Some cold, hard truths about credit card debt

If you don't think credit cards are dangerous, I'd like to share some info with you.

Lawsuits on past due credit card accounts are on the rise. Court dockets are overloaded with them. (See this story in the Knoxville News Sentinel for an example.)

I was curious to get some actual numbers. Through my own evaluation of court dockets throughout Tennessee (which are available as part of the public record), I came up with some reliable estimates. Actually, my numbers are on the low side.

Each month in Tennessee, over 12,000 people are sued in General Sessions courts (that's like "small claims" court) on past due credit card accounts. (There are other cases dealing with medical debts and housing evictions. I'm only talking about credit card accounts.)

The actual dollar amounts vary. I've seen suits for as low as a couple hundred dollars and as high as forty THOUSAND dollars. Just for the ease of math, I figured the average balance to be around $1,000 - which is VERY conservative.

12,000 lawsuits per month at $1,000 each is 12 MILLION dollars. That's every month.

Over the course of a year, it would be 144 MILLION dollars - and that's just in the state of Tennessee.

Multiply that amount by all 50 states - $7,200,000,000. That's 7 BILLION, 200 MILLION dollars. Every year. Just on past due credit card accounts that have been sued in court. It does NOT count other past due accounts that have NOT been sued on (yet).

That's $23.53 cents for every man, woman and child in America today. Actually, it's higher than that because I didn't factor in court costs and post-judgment interest.

What's worse is that the numbers are climbing. The credit card companies are filing more lawsuits every day, and in higher volume.

What happens when people get sued on these debts?

If the defendant owns a house, the plaintiff will get a judgment lien on the property. A lot of people don't know this, but a judgment lien can "survive" a bankruptcy. In other words, if you own a house and file bankruptcy (but keep your house in the repayment plan), the judgment lien can still remain on your house. The bankruptcy won't automatically erase the lien.

The defendant's wages can be garnished. Depending on what state he lives in, he could have up to 25% of his TAKE HOME pay garnished. That's 25% of his paycheck AFTER TAXES.

The defendant's bank account can be levied. As in CLEANED OUT. This time of year is prime time for bank levies to be executed because people are receiving their income tax refunds.

Personal property can be seized. This used to be only in rare, extreme situations, but it's starting to become more common. These can be the most heartbreaking stories. I know of one case where the plaintiff executed a judgment by seizing the defendant's personal property. Deputies from the Sheriff's Department went to the defendant's house and removed everything except the kids' beds and everyone's clothes. Everything else was seized and sold at auction. What's even worse? It still wasn't enough to pay off the debt.

It's terrible. It's horrifying. It's scary.

And it's all self-inflicted. Yes, I know there are people who are going to ask "how much of this was because of identity theft or fraud?"

In my research, less than 1 out of 1000 of these cases have raised the argument of identity theft or fraud. In the vast majority of them, the defendants have admitted to owing the debt.

Just like the current mortgage problem with people buying more house than they could afford, people did the same thing with credit cards. Nobody forced these people to buy houses. Nobody forced these people to open credit card accounts. And nobody forced them to use the cards.

In some situations, the people were paying at first and then just got behind and it snowballed. In other situations (quite a lot, I'm sad to say), the people got the cards, maxed them out, and then just walked away.

The defendants are from all walks of life. Young college students. Working parents. Elderly people on social security. People on disability. People on welfare. Many of them had no business getting a credit card in the first place, but somehow they did.

And now, everybody's paying the price.

Yes, I know that the big, bad credit card companies were stupid to loan money to people who couldn't afford to repay it. And I don't believe that they should be bailed out for their stupidity.

But this isn't all their fault. Just like it takes two to tango, it takes two to create a debt... a lender AND a borrower.

Credit cards aren't free money. They are loans. If you use it, you're gonna have to pay it back... and usually with interest. And inability to pay does not have anything to do with liability of the debt.

I have read countless cases where the defendants have told the judge in court, "Judge, I am unemployed/sick/disabled/retired/on social security. I don't have the money. I can't pay this."

Always, always, always, each and every time, the judge says, "That's not what I asked. I asked whether or not you OWE this - not whether or not you could PAY it."

Let me restate this.

THE COURT IS NOT CONCERNED ABOUT WHETHER OR NOT YOU CAN PAY YOUR DEBT.
THE COURT CARES WHETHER OR NOT YOU OWE THE DEBT.

Period.

If you have credit card debt, do your best to pay it off as quick as you can. Work with the original lender as much as possible. Set up a repayment plan with them and stick to it. Be proactive. Pay it off BEFORE it goes into hardcore collections. Do everything you can to avoid letting it go all the way to the courtroom.

Because once it goes to court, it's no holds barred.