If you have long overdue unpaid debt, credit card companies can (and possibly will) sue you. You could also be sued by a third-party debt collector. However, if a credit card company sues you, it’s most likely a last resort. Trying to work out an arrangement with your creditors before you have to face a debt collection lawsuit is the best solution to salvage your credit report and avoid bigger problems such as wage garnishment or bank account levies.
Credit card debt can drag you down and it can really get the best of you when you find yourself unable to make the monthly payments. If you miss a payment or two, you might be wondering: Can a credit card company sue you? And if they do, what should you do about it?
Today we’ll talk about what usually has to happen for a credit card company to sue you and what you can do to minimize the damage from a debt collection lawsuit. We’ll also take a look at what you should do to avoid your bills being sent to debt collectors in the first place and your consumer rights under the Fair Debt Collection Practices Act (FDCPA) that you need to be aware of.
Can a credit card company sue you?
If you have unpaid credit card debt, a credit card company can and probably will sue you if enough time has passed where they don’t think they can get their money back by any other means.
“It happens more often than you would think. Courts across the country are clogged with these types of cases. Just go to your county civil courts website and search the civil docket for names like American Express or Discover and see what I mean. These banks do not sell their unpaid debts to purchasers and are some of the more active in pursuing collection through the courts,” says Michael Bovee, President of the Consumer Recovery Network.
The reason for credit card lawsuits is partly because credit card debt is unsecured debt, meaning it’s not backed by any collateral. For example, if you default on a car or home loan, banks can repossess your property for non-payment.
But in order for a card company to get repaid they need to file a credit card lawsuit and obtain a judgment against you. This is the only way they can legally institute wage garnishment, bank account levies, tax refund garnishment, or liens against your property to get their money back.
One of the best ways to avoid being sued is to settle your unpaid balances for less than what you owe. Debts that go unpaid long enough for you to be at risk of being sued are ripe for being able to negotiate a discount. This is proven true every day of my 25-year debt relief career.” — Michael Bovee, President of the Consumer Recovery Network
How debt collection works
Different credit card companies may handle missed payments differently, but, in general, the timeline is usually fairly similar.
- After one missed payment. Even when payment is only a day late, you’ll usually be charged a late fee per the terms of your credit agreement.
- After 30 days late. At this point, the card issuer will report your late or missed credit card payment to the credit reporting bureaus resulting in a drop in your credit score.
- After 60 days late. If you still haven’t made a monthly payment in two months, the card issuer may apply a “penalty APR,” which is an interest rate higher than your previous rate.
- From 60 to 90 days late. You’ll continue to be charged interest payments and late fees and you’ll likely be getting emails, phone calls, or other alerts that your account needs to be made current. If you work out a payment plan now, you may not lose the use of your credit card account yet.
- From 90 to 180 days. By now the credit card company will probably charge off your card, meaning your account has been canceled. You’ll also likely have your credit card debt sent to the card issuer’s in-house debt collectors, or your debt might be sold to a debt collection agency.
- After 180 days. If you still haven’t made an attempt to pay your debt at this point, the chances of getting sued increase greatly. A lawsuit can be filed against you either by the card company itself or by a third-party debt collector.
Keep in mind that you may not get sued at all, though your risk has gone up exponentially. If you continue to ignore your credit card debt, you’re much more likely to get sued by someone.
A note on late fees
By law, late fees on credit card payments can be no more than $30 for an initial late payment and $41 for each subsequent late payment, according to the Consumer Financial Protection Bureau (CFPB). Despite that, late fees are still a big problem for consumers, as a CFPB 2022 report found that credit card issuers charged $12 billion in late payment fees in 2020.
“Many credit card issuers have made late fee penalties a core part of their profit model. Markets work best when companies compete on price and service, rather than relying on back-end fees that obscure the true cost,” explains CFPB Director Rohit Chopra. “Given their current practices, we expect that credit card issuers will hike fees, based on inflation, as limits continue to rise.”
What to do if you get sued by debt collectors
If a credit card company or other debt collector decides to sue you, they first issue a complaint against you. This is the first document filed in court to initiate a lawsuit, and it basically says why the plaintiff is suing you and for how much.
