Obviously, getting your debt under control and negotiating a debt settlement arrangement are both easier before your creditor files a lawsuit against you. Timely and proper responses to all creditor communications and finding the right professional assistance may help you avoid a lawsuit entirely. Even after a lawsuit has been filed, though, it’s still possible to settle your credit card debt. Some essential actions for making this happen include responding promptly to the summons and complaint, informing you of the lawsuit, and, if possible, hiring an attorney.
Assuming you aren’t a masochist, receiving a notification that you’re being sued for unpaid credit card debt will not make you happy. The good news is that you may still be able to settle your debt even at this point. The better news is that almost anyone having trouble with credit card debt should be able to take actions that will avoid such a lawsuit happening.
This article will describe what leads up to a lawsuit over credit card debt, what happens when such a lawsuit is filed, and what actions you can take at each stage to avoid suffering more than you have to.
Settling your debt when a lawsuit has been filed
Perhaps you failed to do something that would have prevented the debt collection lawsuit from getting filed. Or maybe nothing you tried worked out. It may even be that you and the collector agreed on a debt-settlement plan and just needed to meet to sign the paperwork — then the collector filed a lawsuit anyway.
Debt collection lawsuits like this do happen. Unfortunately, a debt-collection company’s goal is to collect the biggest percentage they can of any debt they buy. This may involve making you think you have a firm settlement agreement in place while they file against you in court. Their sole purpose is to collect debts. Showing that they’re honorable and ethical, or winning public approval, is not typically a concern.
Whatever the case may be, the lawsuit has been filed. Now what? Let’s review what you can expect and what you should do to respond properly to a debt collection lawsuit.
Summons and complaint
The same rule applies both before and after the debt settlement lawsuit is filed: Always respond quickly to notices and other communications. This includes both a court summons and a formal complaint letter.
- Court summons. This legal document informs you that someone filed a lawsuit against you. It will tell you how many days you have to respond or make an appearance in court. You typically have 30 days or fewer to respond.
- Formal complaint letter. This document details the debt collector’s claims as to why you are obligated to pay the debt in question.
Often, one of the best things you can do when you receive these is hire a qualified attorney or law firm to handle your case. Whether you do that or not, make sure you review these documents right away. Read them very carefully and make sure you understand them. They will tell you how to respond and your deadline for responding.
If you fail to respond before that deadline, which is the best-case scenario for debt collectors who can’t prove a debt is yours, the court may issue a default judgment against you. That’s when collection by “all legal means” begins.
Debt collection begins
Debt collection efforts that may follow a default (or any) judgment against you in a credit card debt lawsuit include:
- Frozen bank account(s)
- Liens against your property, then (with some property) foreclosure and forced sale
- Garnished wages
As already noted, having a debt-settlement agreement “in the works” will not prevent a civil lawsuit. So don’t think you can ignore the summons and complaint because you and the debt collector are making arrangements. You still need to respond before the deadline. Otherwise, a default judgment could make your debt-settlement negotiations meaningless.
Did we mention hiring an attorney?
If you want help negotiating a settlement, it’s often best to hire a good lawyer or a reputable debt settlement company. What’s true when trying to work things out with creditors before anyone files a lawsuit is doubly true when an original creditor or debt collection agency files suit.
The right professional assistance can help you get a better deal and avoid things like wage garnishment when settling your credit card debt.
Why hire a pro?
Key things the right debt-settlement professional can do for you include:
- Explain your options to you and the pros and cons of each.
- Make the would-be debt collector prove the debt belongs to you and that the debt collector has a legal right to collect it.
- Ensure the debt collector’s case gets dismissed in cases of procedural error.
- Make sure the court dismisses any case filed after the statute of limitations has expired.
- File a counterclaim if the debt collector has violated any provisions of the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, or the laws of your state. For instance, if a debt collector called your workplace and told a coworker about your debt, that’s a violation.
- Ask the court to dismiss the collector’s case based on the preceding violations.
- Help you decide if seeking a debt settlement agreement is a good idea in your case, then have a skilled negotiator work out an acceptable arrangement on your behalf.
- Guide you through an assessment of the relative benefits and drawbacks of filing for bankruptcy.
- Help you choose which type of bankruptcy to file if that is the right option given your outstanding debts and overall financial situation.
How did this happen? Could you have avoided it?
The best way to deal with a lawsuit over credit card debt is, of course, to avoid facing one in the first place. Before exploring how to settle credit card debt when a lawsuit has been filed, it’s possible you don’t yet face a suit and are just worried one may be on the way. Let’s review what typically happens leading up to a collector lawsuit.
Missed payments begin
Though you should be paying off your credit card balance in full every month, people commonly carry balances. At credit card rates, compounding interest makes these balances grow rapidly. And, as balances and minimum payments rise, you can find meeting your obligations harder every month.
Finally, the inevitable happens. You just don’t have the money to cover your monthly minimum. You may initially be able to pay your minimum, just not on time. But due to late fees and a punitive higher interest rate, your balance starts growing faster than before. Meanwhile, your credit rating starts dropping because your credit card provider has reported those late payments.
