- If you miss multiple credit card payments in a row, the credit card company might take legal action.
- You can call the collection agency to arrange a settlement without incriminating yourself.
- Ignoring the lawsuit can result in wage or tax refund garnishment, so it’s important to respond before the deadline.
- Read more stories from Personal Finance Insider.
Legal battles are scary enough as it is, but being sued by a powerful credit card company for old debt can be daunting. If you were unable to pay your credit card bills due to financial hardship, it can be overwhelming to figure out how to respond to such a lawsuit.
Nevertheless, ignoring a lawsuit from a credit card company will only create bigger problems later, so it’s best to deal with the problem head-on within the deadline. Here’s what you need to know about credit card debt collection lawsuits.
Can a credit card company sue you?
In short, yes they can technically sue you.
After 180 days of missed credit card payments, your credit card company might do three things:
- They can charge off the debt without ever filing a lawsuit, most likely because the debt amount is under $8,000 and not worth incurring extra legal fees.
- They can sell the debt to a third party collection agency, who may threaten to file a lawsuit without actually filing one.
- They can file a lawsuit in an attempt to get you to pay a one-time settlement, or make a payment plan to pay off the debts.
Seventy million Americans have delinquent credit card debt with third-party collection agencies, and nearly 15% of those collection efforts turn into lawsuits, according to research by the Consumer Financial Protection Bureau.
Here’s what you should do if a credit card company sues you.
Step 1. Respond to the summons before the deadline
If a credit card company sues you, you will be served a summons, either in person or by mail, depending on the laws in your state.
A summons contains information about who is suing you, how much you owe, your court date, and the deadline to respond. Depending on the state that you live in, the deadline can be 21-30 days from when you were served the summons.
Attorney James Smith, partner at Fair Credit Attorneys which specializes in credit repair and consumer debt, says that failure to respond to the summons will allow the credit card company to win by default.
If a judge rules against you by default in court, the credit card company can levy your bank accounts to collect payment, which means they can legally take money in your savings or checking account to cover the amount you owe. Your wages and tax refunds can also be garnished to collect the debt, which means up to 25% of your paycheck automatically goes to a debt collector before you can even touch it.
Step 2. Call the collections law firm and make a payment plan
Settling the lawsuit out out of court by making a payment plan may be the best way to end the lawsuit. Your credit card company will most likely be represented by a collections law firm who is handling the lawsuit.
It’s best to call the collections firm directly to make a payment plan, but remember that these phone calls are recorded and that anything you say can be used against you in your lawsuit.
Smith says that each situation is different, but generally, you should avoid taking responsibility for the debt unless you review the details of the debt itself and confirm that those details are accurate. Make sure that you are still responding to the summons within the deadline alongside contacting the collections law firm.
Step 3. Get organized
Gather old credit card contracts, statements, and documents and organize them chronologically. You might need to go through these documents with a fine-toothed comb to verify that the amount of debt you are being sued for is accurate.
You can hire a lawyer who specializes in fair credit or consumer protection, but if you can’t afford one, here are some additional resources:
How can I prevent a credit card company from suing me?
Before a credit card company sues you, you will probably receive phone calls, letters, emails, and alerts on your online banking platform in an effort to collect the debt. If you ignore these attempts, a credit card company is more likely to sue you to collect payment.
Answering these phone calls and alerts to set up a payment plan may prevent a lawsuit, but, again, keep in mind that these phone calls are recorded and that anything you say can be used against you.
Know your consumer rights
Under the Fair Debt Collection Practices Act (FDCPA), you have a right to the following when dealing with credit card debt collections:
- The statute of limitations on credit card debt ranges from three to ten years, depending on your state. This means you cannot be sued for debt that is older than the statute of limitations.
- You have the right to get more information about the debt you allegedly owe. You can ask for previous credit card statements and contracts and see if they match what’s in your records.
- You have the right to dispute your debts if they are inaccurate.
- A debt collector cannot conceal their identity in an attempt to collect debt. They must say their company name, and other company names that they represent at the beginning of the phone call.
- Debt collectors are allowed to call you between 8 a.m. and 9 p.m., but you are allowed to ask them to call you at a more convenient time.