What to Do If You Are Sued by a Credit Card Company
Getting sued by your credit card company is an intimidating experience. You can defend yourself, but you need to know how.
Choose Your Debt Amount
Debt has consequences, some of which will surprise the average American.
No, we’re not talking jail time. Debtor’s prisons were abolished nearly two hundred years ago, but untamed debt can still require a trip to the courthouse.
Can a Credit Card Company Sue You?
If you default on credit card debt, you could be sued by the credit card company or a debt collection agency. And if you lose the lawsuit, it could result in a judgment that includes liens on your property or garnishing your wages.
So, yes, credit card companies can sue you, and if pushed into extreme circumstances, they will.
The timeline looks something like this: After 30 days of missed payments, your credit card debt becomes delinquent. After 180 days of missed payments, your debt goes into default. At this point, the credit card company has a couple of options to recover what is owed.
- They can file a lawsuit and try to negotiate a settlement.
- They can charge off the debt and sell it to a collection agency.
Collection agencies can also file lawsuits in an attempt to collect on the debt. So either way, you could be looking at a lawsuit.
How Debt Collection Lawsuits Work
Debt collection law can vary depending on where you live, but the core principles are the same across the country. An attorney will file a complaint in civil court to initiate a lawsuit against you. You’ll receive a summons containing crucial information such as:
- The plaintiff: This is the person or company suing you
- Any co-defendants: Anyone else the plaintiff is suing, like a cosigner
- The amount owed: The total the plaintiff is suing for, including credit balance, interest fees, and legal expenses
- Date of the hearing: When the hearing will take place
- How to respond: This should include directions on how to file a formal reply to the complaint
How to Respond to a Credit Card Lawsuit
First, never ignore calls from creditors. That makes things worse and paints you as negligent. Study the complaint carefully for accuracy. Try to negotiate a settlement.
Most importantly, make sure the lawsuit is accurate.
Sometimes, your account is “sold” to a debt collection agency, many of which use 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 challenges you, but you still have rights, even if you owe a hefty sum.
Falling behind on credit cards is common. According to the Federal Reserve, U.S. credit card debt stood at $1.154 trillion in 2022.
Here’s an outline of steps to take if a credit card company sues you:
- Make Sure the Lawsuit is Accurate
- Understand Your Rights
- Try to Negotiate a Settlement
- Don’t Ignore Calls
- Respond to Any Lawsuit
- Seek Legal Assistance
- Challenge the right to sue
1. Make Sure the Lawsuit Is Accurate
Giant corporations make mistakes. 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 through the courts because the statute of limitations has expired. Don’t let big companies bully you into a corner. 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 specific time frame. The statute of limitations on credit card debt varies from state to state, but most are in the 4-to-6-year range. The clock starts ticking on 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 important) if you show up in court and tell the judge the statute of limitations expired.
- Fair Debt Collection Practices Act (FDCPA): is a federal law requiring debt collectors to provide information about your debt. If the company violated provisions, you could countersue. Read the law here and then check some FAQs from the government here.
- Fraud: Someone could have stolen your identity or credit card and made unauthorized purchases. The Federal Trade Commission said that identity theft topped its consumer complaints in 2020. Those who steal your identity can wreak havoc on your financial well-being. Research to find out if that happened.
- Mistaken identity: Perhaps you never signed up for the credit card or had business with the company. It’s wise to obtain 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 the collection tactics of credit card companies. In the report, a New York state civil court judge said 90% of credit card lawsuits are flawed. 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. Remember: You cannot win if you don’t attend a court trial. That’s an easy victory for credit card companies and creditors, who earn default judgments and the right to garnish your wages or bank account balances.
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 being denied a loan or not getting a job because of an outstanding debt on their credit report.
A couple of 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%. Second, 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.
2. 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 work on you. They could resell your debt again and again. If you don’t pay the collection, a lawsuit is inevitable.
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 acknowledgment.
Don’t Ignore Calls
If the credit card company is chasing you, don’t give it any reason to think you’re avoiding payment. Call back immediately. Get a complete understanding of the problem.
There could be an error, particularly if you have always paid on time, or a vendor dispute may need correcting. You could also be the victim of identity fraud.
You can dispute the debt over the phone and resolve it quickly in any of these cases. 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 devise a debt-elimination strategy.
Understand Your Rights
The CFPB issued new guidelines about debt collection that will affect your rights with debt collectors. Debt collector phone calls are limited to seven attempts or one conversation per week per debt. If you have five debts, that means you could get 35 calls – but you’d only have five conversations.
Next, debt collectors must provide a validation notice within five days of contacting you regarding debt. The notice has to include details like 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 must wait 14 days before posting the debt on a credit report. A badgering phone call without written notice should raise questions of fraud; make sure the call is legitimate before providing any information.
As of November 2021, collectors will be allowed to use unlimited email, text, and D.M. 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 proof of the debt. If the debt collector continues to badger without verification, there is a good chance it’s a scam.
3. Speak to an Attorney
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 following:
- 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 to which a friend or family member refers.
- 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 a “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 credit card spending records 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 T.V. courtroom dramas, and it’s certainly not for everyone.
4. Determine How to Proceed
Investigate your options before deciding how to proceed. An attorney will present a few ways forward, but you can also consider credit counseling for more options.
Nonprofit credit counseling agencies help people in debt understand their options. It only takes a 30-minute phone call to go through a counseling session. If the debt is still held by the original creditor, a debt management plan could be a good solution. A credit card company may agree to drop a lawsuit if the debtor enrolls in a debt management plan and receives credit counseling. You would still owe money but working with a nonprofit credit counseling agency eases the payoff process by cutting back fees and reducing interest rates.
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. Lawyers don’t work for free, and court cases cost everybody money.
Credit card companies write off millions each year in uncollectible debt. The cost is passed on to consumers through 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 to keep your credit score free of harm. If the company agrees to drop the suit, get a written notification. You don’t want the company to claim your “settlement” was a “payment” and then have it sue 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 past-due 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.
Maybe you owe the debt, but your 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 of overwhelming debt and moving 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 an emergency bankruptcy petition, which can be more expensive.
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 plaintiff’s 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. You can do this without a lawyer.
Demand the company account for every dollar you “owe” by showing how your activity increased the balance, how any excess fees were part of the original credit agreement, 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.
What Happens If You Go to Court?
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 forced into a sale. It depends on the laws in your state.
Speak to a Credit Counselor
Consider utilizing a nonprofit credit counseling agency like InCharge Debt Solutions if you have credit card trouble. 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 somewhere around 8% (sometimes better) and arrange an affordable payment schedule. It’s usually win-win and agreeable to both parties. The credit card company is under no obligation to accept this arrangement, but it might view this good-faith effort as the best possible option.
You can also take advantage of our credit card debt forgiveness program, which lets you pay less than what you owe over 36 months. A major upside to this strategy is transparency. This type of nonprofit debt settlement will show what you owe without the long-term negotiations many predatory debt settlement companies will have you endure.
About The Author
Bents Dulcio graduated from Florida State University in 2016 with a degree in Political Science, and knows a thing or two about Millennial student loan debt. While in school, he developed a passion for classic literature, reading books by authors from Homer to Adam Smith and developed a penchant for dealing with tight financial circumstances. Bents used the student loan money to pursue a semester of language study in France that helped convince him to become a writer. Bents still hits the books – he read 70 in the past year – and still knows how to cut corners financially. You will see examples of both in his writing for InCharge.org.
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