What to Do If You Are Sued For Credit Card Debt
Getting sued by your credit card company is an intimidating experience. You can defend yourself, but you need to know how.
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Learn Your Options if Sued for Credit Card Debt
Debt has consequences, some of which will surprise the average American.
For example, if you default on credit card debt the major consequence could be a lawsuit.
Hold on. Can a credit card company sue you? Yes, it can. And pushed into extreme circumstances, it will. In a heartbeat.
Which leads to the bigger question: What to do if you are sued by a card company?
First, never ignore calls. That just makes things worse and paints you as negligent. Study the complaint carefully for accuracy. Try to negotiate a settlement, if possible.
Here’s the bottom line: Credit cards are not play toys that allow mass purchases on the Home Shopping Network.
Most importantly, make sure the lawsuit is accurate. Sometimes, your account is “sold’’ to a debt collection agency, which specializes in harassment and strong-armed tactics. The amount they say you owe? It might be incorrect.
If it gets to this stage, be ready for a fight, which may include hiring a lawyer. It’s never pleasant when a giant financial institution sets its sights on you, but you do have rights.
Credit cards come with obligations, carefully spelled out in the voluminous pages of fine print (probably ignored while you studied the periodic interest rate and borrowing limit).
But when signing up for the card, you accepted those terms, whether you read them or not. Somewhere in that sea of legalese, it spelled out the conditions if you defaulted.
Falling behind on credit cards is not uncommon. According to the Federal Reserve, U.S. credit card debt stood at $770 billion in early 2021.
Understand, too, that credit card companies don’t sue capriciously. But if you fail to make the minimum monthly payment and carry a high balance, you’re going to get the dreaded phone call or court summons.
If you don’t return those calls — or decide to push the episodes out of sight like they it’s a bad financial dream — the situation will just get worse.
Here’s a step-by-step action plan on what to do if you are sued by a credit card company.
Make Sure You Actually Owe
Giant corporations aren’t infallible. You might not owe a penny. You might be a victim of identity theft. Or, the debt you once owed can no longer be collected. Don’t let yourself be bullied. Make sure the credit card company is correct.
There are several reasons you could be in the right:
- The debt was paid — You have the receipt. They made a mistake. In this case, the legal reply will be a few sentences and it’s over.
- The statute of limitations has run out —Every civil lawsuit must be filed within a certain time frame. The statute of limitations varies from state-to-state, but most are in the 4-to-6 year range. The clock starts ticking on your case the date of your last credit card payment. If the complaint was filed with the court after the statute of limitations ended, the lawsuit should be dismissed, but only (and this is very important) if you show up in court and tell the judge the statute of limitations expired.
- Fair Debt Collection Practices Act (FDCPA) —It’s a federal law that requires debt collectors to provide information about your debt. If the company violated provisions, you can countersue. Read the law at https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/fair-debt-collection-practices-act-text and then check some FAQs from the government at https://www.consumer.ftc.gov/articles/debt-collection-faqs.
- Fraud —Someone could have stolen your identity or your credit card and made unauthorized purchases. The Federal Trade Commission said that identify theft topped the consumer complaints it received in 2020. Those who steal your identity can wreak havoc on your financial well-being. Do the research to find out if that happened.
- Mistaken identity —Perhaps you never signed up for the credit card or had any business with the company. It’s wise to run a free credit report to see if an account was opened in your name.
- Bankruptcy —If you filed for bankruptcy and your credit card debt was wiped out, that’s a viable defense.
- Shoddy bookkeeping — In 2012 the New York Times published a series of stories that tracked collections tactics of credit card companies. In the story, a New York state civil court judge said 90% of credit card lawsuits are flawed. The credit card companies did not become infallible because time has passed since those articles were published. Make sure the debt is yours, the identity is yours and the charges are yours.
The Times also reported that 95% of credit card collection cases go uncontested, meaning the consumer didn’t bother to show up in court. That’s a gimme win for credit card companies and creditors, who earn default judgments and the right to garnish your wages or bank account balances.
Remember: You cannot and will not win if you don’t show up for a court trial.
Debt collection complaints rank second (to credit report issues) on the Consumer Financial Protection Bureau’s (CFPB) complaint database. In 2019, the top debt collection problem was being pursued for a debt an individual didn’t owe. People frequently learn of collection efforts only after they are denied a loan or don’t get a job because of an outstanding debt on their credit report.
