Unpaid Credit Card Debt

• Unpaid credit card debt will result in collection activity and a charged-off account from the lender. While this will reduce a credit score by as much as 50 points, it won't result in a foreclosure. What a credit card company could do, is place a lien against the property. In this scenario, should the home be sold by the owner, the lien must be paid before the property can be successfully closed with a new borrower.
  
  Lien holders do have the right to foreclose on a property. However, since the mortgage holder is the primary lien holder, any proceeds of a foreclosure will default to the mortgagee, leaving credit card companies with little or no hope of collecting on the bad debt.
  
  

Debt Consolidation

• Some consumers who have large amounts of credit card debt will take out a loan against their home using the value (equity) that has built up over time. This allows a consumer to pay off the credit card debt with this loan and have one monthly payment as opposed to several.
  
  Unlike credit card debt however, this loan is secured using a home as collateral. Any loan that uses the home as collateral for its approval means that the property can be foreclosed on by that lender in the event of default or nonpayment.
  
  

Chapter 13

• Consumers who have both unsecured debt and debt secured by a home, whether in foreclosure or not, can file a Chapter 13 bankruptcy.
  
  In a Chapter 13 bankruptcy filing, the consumer has a day in court. Lenders that have representation are given a court-appointed repayment plan for debts, overseen by a trustee. Lenders without representation are discharged and not due payment because of the bankruptcy. Once the payments are completed and the bankruptcy is discharged, the credit card debt and/or foreclosure will no longer be a hindrance.
  
  

Chapter 7

• Another option for consumers with credit card or other unsecured debt who are facing foreclosure is a Chapter 7 bankruptcy. Unlike a Chapter 13 filing, where repayment plans are established with a lender, a Chapter 7 bankruptcy wipes out all unsecured debt.
  
  While it does not wipe out the debt owed to mortgage companies (since they have an ownership interest in the collateral) it can provide the consumer with additional time to come up with funds that match the defaulted amount to have the loan reinstated, or a ruling by a judge to enact a payment plan with the lender. Conversely, approval for a Chapter 7 bankruptcy is more difficult to be achieved than with a Chapter 13.
  
  

Foreclosure

• When a property is foreclosed on, the foreclosure does not wipe out any other debts. A foreclosure can be more damaging than any unpaid credit card bills, dropping a credit score by as much as 200 points. For homeowners that have been foreclosed upon, collection actives from credit card companies or other unsecured sources of debt will continue.