Seizing Money From Your Bank Account
Most major financial institutions in Canada have the concept of a right of offset written into their credit card agreements. That means they can use money that youve deposited with them in a bank account to pay off an outstanding debt you might owe. This only applies if the credit card debt is owed to the same institution where you bank.
For example, lets say you have a TD Bank Visa and you have a chequing account at TD. In this case, TD can legally seize money from your bank account, up to the full amount owing on your credit card, including interest and penalties.
They can do so without:
- Getting your consent
- First letting you know
- Leaving money in your account if the amount owed is greater or equal to the money in your account.
However, Capital One MasterCard cant automatically seize money from your TD bank account. To do so, Capital One would need a court order.
Missed Payments Or 180 Days Late:
The late fees and interest will be completely out of control by this point. Youll look at your balance, how fast its growing, and wonder if youll ever get it paid off.
At this point, the credit card company assumes that you will never pay them back. If Your account hasnt been closed yet, it definitely gets turned off at this point. The debt also gets passed to a collection agency.
A collection agency will try to recover the amount you still owe. It will contact you and try to work out a deal. If even that doesnt work, your debt may be sold to different collection agencies. All of them have the same rights as the credit card company.
Expect to get harassed on every turn. If you have a landline, it wont stop ringing. Youll get relentless calls on your cell. Endless emails. Collection agencies wont give up until the debt gets paid.
If you cannot settle your debt, the creditor or collection agency may file a lawsuit against you.
Can A Credit Card Company Sue You
It’s stressful when you have trouble paying your credit card bills. That debt can feel like it’s hanging over your head, and it can lead to more financial issues the longer it goes on. If you’ve had an unpaid balance for some time, you may wonder — can a credit card company sue you?
Though it’s a difficult situation, there’s always a solution to . In this guide, we’ll cover your options if a credit card company is considering legal action or has already filed court papers.
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What Happens When You Stop Paying Credit Cards
No, thats not quite how credit cards work.
But if you stop paying your credit cards, you could destroy your future financially.
When you add it all up, youll pay hundreds of thousands of extra dollars over your lifetime. Heres a few of the financial hits that youll take:
- Any loan you apply for in the future will have a much higher interest rate
- Mortgages will cost more
- Car loans will cost more
- Youll get declined on the best credit cards, missing out on cash back and rewards programs
- Many landlords will deny your rental application
- Jobs could turn you down if they do a credit check
Basically, every part of your financial life gets harder. When applying for new loans, youll get denied more often and have to pay a higher interest rate.
Heres exactly what happens when you stop paying.
Work With Your Creditors
Reach out to your creditors to explain your situation. A credit card issuer may be willing to negotiate payment terms or offer a hardship program, especially if youre a longtime customer with a good track record of payments.
If your issuer offers a hardship program, it may provide relief when circumstances beyond your control like unemployment or illness impact your ability to manage payments. Whether you negotiate with your issuer or accept the terms of a hardship program, either option could lead to more affordable interest rates or waived fees, depending on the issuer.
These small changes might be just enough to help you get a handle on your debt, and the worst that can happen is they say no.
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You Offer A Settlement
If you are delinquent on your payments and offer a lesser amount to settle the entire debt, the credit card company might accept it. Taking a settlement is sometimes less risky than suing suing costs money, and the creditor might know it has little chance of collecting the full balance through regular methods like garnishment. If the creditor agrees to settle the debt, it will accept your settlement payment and forgive the remaining balance.
Example. Jane owes $12,000 to Credit Card. She knows it will take her forever to repay the full amount plus interest, because she lost her job and can’t find a new one. She has $7,000 in her account and offers it to Credit Card in exchange for wiping out the debt. Credit Card agrees to the settlement. Jane pays $7,000 to Credit Card, in return Credit Card forgives the remaining $5,000 balance and considers the debt satisfied.
Your Credit Score May Take A Hit
A card issuer can report your late payment to the credit bureausExperian, TransUnion and Equifaxonce your account is 30 days past due.
Your payment history is the most important scoring factor in your credit score, and a late credit card payment can hurt your creditworthiness and lower your scores. The exact number of points you’ll lose will vary depending on your overall credit profile.
Generally, people who have good to excellent credit lose the most points from a new late payment. Those who have poor credit may also experience a score drop, but it likely won’t drop by as many points if their score already reflects a history of missed payments.
The card issuer can continue to report your account as late if you don’t bring it current. Your credit report will reflect these updates and notes if you were at least 30, 60, 90, 120, 150 or 180 days late.
Late payments stay on your credit report for up to seven years and continue to impact your scores during the entire period.
