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Seventy million Americans are struggling with debt collection according to a study by the Consumer Financial Protection Bureau. So if you have past due credit card debt yourself, it might give you comfort in knowing that you are not alone.
Despite the fact that debt collection is quite common, it could still lead to unpleasant consequences. If you default on your credit card debt and can’t or don’t want to make an arrangement with your credit card company, you risk being sued for debt collection.
Being sued by a creditor or a collection agency can be a troubling experience, especially if you don’t know what to expect. Yet no matter how overwhelmed you feel, ignoring a court summons is a mistake. Read on to find out how debt collection lawsuits work, and find out what steps you can take if a business sues you for unpaid credit card debt.
Why might a credit card company decide to take legal action?
When you don’t keep your credit card payments as promised, your credit card company may try to force you to pay in a number of ways. Your card issuer may call you, write to you, or hire a third-party debt collector.
At the same time, your credit card company is almost certain to report your overdue account to the credit reporting agencies – Equifax, TransUnion, and Experian. And if a collection agency is involved, you could also end up with an additional collection account on your credit report. Late payments, non-payment status, and collection accounts all have the potential to wreak major havoc on your credit scores.
Ignoring calls and letters from your credit card company or collection agency can be tempting. But this response (or rather the lack of response) could escalate the situation.
At this point, you might start getting calls from a debt collection law firm that may or may not give you a last chance to pay or settle your credit card debt. And if you can’t find something that will satisfy the creditor, the lawyer can take legal action against you. About 15% of consumers contacted about a debt in recovery are prosecuted in civil court by the CFPB.
How does a debt collection suit work?
Debt collection lawsuits may vary depending on your state of residence. But, in general, you will receive a summons after the attorney files a complaint in a state civil court to initiate the lawsuit process.
The summons you receive should contain important information about your legal action such as:
- Who’s suing you (aka the complainant)
- Any co-defendant that the plaintiff is suing besides you (such as a joint cardholder)
- The amount of money the applicant wants to collect (such as your balance, interest charges, and legal fees)
- The date of the hearing
- How to file a formal response to the complaint
It’s important to stress that you can’t go to jail for not paying your credit card bill. In fact, if a debt collector threatens you with jail time for unpaid debt, they are likely violating a federal law known as the Fair Debt Collection Practices Act (FDCPA).
Steps to consider if you are sued for credit card debt
When a creditor or debt collector sues you for unpaid credit card debt, here are some steps you might consider taking.
1. Make sure the debt is correct
You shouldn’t assume that a debt is correct just because the company suing you lists it in a lawsuit. If you’re sued for unpaid credit card balances, debt relief attorney Leslie H. Tayne, Esq., Founder and Managing Director of Tayne Law Group, PC, recommends that you start by asking the collector to verify your debt, to prove that it belongs to you.
It is not uncommon for debt collectors or creditors to pursue someone by mistake. Debt collection lawsuits can also have incorrect details (i.e. balance, late payment dates, etc.) and in some cases can be fraudulent. Creditors, collection agencies, and debt collection lawyers are all capable of getting the details wrong.
The FDCPA, which is part of the Consumer Credit Protection Act, gives you the right to request verification of a debt, provided you send the request in writing. If you plan to exercise this right, you must send a certified letter (acknowledgment of receipt requested) to the party suing you.
A lawyer can also handle this process for you. So, if you are considering hiring legal counsel, you may want to at least arrange an initial consultation before taking any action on your own.
2. Talk to a lawyer
It is always wise to seek legal representation when someone is suing you. If a credit card company or debt collector takes legal action against you, a lawyer may be able to help you in several ways such as:
- Negotiate a settlement
- Respond to a complaint
- Make a tusk
- Represent you in court
“If you stop making monthly payments and have a high balance on your credit cards, it’s not uncommon to face legal action,” says Tayne. “A lawyer can help you determine if the debt in question has already been paid, if the statute of limitations has expired, if the debt collector has violated the FDCPA, if you are the victim of identity theft, or if you filed for bankruptcy. “
If you can’t afford to hire a lawyer 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 are going to respond
When receiving documents relating to a lawsuit, it is important to pay close attention to the details. You can only have 30 days or less to respond to the summons. Skip a lawsuit and don’t show up to court and guarantee you will lose by default.
Instead of pretending the trial didn’t take place, your best bet is to reconsider your options and pick the one that makes you most comfortable. Here are some potential answers to consider.
Settle the debt
You or your lawyer can try to settle the overdue credit card debt before the trial date. Depending on how much you owe, this option may or may not be affordable. But if you can afford to pay, debt settlement could save you a significant amount of money, not to mention the headache of a lawsuit.
If you choose to negotiate a settlement, Tayne recommends paying attention to what you agree to and sign. You don’t want to accidentally give up rights or accept judgments. And you never want to agree to a settlement deal that you can’t afford.
“Be prepared when talking to creditors if you plan to do it yourself and know that you have the right to go talk to a lawyer,” says Tayne.
Talk to a credit counselor
There may be another potential way to settle your overdue credit card debt before the trial date. A certified credit counselor could 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 times, creditors are willing to waive late fees, lower interest rates, and adjust your monthly payment amount. You can also add other unsecured debt to DMP and make a one-time, consolidated payment to the credit counseling agency each month.
Remember that the purpose of a debt collection lawsuit is to try to collect an overdue debt (either in a lump sum or in payments). Thus, a creditor may be willing to accept a DMP and cancel the lawsuit in certain circumstances. If you choose this option, it is important to act quickly. Allow sufficient time for the company suing you to withdraw the lawsuit and accept your DMP proposal in writing before your summons deadline.
Go to court
In some cases, you may want to take legal action for debt collection. For example, if you don’t owe the debt, the debt is time-barred (meaning the statute of limitations has expired), or you have another strong defense, it might work in your favor to get the case brought. before a judge.
You have the right to represent yourself in court. But unless you have legal training, you will likely be at a disadvantage. If you are unsure whether or not to hire a lawyer, you can at least schedule an initial consultation to gather more information and get professional advice on your situation.
Above all, do not wait until the last minute to organize your defense or speak with a qualified lawyer. You or your lawyer will need to write a formal response to the lawsuit, and the court will impose time limits on you that you must meet.
Bankruptcy is usually an option of last resort when it comes to debt issues. But if a creditor or debt collector is suing you for overdue credit card debt and you can’t afford to pay, it may be worth considering filing for bankruptcy against your creditors.
Bankruptcy can take a toll on your credit score and can make it difficult to borrow money again in the future (at least until you rebuild your credit). Yet at the same time, bankruptcy can protect you from payday garnishment, tax refund garnishment, bank account withdrawals, and other potential negative consequences you might face if you lose. a lawsuit for debt collection.
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It’s normal to feel stressed if someone sues you for unpaid credit card debt. And while it’s important to act quickly, you also want to try to stay calm and keep your situation in perspective.
You have rights and you have options. It is entirely possible to find a solution that you can live with that helps you move forward.