Authored By: Texas RioGrande Legal Aid - Austin & Lone Star Legal Aid - Houston
Q.) I owe a lot of money on credit card accounts. What should I do?
A.) First you should determine which of your debts are secured debts and which are unsecured debts. A secured debt is tied to a specific piece of property. You lose the security, or property, if you do not make the payments. For example, your car payment is a secured debt. If you don?t make the payments, you lose your car. The car is a security, or the property tied to the debt. Another example of secured debt is your mortgage payment. If you don?t make your mortgage payments, you lose your home. You need to be sure to pay the secured debt if you need the security. Also, with credit unions, your car may serve as collateral not only for your car loan but any other loan that you have with the credit union.
Some store credit cards like Best Buy and Sears cards are secured debt. You should look at your credit card agreement to see whether it says the credit card company can take back, or repossess, something if you do not make payments (look for words like ?security interest? and ?remedies?). However, unless you have bought major appliances with these cards (such as a refrigerator or air conditioner), it is very rare for the store to try and repossess your purchases, especially clothes, since the cost of repossession is greater than the amount they could get by reselling your property. Still, the creditors will report you to the credit bureaus and hurt your credit rating. You should stop using these credit cards if you cannot pay them.
Most Visa, MasterCard, Discover and American Express debt is considered unsecured debt. With unsecured debt, your creditors cannot take anything from you if you do not pay them. You should stop using these credit cards if you cannot pay them. If you cannot pay unsecured debt, don?t pay it. Many creditors do not follow through with their threats. Others, however, may sue you. At a minimum, the creditors will report you to the credit bureaus and hurt your credit rating. An overdue account stays on your credit record for about 7 ½ years.
Q.) What if a creditor, such as a credit card issuer, sues me?
A.) If a creditor does sue you, you can represent yourself, but you have a better chance of avoiding the entry of a judgment if you hire a lawyer to represent you. The credit card company may get a judgment against you, which is an order by the court to pay. But a judgment does not force you to pay the debt, and the companies cannot take your home, goods, your automobile, or put you in jail or send your children to foster care. You should not sacrifice your basic needs (food, housing, utilities, medicines, transportation, etc.) attempting to pay a judgment.
Q.) How can I make debt collectors stop harassing me?
A.) You can send a letter to a third party debt collector (a debt collection agency or lawyer) to make it stop harassing you about your debts. You should tell them that you do not want them to contact you any more. It is a good idea to tell them why you can't pay the bill right now and that if you are able to make some payments in the future, you will do so.
You should make a copy of the letter for your records. You should send a letter to each of the harassing debt collectors by certified mail, return receipt requested. Make sure each letter states the correct account number for that debt collector. You should take the letter to your local post office service counter to mail it to make sure you do it properly and to receive the postal service stamp on your receipt as proof of mailing. Keep your receipt with your copy of the letter and, when you receive the green postcard showing delivery of your letter, keep it with your copy of the letter as well.
Q.) What happens when the debt collection agency receives the letter?
A.) Once the collector receives the letter, they are allowed by federal law to communicate to you only for the following reasons: 1) to notify you that they will stop calling and writing; 2) to notify you that the debt collector or creditor may take some other action to collect, such as filing a lawsuit.
They will make it sound as scary as possible, but if any debt collector calls you on the telephone, please remember that you do not have to talk to them - you can simply hang up. If you talk to a debt collector and he or she becomes abusive or harassing, you should seek legal advice on whether you can tape record further calls. [After the debt collector gets the letter, he sends the account back to the creditor. It is possible that the creditor will send your account to a new debt collector and you will have to send them a letter, too. Sometimes it can take 5 or 6 letters to different debt collectors until the creditor gives up or sues you.]
Q.) How can I get control of my debts?
A.) To get your debts under control, you should carefully choose between your basic needs (like food, electricity and medication) and things you can live without (like satellite TV, cable TV, or a cellular telephone). You might want to get help in learning to manage your debts and to rebuild your credit. You can call Consumer Credit Counseling Service at 1-800-878-2227.
We strongly urge you to not take a home equity loan (a new loan on your home to pay off debts). If you are not able to pay that loan, you will lose your home. Creditors may urge you to take out such a loan and you should be very suspicious of any such suggestions.