What Should I Do if I'm Sued Over Credit Card Debt?

You are not alone if you feel overwhelmed by debt and fall behind on payments. It can be challenging to catch up after missing a payment. Nearly 30% of residents across America's largest cities were behind on debt payments in 2023. Another approximately 26% are in collections on at least one debt.

If you fall behind on your bills, you can face several different types of lawsuits. Not paying your mortgage lender can put you in foreclosure. Failure to pay rent will start the eviction process. Your vehicle can face repossession actions if you don't keep up with car loan payments. Becoming seriously delinquent on your credit cards opens you up to a civil lawsuit for collection.

Taking legal action to collect debt costs money and can prolong the process. Nevertheless, you may be sued for debt, especially if you fail to communicate with your creditor and miss multiple payments.

This article covers what to do if a creditor has filed a lawsuit against you for unpaid debt. It will cover everything from reading the complaint to choosing the right attorney.

Basics of a Credit Card Lawsuit

It usually takes about six months of not making payments on a debt before the creditor initiates a lawsuit. However, many credit card companies often sell your debt to a collection agency, which tries to collect payment plus interest and fees. The creditor or collection agency will attempt to contact you to resolve payments, so your original creditor may not contact you. They must send you a debt validation letter telling you exactly how much you owe. This letter is important as you can see if the debt is yours.

Generally, credit card companies and collection agencies prefer to work out a payment plan with their debtors rather than initiate legal action. Lawsuits are costly and time-consuming, but the collection agency may have no choice if you ignore your debt for too long.

Being Sued After Making Good Faith Efforts

A creditor may sue you even if you have offered to make small payments on your balance or cooperate with a collection agency. However, creditors typically do not sue debtors who are at least making a good-faith effort to repay a debt, so this is less likely.

As stressful as it is, try not to ignore creditors' phone calls or letters about your past-due credit card balance. Explain your financial difficulties. Some creditors have special programs if your situation has worsened due to job loss or illness. Working with your creditor(s) can go a long way toward keeping you out of court.

Receiving and Answering a Complaint

When you are being sued for debt, you receive a legal complaint and summons. The complaint describes the nature and dollar amount of the claims against you for unpaid debt. The summons is a written notification that you must appear in court on a given date to defend yourself against the claim.

The defendants may be you and any cosigner of your account. The complaint will describe:

  • Who is suing you
  • Why the creditor is suing you
  • How much money the creditor is seeking in damages, the amount owed, plus interest and any applicable penalties

You will have a certain amount of time to answer the complaint. This is about 20 or 30 days, depending on your state.

It is advisable for you to answer the complaint, especially if you wish to defend against the creditor's legal claim against you or want to work out a settlement.

Basics of Answering a Credit Card Lawsuit

You may have to pay a filing fee to the court clerk when submitting your answer to the complaint, but low-income defendants may qualify for a waiver.

Your answer will generally include:

  • Admission or denial of the claim
  • Any legal defenses
  • Potential counterclaims
  • Your signature

Refusing To Answer a Credit Card Debt Complaint

It is not advisable to ignore the complaint. The creditor can win a default judgment against you if you do not file an answer. They will find you liable, and the judge will decide your penalty. This judgment gets documented on your credit report.

With a default judgment, the creditor can move to garnish your wages, place liens against your property, or freeze your bank accounts and assets.

You will not go to jail, and if a creditor threatens you with jail time, you should report them to the Federal Trade Commission, your state consumer protection agency, and the Consumer Financial Protection Bureau (CFPB).

Winning a Credit Card Lawsuit

A strong affirmative defense is key to winning a debt collection lawsuit. You have rights under the Fair Debt Collection Practices Act (FDCPA) and can fight back in civil court.

If you plan to defend a claim against you, an attorney can help you decide which defenses make the most sense. Since many consumer contracts include a provision for settling disputes through arbitration, the lawsuit may not even be valid.

Also, the debt collector must file their claim within the time limit set by your state, called the statute of limitations. If the creditor is outside of this limit, then you can have your case dismissed. Usually, a creditor has two or three years to bring a lawsuit, but in some states, they have as long as six years. Additionally, some states have different statutes of limitations for debt-related lawsuits.

The first step is to review the contracts, facts, and evidence with an attorney experienced in credit card lawsuits. Your attorney will determine whether the debt lawsuit is valid. If the evidence does not make a strong enough case in your favor, you can try other defenses or discuss a settlement.

Defense to a Debt Claim: Ownership of the Debt

A creditor suing you for an unpaid debt must also be able to document ownership of the debt.

Creditors frequently sell debts to other entities, considered "debt collectors" for legal purposes. These debt buyers must be able to produce documentation of the debt to sue you, a requirement that does not apply to the original creditor.

When a debt collector contacts you, request a written debt verification letter. They may not collect from you if they cannot provide written proof.

Asking for Proper Documentation

Also, creditors are required by law to attach a copy of the account or written contract to the complaint or else explain in the complaint why it is not attached. If the creditor or collector cannot produce the proper documentation, you may ask the court to dismiss the lawsuit.

Other Common Defenses for Credit Card Account Debt

Other defenses include:

  • Mistaken identity
  • Identity theft
  • The debt has been discharged in bankruptcy
  • Fraudulent charges
  • The statute of limitation has expired
  • The creditor violated the Fair Debt Collection Practices Act
  • You have already paid the debt
  • The creditor didn't properly serve you

These defenses may depend on your state laws.

Sometimes, a family member may have used the card in an authorized or nonauthorized way. You are still responsible since your name and Social Security number are tied to the debt. You can name your family members in a lawsuit to get them to pay you back. However, you will still face the original lawsuit and collection activity from the collection agency or credit card company.

Settling or Negotiating Your Debt Lawsuit

You can negotiate with the company bringing the lawsuit against you. You can offer to pay a lump sum that is less than you owe because the company may find it beneficial to get that money upfront. They may value getting some of the money faster instead of all the money more slowly.

You usually have the options to:

  • Negotiate for less money owed
  • Settle for a lump sum
  • Set up a payment plan

These options may depend on the original contract and who is now responsible for the debt management.

Bankruptcy and the Automatic Stay

Filing for bankruptcy stops all lawsuits against you. When you file a bankruptcy petition, an automatic stay takes effect. An automatic stay is a court order that requires all legal actions against you to stop while your bankruptcy case is heard. This includes foreclosures, repossessions, and creditor lawsuits. A bankruptcy case won't stop any criminal cases against you.

Bankruptcy is an action of last resort. Certain debts and obligations are nondischargeable in bankruptcy. A bankruptcy judge cannot generally discharge your child support and alimony obligations, student loans unless there is undue hardship, or recent tax debts.

There are two types of bankruptcy typically filed by individuals: Chapter 7 and Chapter 13. Chapter 7 bankruptcy discharges most unsecured debts, like personal loans and credit cards. Chapter 13 bankruptcy sets up a three to five-year repayment plan for these debts.

When To Ask an Attorney for Help

Attorney's fees and court costs can seem intimidating when you already have debt. However, a bankruptcy lawyer or credit and debt attorney can submit a counterclaim to a lawsuit against you or file a bankruptcy petition with its automatic stay, giving you some time to seek debt relief. You'll likely have a better outcome with a professional watching out for your best interests.

If you are facing a lawsuit by a collection agency, consulting with a debt relief attorney can help you understand your options and provide legal advice. A bankruptcy attorney can step in if you cannot repay debts and must file a bankruptcy petition.

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