to deal with that lien first if you want to sell or refinance the property.
A judgment lien could also allow a creditor to force you to sell your real estate. Whether they do this will depend on how much of their debt they expect to collect from the sale. It costs a considerable sum to pursue a property sale, so a creditor would have to be sure the profit would be worth the time and money required to sell.
Net proceeds from a sale would first be used to pay off any mortgage on the property and then any other liens.
Don’t expect a homestead exemption to cover the rental property
If the property is your primary residence, it’s typically protected from being seized by creditors.
However, this homestead exemption does not apply to rental properties in Florida, nor does it typically apply to rental properties in other states. To qualify for the homestead exemption on a property, it would have to be your primary residence.
Is bankruptcy a better option?
Going through bankruptcy to get your debt discharged will give you a fresh start financially, but it will have harsh fallouts on your credit report and financial life. In this situation, it also might not be that helpful anyway.
If a creditor has a judgment lien on your rental property, your credit card debt will change from unsecured debt to secured debt, since the lender will have a claim on your property. It will not be easy to avoid paying this debt by going through the bankruptcy process if you have equity in the property.
Keep in mind: If the credit card lender does not have a lien on your rental property, you may be able to discharge your unsecured credit card debt by going through the bankruptcy process.
How to protect your rental property
The best way to avoid any issues with creditors and property liens would be to tackle your debt situation before it reaches that point. Doing so can come in various forms, such as using debt payoff methods like the avalanche or snowball method, or using balance transfer cards.
If you’re not sure where to start, we recommend working with a credit counselor to form a debt management plan or working with a bankruptcy attorney to go over your options.
The bottom line
If a card issuer gets a court judgment against you, it can result in a lien against your rental property. That lien means you’ll find it difficult or even impossible to refinance or sell the property without satisfying this claim.
However, trying to get a lien on your property can be a costly process for creditors, and depending on how much equity your property has, it might not be worth pursuing from their perspective. To help you figure out your next move before your debt situation gets worse, you should come up with a debt management plan and look into helpful tools like balance transfer cards. Consult a bankruptcy lawyer or credit counselor for personalized advice.