A couple facts are interesting to note. First, credit card delinquencies decreased during the pandemic, with severe delinquencies (bills overdue by 90-180 days) dropping by 53%. Too, the Bureau of Labor Statistics projects a 6% decline in jobs for bill and account collectors from 2019 through 2029 – though most of those jobs are being lost not because Americans are being more responsible. Instead, they are being lost to automation.
What to Do if You Owe the Debt
When you’re sued, you’ll be served with a copy of the complaint and a court summons that tells you how you can file a response in court and the date of your court hearing. You have roughly three or four weeks to respond, which means you need to act quickly. Some of your options, like offering to settle the debt, can happen out of court. Others will require you to respond directly to the suit or use bankruptcy court.
Understand your rights
The CFPB issued new guidelines about debt collection that will take effect at varying points of 2021. While some of the guidelines are geared to help consumers, some advocates feel the guidelines do not go far enough.
Phone calls from debt collectors are limited to seven attempts or one conversation per week per debt. If you have five debts, that does mean you could get 35 calls – but you’d only have to have five conversations.
The second part of the rule says that debt collectors are required to provide consumers a validation notice either immediately or within five days of contacting the person they believe owes the debt. The notice has to include details about how much is owed, that the notice is from a debt collector, and the consumer’s right to dispute the debt within 30 days. Debt collectors then must wait 14 days before posting the debt on a credit report. A badgering phone call without the written notice should raise questions of fraud; make sure the call is legitimate before providing any information to anyone over the phone.
As of November 2021, collectors will be allowed to use unlimited email, text and DM contact, which doesn’t make consumer advocates happy. Harassment claims from excessive emails or texts would fall under FDCPA protections.
The consumer advocacy group ConsumerAction offers this strong advice: “Never repay a debt you don’t recognize until you ask the debt collector to verify it.” Collectors must stop contact until they send the proof of the debt. If the debt collector continues to badger without verification, there is a good chance it’s a scam.
Try to Settle with the Credit Card Company
Lawyers don’t work for free, and court cases cost everybody money. So the credit card company has some incentive to avoid going to trial. The company might initially put up a fight, but the attending supervisor likely will be interested in simply recovering as much of the debt as possible.
Credit card companies write off millions each year in uncollectible debt. The cost is passed on to consumers in the form of higher interest rates and fees.
Offer to pay a portion of the debt. Ask the company to forgive the rest and cancel the lawsuit. Also ask to be held blameless, so your credit score won’t be harmed. If the company agrees and the suit is dropped, be sure to get written notification. You don’t want the company to claim your “settlement’’ was actually a “payment’’ and then have it sue all over again.
Also, carefully examine the debt. If it’s inflated with penalties and late fees, those can be negotiated away. Review your contract to determine what fees can be legitimately added for late payments. If the debt seems littered with baseless fees, speak up! There’s an old saying that may apply: You have as much power as you want to take.
Don’t Ignore Calls
We understand that you might get a dozen or so robotic sales calls on a typical day. We get the fact that you might have zoned out.
But be careful. If the credit card company is chasing you — and you owe the money — don’t give the lender any reason to put a red circle around your name and think you’re avoiding payment.
Call back immediately. Get a full understanding of the problem.
There could be an error, particularly if you have always paid on time, or a dispute with a vendor might never have been corrected. These days, you could also be the victim of identity fraud.
In any of these cases, you might be able to dispute the debt over the phone and resolve it quickly. The best-case scenario is to end the nightmare with one return phone call.
If the debt does belong to you, write a drop dead letter telling them to cease and desist all communication. That should give you some breathing room to come up with a debt elimination strategy.
Respond to Any Lawsuit
If good-faith efforts don’t work, you might be looking at a lawsuit, often the last resort after a series of collection attempts.
Avoiding phone calls will accelerate that process. Sometimes, if a lender decides that collection attempts aren’t financially worthwhile, the debt can be sold to a collection agency, which means a new set of collectors will go to work on you. Your debt could be sold again and again. If it isn’t resolved, a lawsuit is only a matter of time.
If a lawsuit is filed, you MUST respond. If you don’t show up for the court proceeding, the judge automatically rules against you and will order you to pay the full amount.
