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.
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.
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:
If you are sued, respond quickly. Credit cards are unsecured debt, so the options for the debt holder to collect are limited.
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.