Several Questions:
I am retired and my wife works part time, due to her physical limitations. Our home mortgage is completely paid off and we have a rental house with a mortgage, but positive equity, so we would not qualify for a Chapter 7 Bankruptcy. Considering this, how likely is it that we will be sued and can they collect?
We have about $100,000 total in credit card debts and I have been able to negotiate a lower interest rate with almost all of them. There was only one credit card company (HSBC) that would not negotiate, but I have avoided all contact with them so far in the hope that they will leave us alone. If sued, should we keep our checking account balance to a low “operating” level to pay bills? Should we take money out of a 401k employer retirement plan?
My response:
Thank you, sir, for your thoughtful questions and background details. Avoiding contact with a company, such as HSBC, does not mean that they will leave you alone and not pursue you in court for the unpaid balance.
In my experience representing consumers, the five companies most likely to directly file a credit card lawsuit within a year or two of not receiving payments are:
HSBC / Beneficial
American Express
Citibank (which also operates the Sears credit card program)
JPMorgan Chase Bank
Capital One Bank.
Of these five, Chase sells many of its accounts to debt collection agencies (known as “debt buyers”), rather than sue in its own name. Chase also has its own department of lawyers in Los Angeles and in Northern California, which they use for filing many credit card lawsuits in California to enforce their credit card account agreements against California residents.
With the real property recorded in your name, the companies that I mentioned are likely to sue you. Whichever lenders or debt collectors that sue you, they will probably not accept low settlement offers, because they can secure the judgment on your real property, if they prevail in the credit card lawsuit.
The debt collection lawyers cannot touch your retirement or Social Security benefits, unless you leave it to accumulate in a bank account, above certain levels. If you take money out of an employer’s 401k, that money could then be attached in a bank or investment account. Thus, take money out only as needed to settle a debt or for other critical needs. Please do not take out your full retirement balance and leave it in an account like a sitting duck.
I don’t know how much your wife makes in her part-time position, but she could be sued on this debt, too. If the creditor wins a judgment, the debt collection lawyers would attempt to garnish her wages. The amount below the federal minimum wage for a 30-hour work week, after taxes, is exempt from garnishment. Above is not exempt and can be garnished, though you can seek a claim of exemption from the court. Please see my article at this link: Making Garnishment Bearable.
Typically, debt settlement companies advocate a program where you pay them a monthly payment, while you stop paying your accounts. After a while, these debt settlement companies will try to negotiate a settlement with your creditors or debt collectors, hoping that they can settle the debt for a fraction of the balance owed. I would not suggest you try this strategy, because you have so much exposure with your home and other real estate. Also, avoid debt settlement companies, as the U.S. GAO did a report to Congress that these companies make people worse off than if they were before. See my article on Avvo at this link: Debt Settlement Ripoff
As far as your checking account, I would not leave any account open if you lose and a judgment is entered, because the debt collection lawyer will levy any open account on the hope that you may have made a big deposit recently. Your own bank will charge you a processing fee for handling the levy, which can be very expensive. Any outstanding checks you wrote on the account will bounce, once the sheriff shows up at your bank with the levying papers.
Robert Stempler
www.StopCollectionLawsuits.com