You’ll then be served a written notice of summons to appear in court, including a copy of the complaint. Do not ignore the court summons. You must respond to it. If you fail to respond to the complaint or show up in court, you’ll most likely lose the case by a default judgment. This means the plaintiff (the credit card company or debt collection agency) wins only because you weren’t there to defend yourself.
“The majority of collection lawsuits filed in the US end in a default judgment because the person being sued fails to respond to the court, or deal with the issue at all,” says Bovee. You want to avoid this if at all possible.
Verify the debt
Your first response when you receive a summons is to make sure this debt is actually your responsibility and that it’s for the correct amount. Mistakes happen — more often with third-party debt collectors, but the card company could be wrong as well.
For example, the overdue account could be a case of identity theft. Check your credit report to see if there are accounts on there you don’t recognize and dispute them accordingly. It could also be a case of mistaken identity — someone with the same name as you. Either of these issues should be simple to clear up.
The problem could even be a bill that you’ve already paid. Bank account records or credit card statements may be able to easily prove that you’ve already settled the debt. Another possibility is that the statute of limitations has run out on the debt, meaning you can no longer be sued. Depending on your state, the statute of limitations could be anywhere from three to 10 years.
Whatever the case may be, the plaintiff is required by law — according to the Fair Debt Collection Practices Act (FDCPA) — to provide information about the debt, such as the credit card agreement or other documentation. If they fail to do so, which does happen with debt collectors, you may be able to get the case dismissed or even countersue.
Hire an attorney who specializes in debt collection lawsuits
If you’re unsure how to handle a debt collection lawsuit or the best way to deal with a debt collection law firm, you may want to hire a lawyer or at least have a consultation (which might be free). An experienced lawyer can go over your options with you and assist you with negotiating a debt settlement agreement.
A bankruptcy attorney or similar can also help you identify if a debt collector violated your rights as a consumer in their efforts to collect. Many debt collection agencies employ unethical practices to get you to pay your unsecured debts because they don’t have a lot of recourse without a judgment. According to the FDCPA, there are some things a collection agency cannot do.
- Make repetitive phone calls that are intended to annoy, abuse, or harass you or any person who answers the phone.
- Use obscene or profane language.
- Imply threats of violence or harm.
- Publish lists of people who refuse to pay their debts (this does not include reporting information to a credit reporting company).
- Call you without telling you who they are — they must give you the name of their company and the firm they are collecting for.
If you find that a debt collector has been using these or other shady methods to get you to pay up, you may be able to get the case dismissed.
Negotiate a debt settlement
If a credit card lawsuit has already been filed against you, and you’ve determined that the credit card debt they allege you owe is in fact valid, your best option may be to make a settlement agreement before trying to fight it out in court. This might mean paying a lump sum to settle or working out a payment plan.
“Assume for a moment you cannot afford to pay half the balance owed all at once, but could pay half if they approved payment terms of 24 to 48 months on that fifty percent settlement. Settlement helps many to reduce their debts and avoid being sued. The more proactive you are with the debt negotiation approach the better,” advises Bovee.
That said, it’s not always easy to negotiate a debt settlement plan on your own. If you need some help speaking to creditors or debt collectors, you may want to hire a debt settlement company instead of taking it on alone.
Filing for bankruptcy is usually a last resort, but if you have no other way to pay off your credit card bill and other debts, filing for bankruptcy sometimes makes sense. This is particularly true when you’re dealing with more than one precarious financial problem, says Bovee.
“If you are being sued already it is a good idea to take stock of your entire financial situation and make decisions that can set you back on a safe path,” he says. “Is putting out one lawsuit fire enough to get yourself moving forward? I often find people have more to work on than the immediate court issue.
“You can also look into filing bankruptcy, as it will typically prevent any collection efforts through the courts, and even put an immediate halt to any collection lawsuit already filed.”
Related reading: If you have to file for bankruptcy but you’re not sure which chapter applies to you, take a look at our guides on specific bankruptcy chapters.
How to avoid a debt collection lawsuit
If at all possible, you want to avoid going to court because of unpaid credit card debt. Fortunately, there are several ways to keep it from ever getting to that point.
