When a credit card company or debt collector sues you, it can be a daunting and stressful experience. With the rise in consumer debt and economic uncertainties, more individuals find themselves grappling with the reality of legal action over unpaid credit card balances.
Whether it stems from financial hardship, oversight, or misunderstanding, the implications of a credit card lawsuit are serious and far-reaching. However, understanding the legal process and knowing your rights can make a significant difference in managing and resolving the situation.
Read on to learn what happens when a credit card company sues you, and how to navigate the legal landscape and make informed decisions to protect your financial future.
What Triggers a Credit Card Lawsuit?
A credit card lawsuit is typically triggered when a credit card issuer or a collection agency seeks legal action to recover past-due debts.
Usually, it starts when you miss multiple payments or fail to pay the minimum amount due over an extended period. Eventually, you’ll default on your credit card debt. This means you haven’t made any payments for a significant period (usually six months or more).
Before suing, however, creditors often try to collect the unpaid credit card debt through phone calls, letters, and negotiations. Ignoring collection efforts or refusing to negotiate a repayment plan can lead creditors to believe that a lawsuit is their best option. And if the original debt was sold to a collection agency, the agency may be more aggressive in pursuing a lawsuit to recover it.
Initial Steps in a Credit Card Lawsuit
When a credit card company sues you, several steps take place. Here’s an overview of the process:
Receiving the Summons and Complaint
First, you will receive a summons and complaint document. This is typically delivered by a process server, sheriff, or through certified mail. The summons notifies you that you are being sued and provides details on how and when to respond. The complaint outlines the reasons for the lawsuit, including the amount of money owed and any supporting details.
Reviewing the Documents
Next, carefully review the court summons and complaint to understand the allegations and the amount the creditor claims you owe. Note the deadline for your response, which is usually within 20-30 days from the date you received the summons.
Determining the Validity of the Debt
It’s important to verify that the debt is yours and that the amount claimed is accurate. Check for any errors or discrepancies in the complaint, such as incorrect balances, unauthorized charges, or identity theft.
Considering Legal Assistance
At this point, it’s a good idea to think about consulting with a lawyer. That’s especially true if the debt is substantial or if you believe there are errors or defenses against the lawsuit. Many attorneys will offer free initial consultations.
Preparing Your Response
After being served, you must file a formal response — also known as an “answer” — to the court. This document addresses each point in the complaint, stating whether you admit, deny, or lack sufficient information to respond. If you have any defenses (for instance, the statute of limitations has expired, or the debt was settled), include them in your answer.
Filing and Serving Your Answer
File your answer with the court within the specified deadline. If you don’t respond by the deadline, the court will likely file a default judgment against you. This essentially means you automatically lose the case, and the creditor can pursue more aggressive means of recovering the money you owe. That may include garnishing your wages or freezing your bank accounts.
You should also send a copy of your answer to the plaintiff’s attorney or the creditor as required by court rules.
Court Proceedings
If the case proceeds to a hearing, be prepared to attend and present your case. Gather any evidence, such as payment records, correspondence, or witness statements, to support your defense. Again, it’s advised that you hire an attorney to represent you.
Legal Options When Sued
You have several options when it comes to resolving a credit card lawsuit. Some of the most common avenues you could pursue include:
Negotiate with the Creditor
One option is to contact the creditor or debt collection agency to negotiate a debt settlement. You might agree to pay a reduced lump-sum amount or set up a reduced payment plan. If the creditor agrees to a settlement, you can resolve the debt and avoid court proceedings. Be sure to get any settlement agreement in writing.
File a Motion to Dismiss
In some cases, you may be able to get the lawsuit dismissed. For instance, if the creditor cannot provide sufficient evidence to prove the debt, you can file a motion to dismiss the case. Additionally, if you weren’t properly served with the lawsuit, this can be grounds for dismissal.
Consider Bankruptcy
Bankruptcy should be considered a last resort option. It has significant and long-lasting effects on your credit and overall financial health. That said, if your debt is significant and unmanageable, bankruptcy could provide the fresh start you need and help you avoid a debt collection lawsuit.
Keep in mind that you need to qualify for bankruptcy. A debt relief attorney can help you determine if bankruptcy is an option and which type to pursue, since there are several bankruptcy options including Chapter 7 or Chapter 13 bankruptcy.
Defenses Against Credit Card Lawsuits
When a credit card company sues you, there are several common defenses that could help you contest the claim.