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Your Credit Score Takes A Hit
Once your payment is 30 days overdue, your card issuer reports it to the credit bureaus. One late payment on an otherwise pristine credit history can lower your score significantly.
Even if your score is less than perfect, another late payment can make it worse. Some people think once their credit is damaged, another ding cant hurt. It can.
The later your payment is, and the more recent the late payment occurred, the more it will hurt your credit score, says Christensen.
In addition, the more accounts that are behind, the more adversely your score is affected.
If youre having financial difficulties, a low credit score is the last thing you need. Tayne says low credit scores can especially affect people just starting out say, in their 20s or 30s because they need credit as they are getting established.
If your credit score goes down, you will have difficulty getting new credit or a mortgage at favorable terms. You may also see your insurance rates go up. You may not be able to rent an apartment or house, and you may even be turned down for a job.
Youre far better off doing your best to save your credit, even when times are tough.
See related: One late card payment: Whats the credit damage?
What To Do If You’ve Missed A Payment
Whether you’re about to miss a payment or already fell behind, one of the first things you should do is contact the credit card company. It may be able to set you up with a hardship plan with a more affordable monthly payment amount.
Or, if you missed a payment and quickly brought the account current, you can ask the issuer to refund the fees and interest it charged. It’s not obliged to agree, but if you’ve otherwise been a good customer, the company may be understanding.
If you’re struggling with multiple credit cards, you may also want to contact a nonprofit credit counseling agency and ask about a debt management plan. The counselor may be able to negotiate with the card issuers to waive fees, lower your monthly payments and bring your accounts current. You’ll then make one monthly payment to the counseling agency, which will pay the credit card companies.
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S To Take When You Receive A Notice That Your Debt Is Transferred To A Collection Agency
If you receive a notice that your creditor will transfer your debt to a collection agency, contact your creditor as soon as possible.
You may be able to:
- pay a portion of the amount or the full amount owed to avoid having the debt transferred to collections
- make alternate arrangements with your creditor to pay back your debt
Ask Your Card Issuer For A Lower Rate
It’s always advisable simply to ask your credit issuer if they’ll lower your interest rate. Most people assume there is no wiggle room with rates and fees, but that’s often not true.
Also approach your lender with a repayment plan you know you can meet.
“Many lenders are open to coming up with a payment plan for you that customers don’t know about. Be proactive and ask for a certain payment plan,” said Kristy Kim, co-founder and CEO of TomoCredit, a new credit card company for people without credit scores, like young adults and immigrants.
“If your lender doesn’t agree with a payment plan or your APR is too high to begin with, you can find products where you can consolidate your debt in one place at a lower APR,” Kim added.
Schulz at Lending Tree said that while few people ask their lenders to lower their interest rates, the majority of cardholders who do seek rate reductions are successful.
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Can You Be Sued By Your Creditor
If you owe monies to your creditor and have stopped making payments as agreed, there is a chance that your creditor will sue you. However, launching a law suit isnt free your creditor will incur significant professional and administrative expenses. It is possible for a creditor to sue a debtor and not to recover a penny from them. Your creditor will be much more inclined to sue you if they are confident the odds are high that they will actually recover monies from you.
1. When might your creditor be inclined to sue you?
Your creditor might sue you under the following three conditions:
- The dollar amount owing is significant enough
- The relevant limitation period on the debt has not expired
- You own real property in your own name
Most large creditors in Canada will not sue regarding outstanding accounts of less than $4,000. This threshold for suing could be significantly higher depending upon the creditor.
Creditors are not likely to sue consumers if the relevant limitation period, or statute of limitations has expired such a suit would not likely succeed.
2. When might your creditor not be inclined to sue you?
To learn more about the likelihood of being sued, read the article, Nine Reasons Why Your Creditor Might Never Sue You.
3. What will a creditor do when it intends to sue you?
In event that a creditor wants to sue an account, it might do one of the following:
What Is An Unsecured Loan
There are two kinds of loans: secured loans and unsecured loans. A secured loan is a loan that is backed by assets or property, which guarantees repayment. Theis asset or property is known as collateral. The most common type of secured loan is a mortgage since mortgages are secured by the home that was purchased with the mortgage proceeds. If you fail to repay your mortgage, the real estate you purchased with the mortgage loan can be repossessed by the lender as repayment. Another common type of secured loan is auto loans, which work the same way.
An unsecured loan is a loan that is not secured by other funds or property. In most instances, the only thing backing the loan is your pledge to pay it back. The most common type of unsecured loan is a credit card. Other than your agreement to repay the money you borrow on your credit card, most credit card issuers do not have a right to take the merchandise purchased with the credit card as repayment if you fail to make your payments.
