According to Creditcards.com, there are numerous credit card lenders that are using their agreements as authority to seize things you buy with your credit card if you do not pay your bill in full. Typically, credit card debt is unsecured debt, which means that no assets were pledged as collateral to the lender. However, clauses that permit the lender to seize goods may alter this classification for credit card debt.
Creditcards.com reports that in excess of 200 publicly filed card contracts have provisions that grant the lender a security interest in goods purchased by the holder of the credit card. Examples of this type of card included stores that were financially backed by Capital One, including Big Lots and Costco.
If your credit card agreement contains a security interest clause, it could mean that the lender retains the right to seize purchased items even if you file a personal bankruptcy. This could be quite shocking since most consumers are not aware that their contract with their credit card lender contains this type of clause (or that they consented to it!).
Among Creditcards.com’s other discoveries were the following:
- There has been a significant increase in popularity in credit cards that postpone interest payment for six months or more. It is important to understand, however, that these types of cards usually include contract language that charges the consumer all accumulated interest if a payment is missed.
- An estimated 70% of the credit card agreements use variable interest rates linked to the U.S. prime rate or to Europe’s LIBOR index.
- Credit card agreements are increasingly using mandatory arbitration clauses. This type of provision typically prevents the cardholder from filing lawsuits in court and/or creating a class action with other cardholders against the lender.
How can this type of credit card agreement impact your bankruptcy filing? If your agreement includes a security interest clause, it is possible that certain goods usually exempted from the bankruptcy process are not protected. In other words, the lender may be allowed to seize those items even though you filed for bankruptcy.
It is important to note, however, that most credit card lenders do not enforce their security interest clauses. In the majority of the cases, the items that the lender could repossess are not worth the time and expense it would take to seize them. Consider the following example:
An individual purchases a mattress for $400 and the lender offers a financing option that includes no interest or payments for 36 months. The purchaser does not make any payments over the 36 months and the accrued interest and balance now due total $1100. The purchaser still does not make a payment and the lender starts collection efforts, including telephone calls threatening to seize the mattress. The purchaser contacts an attorney who calls the lender to negotiate by offering $50 to settle the debt as the mattress is now over three years old. The lender stops calling.
To learn more about your credit card agreements or the benefits of filing a personal bankruptcy, call Faro & Crowder today!