Talk to the credit card company
One of the best ways to avoid debt collection lawsuits is to communicate with your creditors. As soon as your first missed payment, you’ll likely start getting letters, emails, calls, or text alerts. If you ignore a credit card company representative’s initial attempts to contact you, you’re that much more likely to get sued down the line.
When you can’t make your monthly credit card payments or have already missed one or two, the first thing you should do is contact the card issuer. Call the customer service number of your credit card company, tell them you’re having some financial difficulties, and ask to talk about your debt repayment options.
Some possible outcomes of that phone call might include reduced monthly payments or a lower interest rate. A lower interest rate might also reduce the size of your monthly payment in addition to saving money on interest fees.
In some cases, you might even be able to negotiate a settlement agreement for less than what you actually owe, although that’s fairly unlikely if you’ve only recently missed payments. At first, credit card companies will attempt to recoup the entire debt you owe them.
Visit a credit counseling agency
Most credit counseling services are non-profit organizations trained to help consumers find debt relief and get a handle on out-of-control credit card debt or other unsecured debts.
If you’re having trouble paying your credit card bills or are considering bankruptcy, an experienced credit counselor can go over your financial situation with you. They’ll walk you through some of your available options before you have to resort to paying expensive legal fees.
For example, a credit counseling agency may be able to help you design a debt management plan which can save your credit rating and keep you out of court. This isn’t always possible depending on your personal finances, but a credit counselor can help you see the bigger picture and determine if this is a feasible option.
They may also be able to help you negotiate a debt settlement plan where you can pay off your credit card debt with a lump sum payment that’s less than you owe. Alternatively, you might be able to come up with a payment plan to settle your debt over a period of time.
“One of the best ways to avoid being sued is to settle your unpaid balances for less than what you owe. Debts that go unpaid long enough for you to be at risk of being sued are ripe for being able to negotiate a discount. This is proven true every day of my 25-year debt relief career,” says Bovee. “Super aggressive banks, debt buyers, and collection agencies will often agree to allow you to pay less than the balance to resolve a debt.”
If you need help getting started, take a look at some of the nonprofit credit counseling agencies below.
Consolidate your debts
Another way to avoid a credit card lawsuit and relieve yourself of high-interest credit card bills is to refinance your credit card debt into a consolidation loan. You can do this even if it’s only for one credit card, but many people use it to consolidate all of their unsecured debt.
Consolidation loans are a great way to get a lower interest rate and have the security of a fixed payment each month. The only potential drawback is that consolidation loans are unsecured so you’ll need a pretty good credit score to get approved for the loan.
- A credit card company or debt collection agency may sue you in civil court as a means to recover your credit card debt.
- If a debt collection lawsuit has been filed against you, know your consumer rights, be sure to validate the debt, and consider a debt settlement plan before going to court.
- Whether you’re late on monthly credit card payments or being pursued by a debt collector, be sure to communicate with your creditors. This is one of the best ways to avoid a collection lawsuit.
- Low-cost credit counseling services can be a great option when you feel your finances have gotten out of control and you want to avoid debt collectors or a lawsuit.
View Article Sources
- Debt Collection — Federal Trade Commission
- What is credit counseling? — Consumer Financial Protection Bureau
- Credit Card Consolidation — National Foundation for Credit Counseling
- How To Settle Credit Card Debt When a Lawsuit Has Been Filed — SuperMoney
- How to Consolidate Credit Card Debt — SuperMoney
- How to Get a Debt Consolidation Loan — SuperMoney
- How To Consolidate Debt With Bad Credit — SuperMoney
- Does Debt Settlement Hurt Your Credit? 7 Things to Know — SuperMoney
- Debt Settlement Vs Bankruptcy – Which is Best for You? — SuperMoney
- Alternatives to Debt Consolidation: What to Do If You Can’t Consolidate Debt — SuperMoney
- Debt Consolidation: In-Depth Guide to Paying off Debt — SuperMoney
- Debt Settlement Industry Study — SuperMoney
- Best Debt Relief Companies — SuperMoney
- Freedom Debt Relief — SuperMoney
- Swift Debt Relief — SuperMoney
- CuraDebt Debt Relief — SuperMoney