Other types of unsecured loans include business loans, student loans, and even debt consolidation loans. A debt consolidation loan is a popular means of merging multiple debts owed on several unsecured accounts into one loan with one monthly loan payment.
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What To Do If You’re Sued Over Credit Card Debt
If you’re sued over unpaid debt, you’re served with a complaint. You’re required to respond to this complaint, unless you can come to a settlement agreement with the plaintiff first and they withdraw the debt-collection lawsuit.
The first thing to do after receiving a complaint is see if it’s valid. Here’s what to check:
- Does the debt belong to you? Confirm that it’s your credit card debt. There can be mix-ups, especially if you’re sued by a debt collector and not the credit card company itself.
- Can the plaintiff prove you owe them the money? Check for evidence from the plaintiff in the complaint, or request it. The plaintiff needs to have proof of the debt. Credit card companies usually have it, but a debt collector may not.
- Is the debt within the statute of limitations? Each state has a statute of limitations on debt. Most fall between three and six years. Review your state’s debt law, because if the statute of limitations has passed, the creditor likely can’t collect anymore.
It’s highly recommended that you consult with a lawyer to assist you. Although this can be expensive, there are legal aid services across the country that offer low-cost or free legal services to those in need. A lawyer can see if your debt is valid, and negotiate a settlement or defend you in court.
Now, let’s look at your options for dealing with the complaint:
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Settling Credit Card Debt
If you’ve maxed out your credit cards and are getting deeper in debt, chances are you’re feeling overwhelmed. How are you ever going to pay down the debt? Now imagine hearing about a company that promises to reduce or even erase your debt for pennies on the dollar. Sounds like the answer to your problems, right?
The Federal Trade Commission , the nation’s consumer protection agency, says slow down, and consider how you can get out of the red without spending a whole lot of green.
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Best Case Scenario When You Stop Paying Your Credit Card Bills
The debt collection company harasses you for a while and then gives up trying to collect on the debt.
Typically, if they dont believe you have a job or income, the debt collection company may cease collection activity for a while. Dont get fooled, though they will be back!
After seven years in most states, the statute of limitations will be reached, and the debt will no longer be legally collectible and will fall off a persons credit report. Rarely, do consumers get this lucky. Chart: SEE Statutes of Limitations in All 50 States
What Happens When Debt Goes To A Collection Agency
If you walk away from an unsecured debt the account will usually end up with a collection agency. What does that mean, in practice?
New Federal debt collection regulations will take effect on Nov. 29, 2021. The new rules will have a far-reaching impact on the debt collection industry. If you have delinquent debts or accounts in collection these rules will affect you. Learn more about Regulation F and what will it mean for consumers with debts.
- The agency will report a collection account to the credit bureaus. Your credit will suffer.
- The collection agency will pursue you aggressively. The Fair Debt Collection Practices Act limits collection agency practices, but collectors will take every legal step they can, and some will push to the edge of whats legally permitted.
- You may be sued. Collection agencies file millions of lawsuits every year, many of which end in default judgments against the debtor.
- If the creditor gets a judgment against you, they may be able to garnish a portion of your wages, place liens on your assets, or place a levy on your bank account.
- You cant be jailed for failure to pay the debt. Despite this, some people are still finding themselves facing and even serving jail time for unpaid debt.
According to the FTC, collection agencies buy debt for an average of 4 cents for every dollar of debt. Some agencies may work directly for the creditor and receive a percentage of what they recover.
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Are There Options Besides Bankruptcy
Yes, but theyre definitely not free.
One route is debt settlement. You hire a lawyer or debt-settlement company to negotiate with creditors in an effort to pay less than what you owe, presumably considerably less. You make one lump-sum payment and are done with it.
That sounds good, but there are serious drawbacks.
For openers, some companies wont even consider debt settlement and there is no law forcing any company to settle your debt.
If they will negotiate, youre still going to pay part of your debt. The advertisers say you may only have to pay pennies on the dollar, but better you should count on quarter on the dollar. Like three of them, as in pay 75% of what you owe.
On top of that, the debt settlement company will charge you 15% to 25% of the amount saved. And the government will tax that as income on your next tax return.
The process could take as long as three years. Your credit score is destroyed.
But at least youre not dead.
Another option is a debt management plan. A nonprofit company consolidates your bills and negotiates lower interest rates with creditors. You make one monthly payment that is lower than the combined payments you were making.
Its a better option than debt settlement, but the debt management company also charges a fee, the process takes three to five years and you pay your credit card bill in full.
That brings us back to bankruptcy.