Credit cards are unsecured debt — meaning there’s no collateral at stake, such as a home or car — so the lender has limited options for collection. Lawsuits can happen quickly if there’s no communication or acknowledgement.
Seek Legal Services
When you think of lawsuits, you think of lawyers. The credit card company will have at least one. Should you?
Good reasons to get a lawyer include:
- The lawsuit involves a lot of money and you don’t feel comfortable representing yourself in the legal process.
- You already know a lawyer who was successful in a civil case, particularly one who is referred from a friend or family member.
- A lawyer can navigate you through complicated situations. Lawyers can determine if the state statute of limitations has expired or whether the Fair Debt Collection Practices Act has been violated.
- You can find a lawyer by searching online for “consumer lawyer” or by using referral services from local or state legal bar associations. You can check if complaints were filed against your potential attorney.
Good reasons to skip hiring a lawyer and defend yourself include:
- You’re confident in your ability to present your case to a judge who may not be sympathetic to consumers.
- You have kept good records of credit card spending and believe the charges against you are incorrect.
- The amount owed is less than the potential legal fees. This is important. If paying the debt costs less than the lawyer would cost, hiring said lawyer for something you might be able to work out on your own merely increases what comes out of your bank account.
You must determine how much time you have to respond to the complaint by calling the court clerk or searching court websites. You must draft your response (called an answer) and address each allegation. You must construct your case and prepare for trial. It’s all a little more involved than TV courtroom dramas and it’s certainly not for everyone.
Challenge the Right to Sue
There’s a sports adage that the best defense is a good offense. If a credit card company sues you, one strategy is to challenge its right to do so. It’s the plaintiffs’ responsibility to prove that you owe them money. Make them do it. Debt often gets sold, so ask for documentation of a credit agreement that you signed and proof that the paperwork is accurate and came from the original creditor. This can be done without a lawyer.
Demand they account for every dollar they say you owe by showing how your activity increased the balance, that fees and charges they claim you owe were part of the original credit agreement you signed and that the current balance is accurate. If the company can’t provide this documentation, the lawsuit may be dismissed, or the company may agree to settle for a lower amount.
File a Petition of Bankruptcy
Maybe you owe the debt, but your overall financial situation means you can’t pay it. In that case, filing for bankruptcy may be your best move. When you do that, all debt collection activity must cease while the bankruptcy is handled.
Understand: Bankruptcy has a considerable impact that can take years to recover from, but it can be a first step toward getting out from under overwhelming debt and move you toward rebuilding your credit. Talk to a lawyer immediately about whether filing for Chapter 7 or Chapter 13 bankruptcy is right for you. Waiting until just before a lawsuit-related hearing may require your lawyer to file an emergency bankruptcy petition, which can be more expensive.
What Happens Next?
If the matter goes to court, here are the potential outcomes:
- You Win —The court rules in your favor. Depending on the circumstances, you might opt to go on the offensive and request damages from the credit card company to recover your legal costs.
- Dismissed —If a judge dismisses the case, the litigation is over. The credit card company could also refile the lawsuit, so it’s best to get a dismissal with prejudice, putting a definitive end to the matter.
- You Lose —If the credit card or debt collection company wins, it will ask the judge for authority to collect its money. Your wages could be garnished. Liens could be placed on your property or it could be forced into a sale. It depends on the laws in your state.
Consider Credit Counseling
If you are having credit card trouble, consider utilizing a nonprofit credit counseling agency like InCharge Debt Solutions. InCharge has credit counselors who can help reduce your monthly payments and get you out of debt even faster. With a debt management program, counselors can work with the credit card company to reduce the interest rate on your debt to 8% (sometimes better) and arrange a payment schedule that is affordable. It’s usually win-win and agreeable to both parties. The credit card company is under no obligation to agree to this arrangement, but it might view this good-faith effort as the best possible option.
About The Author
In his 40-plus-year newspaper career, George Morris has written about just about everything -- Super Bowls, evangelists, World War II veterans and ordinary people with extraordinary tales. His work has received multiple honors from the Society of Professional Journalists, the Louisiana-Mississippi Associated Press and the Louisiana Press Association. He avoids debt when he can and pays it off quickly when he can't, and he's only too happy to suggest how you might do the same.
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