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In the U.S., around 28% of Americans struggle with debt in collections status according to a study by the Consumer Financial Protection Bureau.So, if you have past-due credit card debt of your own, it might comfort you to know that you’re not alone.
Despite the fact that having debt in collections is somewhat common, it could still trigger unpleasant consequences. If you default on your credit card debt and are unable or unwilling to work out an arrangement with your credit card company, you risk being on the receiving end of a debt collection lawsuit.
Getting sued by a creditor or collection agency can be an unsettling experience, especially if you don’t know what to expect. Yet no matter how overwhelmed you feel, ignoring a courthouse summons is a mistake. Read on to learn how debt collection lawsuits work, and discover the steps you can take if a company sues you for unpaid credit card debt.
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Why Might a Credit Card Company Decide To Sue?
When you don’t keep up with your credit card payments as promised, there are several ways your credit card company can try to compel you to pay. Your card issuer may call you, write you or bring a third party debt collector into the picture.
At the same time, your credit card company is almost certain to report your account as late to the credit reporting agencies—Equifax, TransUnion, and Experian. And if a collection agency is involved, you could wind up with an additional collection account on your credit report as well. Late payments, charge-off status and collection accounts all have the potential to wreak major havoc on your credit score.
Ignoring calls and letters from your credit card company or a collection agency can be tempting. But this response (or, rather, lack of response) could cause the situation to escalate.
At this point, you might start to receive calls from a debt collection law firm that may or may not give you one final chance to pay or settle your credit card debt. And if you don’t work something out that will satisfy the creditor, the attorney may file a lawsuit against you. Around 15% of consumers contacted about a debt in collections are sued in civil court per the CFPB.
How Does a Debt Collection Lawsuit Work?
Debt collection lawsuits can vary depending on your state of residence. But, in general, you’ll receive a summons after the attorney files a complaint in state civil court to initiate the process of suing you.
The summons you receive should contain important information about your lawsuit such as:
- Who is suing you (a.k.a. the plaintiff)
- Any co-defendants the plaintiff is suing in addition to you (like a joint card holder)
- The amount of money the plaintiff wishes to collect (like your balance, interest fees and legal expenses)
- The date of the hearing
- How to file a formal response to the complaint
It’s important to point out that you cannot go to jail for not paying your credit card bill. In fact, if a debt collector threatens you with jail time over an unpaid debt, it’s likely violating a federal law known as the Fair Debt Collection Practices Act (FDCPA).
Steps To Consider If You’re Sued for Credit Card Debt
When a creditor or debt collector sues you for unpaid credit card debt, here are some actions you might want to consider taking.
1. Verify the Debt Is Accurate
You shouldn’t assume that a debt is accurate just because the company that’s suing you lists it in a court complaint. If you’re sued for unpaid credit card balances, debt relief attorney Leslie H. Tayne, Esq., founder and managing director of Tayne Law Group, P.C., recommends that you start by asking the collector to verify your debt, to prove that it does belong to you.
It’s not unheard of for debt collectors or creditors to sue someone by mistake. Debt collection lawsuits may also feature erroneous details (i.e., balance, late payment dates, etc.) and, in some cases, they may be fraudulent. Creditors, collection agencies and debt collection attorneys are all capable of getting the details wrong.
The FDCPA, part of the Consumer Credit Protection Act, gives you the right to ask for verification of a debt, as long as you send the request in writing. If you plan to exercise this right, you should mail a certified letter (return receipt requested) to the party that’s suing you.
An attorney can also handle this process for you. So, if you’re considering hiring legal counsel, you may want to at least set up an initial consultation before you take any actions on your own.
2. Talk to an Attorney
It’s always wise to seek legal representation when someone sues you. If a credit card company or debt collector files a lawsuit against you, an attorney might be able to help you in a number of ways such as:
- Negotiating a settlement
- Answering a complaint
- Crafting a defense
- Representing you in court
“If you stop making monthly payments and carry a high balance on your credit cards, facing a lawsuit isn’t uncommon,” says Tayne. “An attorney can help ensure you determine if the debt in question was already paid, if the statute of limitations has run out, if the debt collector violated the FDCPA, if you are the victim of identity theft or if you have filed for bankruptcy.”
In the event you cannot afford to hire an attorney to represent you, you may still have options. Free or low-cost legal representation may be available through a legal aid program or clinic to help you.
3. Determine How You’ll Respond
When you receive paperwork pertaining to a lawsuit, it’s important to pay close attention to the details. You may only have 30 days or less to respond to the summons. Ignore a lawsuit and fail to show up in court and you guarantee that you’ll lose by default.
Instead of pretending like the lawsuit isn’t happening, your best bet is to review your options and choose the one that makes you feel most comfortable. Here are a few potential responses to consider.
Settle the Debt
You or your attorney can attempt to settle the defaulted credit card debt before the trial date arrives. Depending on how much you owe, this option may or may not be affordable. But if you do have the financial means to pay, settling the debt might save you a significant sum of cash, not to mention the headache of a trial.
Should you opt to negotiate a settlement, Tayne recommends being careful what you agree to and sign. You don’t want to accidentally forfeit any rights or agree to judgments. And you never want to agree to a settlement arrangement that you can’t afford.
“Be prepared when speaking to creditors if you plan to do it on your own, and know that you have the right to go speak with an attorney,” says Tayne.
Talk to a Credit Counselor
There may be another potential way to settle your defaulted credit card debt before the trial date arrives. A certified credit counselor might be able to help you set up a debt management plan (DMP) to pay off your credit card debt with a series of monthly payments.
When you sign up for a DMP, a credit counseling agency can negotiate with creditors on your behalf. Often, creditors are willing to waive late fees, lower interest rates and adjust your monthly payment amount. You may also be able to add other unsecured debts to the DMP and make a single, consolidated payment to the credit counseling agency each month.
Remember, the purpose of a debt collection lawsuit is to try to collect a defaulted debt (either in a lump sum or in payments). So, a creditor might be willing to accept a DMP and call off the lawsuit in certain circumstances. If you pursue this option, it’s important to act quickly. Allow plenty of time for the company that’s suing you to withdraw the lawsuit and accept your DMP proposal in writing before the deadline on your summons arrives.
Go to Court
In some cases, you may want to fight a debt collection lawsuit in court. For example, if you don’t owe the debt, the debt is time-barred (meaning the statute of limitations expired), or if you have another strong defense it might work out in your favor for the case to appear before a judge.
You have the right to represent yourself in court. But unless you have a legal background, you’ll most likely be at a disadvantage. If you’re on the fence about whether or not to hire an attorney, you could at least schedule an initial consultation to gather more information and get some professional advice on your situation.
Most of all, don’t wait until the last minute to organize your defense or speak with a qualified attorney. You or your lawyer will need to write a formal response to the lawsuit, and the court will impose deadlines that you’ll need to follow.
Bankruptcy is typically an option of last resort when it comes to debt-related problems. But if a creditor or debt collector is suing you for defaulted credit card debt and you can’t afford to pay, filing for bankruptcy protection from your creditors may be worth considering.
Bankruptcy can take a toll on your credit score and may make it difficult to borrow money again in the future (at least until you rebuild your credit). Yet, at the same time, bankruptcy may protect you from wage garnishment, tax refund garnishment, bank account levies and other potential negative consequences that you could face if you lose a debt collection lawsuit.
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It’s normal to feel stressed out if someone sues you for unpaid credit card debt. And while it is important to take prompt action, you also want to try to remain calm and keep your situation in perspective.
You have rights, and you have options. It’s entirely possible to find a solution that you can live with and that helps you move forward.