What To Do If You Are Sued For Credit Card Debt
Debt can have consequences, and when you default on credit card debt, the consequence could be a lawsuit.
It’s not pretty when the credit card division of a giant financial institution levels its sights on you, but there are steps you can take to fight back.
Always remember that credit cards are obligations, with terms spelled out in pages of fine print. Most people pay little attention to this legalese, and instead zoom in on the periodic interest rate and the borrowing limit. But in signing the application, you accept the terms, whether you read them or not. Look closely and you’ll see a lot of those hard-to-read words discuss what will happen if you default.
Credit-card issuers usually don’t sue capriciously. If you fail to make the minimum monthly payment and you have a high balance, you can expect to hear from the lender soon. The longer you go without resolving the debt, the more often the debt collection calls will come.
Don’t Ignore Calls From Your Credit Card Companies
If a credit card company contacts you, the worst thing you can do is ignore the messages. Failing to respond suggests you’re avoiding payment and puts the lender on alert, so immediately call the lender back and get a full understanding of the problem.
If you have always paid on time, the lender might be in error. Perhaps the balance is the result of a dispute with a vendor that the card-issuer didn’t correct. Or maybe you are the victim of identity fraud. In those cases, you might get the dispute resolved quickly on the phone.
What Might Happen If You Fail to Pay Your Credit Card Debt
But what if you struggle with debt management and can’t afford to pay your bills? Avoidance will mean harassing calls that could lead to legal action. Among the outcomes:
- The credit card issuer can sue you for violation of contract. That agreement you signed can be used against you, and it will be hard to defend yourself if you actually breached it by not paying.
- The issuer might sell your debt. After a period, often about six months, the lender may decide that collecting isn’t financially worthwhile and sell your debt to a collection agency. Once the debt is sold, a new set of collectors will go to work, calling you and sending notices. The debt might even be sold several times, but could eventually go to debt-collector’s lawyer who will sue you.
- When a lawsuit is filed, you must respond. Failure to reply to a collection suit, filed in state court, is tantamount to admitting you are culpable. The court will find you legally liable for the debt and order you to pay the full amount of what you owe.
If you are sued, respond quickly. Credit cards are unsecured debt, so the options for the debt holder to collect are limited.
Stopping A Lawsuit Over Credit Card Debt
- Offer to settle the credit card debt: you pay a portion at once in exchange for them forgiving the rest and canceling the lawsuit. Ask to be held blameless, muting the impact on you credit score. If you can get an agreement and the suit is dropped, make sure you get written notification. Otherwise, the debt holder might say what you thought was a settlement, was really just a payment and will sue you anyway.
- Review what the debt holder wants from you. Sometimes the bill is inflated with penalties and late fees that either shouldn’t be there or can be negotiated away. Review your contract to see what can be legitimately added to your debt if you pay late or don’t pay enough. If you see improper fees, point them out right away.
- Talk to a Debt Counselor: Nonprofit debt counselors can review your debts and provide you with options to reduce your monthly payments and get out of debt faster than on your own.
Sometimes debt counselors can represent you and come to an agreement with the debt holder that involves a payment schedule you can meet and an interest-reduction that will make periodic payments affordable. This is called debt management program. The goal of a debt management program is to wipe away the debt on terms that are agreeable to both sides.
The debt counselor will examine your income and expenses then work with your debtor – or debtors – to reduce the interest rate on the debt and eliminate some or all of the penalty fees so that a payment schedule suitable to all parties is possible. A typical debt management program takes 3-5 years to eliminate all debt.
If the debt counselor can’t budge the lender, you might have to hire a lawyer to represent you.
A legal review of the lawsuit might reveal problems. Sometimes the suit is filed after a state statute of limitations has expired. State laws give debt collectors a specific time frame to collect a debt – usually 3-5 years, but it varies from state-to-state – and after that, the debt is void. The lawsuit also might suffer technical problems. Most states stipulate certain documents be attached to a complaint. If the documents aren’t included, the suit can be disputed. The suit must also be served according to state statute. If it isn’t, you can argue improper service.
A violation of the federal Fair Debt Collection Practices Act is another possibility. If the debt collector uses prohibited collection tactics, you might be entitled to countersue for damages. It’s important to know your rights with debt collectors.
Another consideration is what is called legal standing. A creditor has to have a relationship with you, but when your debt is sold to a collection agency, the relationship becomes muddied. The debt collector needs to prove with documents that it is entitled to sue you, in essence that it has standing to sue. If it fails to submit proof, standing becomes an issue. The more times your debt is sold, the more complex proving standing can be.
If the case isn’t settled out of court, a judge will rule.
What Can Happen If You Are Sued For Credit Card Debt
- If the court finds in your favor, you might consider requesting damages from the debt holder to cover your legal cost.
- A judge dismisses the case. That ends of litigation, but doesn’t stop the debt holder from refiling a suit. Try to get a dismissal with prejudice to prevent that from happening.
- The court rules for the plaintiff. If the debt holder wins, it will ask the judge for authority to collect what it is owed. That can include garnishing your wages, placing liens on your property and even selling your property. State law determines what might happen.
- Detweiler, G. (2013, August 3). What to Do If You’re Sued by Your Credit Card Company. Retrieved from: http://abcnews.go.com/Business/react-credit-card-company-sues/story?id=19853674
- Miller, Dax J. (ND) Credit Card Debt Lawsuits. Retrieved from: http://www.nolo.com/legal-encyclopedia/credit-card-debt-lawsuits.html
- Dzikowski, P. (ND) Defense to Credit Card Debt Lawsuits. Retrieved from: http://www.nolo.com/legal-encyclopedia/defenses-credit-card-debt-lawsuits.html