Statute of Limitations
Each state has a statute of limitations that sets a time limit on how long creditors have to file a lawsuit to collect a debt. If the time limit has expired, you can use this as a defense to have the case dismissed. Keep in mind that creditors can still pursue collection of the debt after the statute of limitations has expired; they just can’t sue you.
Lack of Standing
The plaintiff must prove that they have the legal right to collect the debt. If the debt was sold or transferred, the creditor must provide documentation showing they own the debt. If they can’t come up with that proof, you may have a solid defense.
Improper Service of Process
If you were not properly served with the summons and complaint according to state laws, you can argue that the case should be dismissed due to improper service.
Fraud or Identity Theft
If the debt was a result of fraudulent activity or identity theft, you can use this as a defense. Provide evidence such as police reports, fraud alerts, and communication with the credit card company. If you are ultimately found not responsible for the debt, you won’t be expected to repay it.
Consequences of Losing the Lawsuit
If you lose a credit card debt lawsuit, the court will issue a judgment against you, stating that you owe the debt amount specified by the creditor, including any interest, fees, and court costs. At this point, several consequences can follow, which can have significant financial and legal impacts.
Wage Garnishment
The creditor may obtain a court order to garnish your wages. This means a portion of your paycheck will be automatically deducted to pay off the debt. Federal and state laws set limits on how much of your wages can be garnished for credit card debt, but it could be up to 25% of your disposable income.
Bank Account Levy
The creditor may obtain a court order to levy your bank accounts, allowing them to freeze and withdraw funds directly from your accounts to satisfy the judgment. Your bank will notify you if a levy is placed on your account, but the funds may already be inaccessible by then.
Property Liens
The creditor may place a lien on your property, such as your home or other real estate. This means you can’t sell or refinance without first paying off the debt. A lien may also affect your ability to obtain loans or credit in the future.
Seizure of Non-Exempt Assets
In some cases, creditors may be able to seize non-exempt personal property, such as vehicles, jewelry, or other valuable assets, to satisfy the judgment. Some state laws do provide exemptions for certain types and amounts of property.
Negative Impact on Credit Score
Although judgments are no longer reported to credit bureaus, the missed payments and collections accounts leading up to the lawsuit can seriously damage your credit score. And these negative entries stay on your credit reports for seven years.
Preventing Future Credit Card Lawsuits
Of course, going through a debt lawsuit is not something you want to repeat. So be sure that going forward, you take proactive measures to avoid this situation. These include:
- Make Timely Monthly Payments: Always pay at least the minimum amount due on time each month to avoid late fees and negative marks on your credit report.
- Set Up Automatic Payments: Enroll in automatic payments to ensure your bills are paid on time.
- Create a Budget: Develop a budget to manage your expenses and ensure you have enough funds to cover your credit card payments.
- Communicate with Creditors: If you’re experiencing financial difficulties, contact your creditors immediately to discuss your situation and explore options such as payment plans or hardship programs.
- Consolidate Debt: Consider consolidating high-interest credit card debt into a lower-interest loan or 0% APR balance transfer card to make payments more manageable.
- Seek Credit Counseling: If you’re struggling with debt, consult a non-profit credit counseling agency for advice and assistance in managing your finances.
- Prioritize Debt Repayment: Focus on paying off high-interest debt first to reduce the overall amount of interest you pay.
- Use Credit Responsibly: Only charge what you can afford to pay off in full each month to avoid accumulating debt.
Resources and Support
People facing a credit card debt lawsuit have access to various resources and support to help them navigate the situation. Here are some key legal resources you can reach out to when a credit card company sues you:
- Attorneys Specializing in Debt Defense: Hiring an attorney specializing in debt relief can provide personalized legal advice, help you understand your rights, and represent you in court.
- Legal Aid Societies: These organizations offer free or low-cost legal services to those who can’t afford an attorney. They can provide legal advice, help you prepare your response, and represent you in court if necessary.
- Pro Bono Legal Services: Some attorneys offer pro bono (free) legal services to individuals with limited financial resources. Check with your local bar association for pro bono programs in your area.
- Consumer Financial Protection Bureau (CFPB): The CFPB offers a wealth of information on dealing with debt, understanding your rights, and finding help. They provide tools, tips, and sample letters for dealing with creditors and debt collectors.
Tayne Law Group, P.C. is a trusted source of legal advice and debt relief solutions. Contact our law firm today for a free phone consultation to learn more about our debt relief services and how we can help with your credit card debt lawsuits and other debt collection issues. Call us toll-free at (866) 890-7337 or fill out our short contact form. We never share or sell your information, and all conversations are confidential.