Consider alternatives before it’s too late
This early point in the downward spiral, if not earlier, is the time to start investigating options like credit counseling and debt settlement. The worse you let the situation get before seeking help, the fewer debt-relief options you’ll have access to. Learn more about credit counseling here. Investigate debt settlement possibilities here.
If you deal with your rising debt soon enough, you may not even need credit counseling or debt settlement. If you haven’t already defaulted on your credit cards but just aren’t sure what to do next, follow the steps below.
How to avoid the (seemingly) inevitable
- Read our Ultimate Guide to Credit Card Debt to get a thorough grasp of just what you’re dealing with.
- Learn some strategies to pay down your credit card debt before it gets out of hand.
- Learn how to get out of credit card debt quickly.
- Consider the possibility of paying off your credit card debt with a personal loan.
- Take a look at some of the best credit cards available for debt consolidation.
From missed payments to credit card company charge off
Assuming you don’t find a way out of the spiral by following the preceding steps, your situation continues degenerating. You miss payments more frequently, sometimes skipping a month entirely. Then you lose hope and just stop paying altogether. The credit card company starts calling, emailing, and texting: “pay now or else” (or words to that effect). Then, after three to six months, the calls, emails, and texts stop.
Ah, blessed relief! Unfortunately, the respite is temporary. At some point, after your account goes delinquent, the credit card company will decide to close the account and write your debt off as a loss for tax purposes. They resign themselves to the obvious: You’ve defaulted and won’t pay as agreed. So they charge off your debt. Sadly, charge offs will most likely inflict further damage on your credit score.
To keep an eye on your credit score during this time, you may want to consider hiring a credit monitoring company. This way, if your score takes a turn for the worst, you’ll know.
Enter the debt collector
Even if you don’t care about your credit rating, this turn of events is not good news. Your contractual obligation to pay the debt remains, and the balance keeps compounding with monthly interest charges. The pause in payment demands is just temporary.
In short order, you’ll start hearing from more aggressive debt collectors. These may be in-house collectors with your original creditor or a third-party collector under contract with that creditor. They may even be collection pros working with a company that buys bad debt like yours for pennies (or dimes) on the dollar.
Collecting on defaulted accounts doesn’t score well when most credit card companies do a cost-benefit analysis. After all, it’s time-consuming, labor intensive, and often unsuccessful. Instead, your debt will most likely be sold to an independent collection agency unaffiliated with the original lender. In some cases, this third-party collector will not have all the information about a defaulted account that the original creditor would.
The debt collector contacts you
If you send the debt collector a written dispute or a written request for information about the original creditor within 30 days, the debt collector must pause collecting the debt until they respond to your dispute or answer your request.
If you’re contacted by a debt collector who purchased your debt and has not yet filed a lawsuit:
- Do not simply accept that the debt is yours.
- Do not say or write anything suggesting you believe it is yours.
- Insist that the collector provide proof validating that the debt belongs to you.
- Be sure you answer any correspondence you receive as quickly as possible, always well within 30 days.
- Keep in mind that you’re not legally obligated to pay any and every debt to which someone has attached your name.
- Remember that third parties who buy written-off credit card debt sometimes have little or no documentation showing that the debt belongs to the people it’s attributed to. But also remember that a debt settlement company may have solid documentation that the debt is yours, documentation that it will use against you if you force a credit card lawsuit.
- Don’t start negotiating a debt settlement plan until the debt collector proves the debt at issue belongs to you.
- Remember that you want to be able to prove when and to what addresses you mail any correspondence. That means certified mail with a receipt.
Though debt-collection companies perform an essential role in the economy (presumably), they are not your friends. Professional debt collectors are not nice people, at least not when working to collect a debt from someone. Never make the mistake of being open, honest, and trusting with a debt collector.
The debt collector watches the clock
Now, debt collectors are working against a deadline. If they want to have a court compel you to pay your debt, and to make wage garnishment an option if you live in a state that permits it, they need to file a lawsuit and get a court judgment against you before your state’s statute of limitations expires.
In most states, as you can see by hovering on some states above, the statute of limitations for collecting a debt is shorter than the one for collecting on a judgment. So, you can expect debt collectors to file a civil lawsuit against you if they can either (1) prove that you owe a debt or (2) prove that they notified you of the debt and you failed to respond within the required time (often 30 days). This is why you must always respond promptly when a debt-collection agency informs you, in writing, that it intends to collect a debt it claims is yours.
Note the “in writing” part. As a rule, you as a consumer and alleged debtor have nothing to gain and much to lose by speaking to a debt collector on the phone. Regulations governing fair debt collection practices place many constraints on debt collectors that work in your favor. But these regulations only help if you can document collector violations — which is much harder to do with phone calls.
Unfortunately, debt collection professionals know how to trip you up and get you to say stupid things over the phone, which they will document and use against you. So, when dealing with collection agencies, always follow the Consumer Financial Protection Bureau’s advice: “If the collection agency first contacts you by phone, insist that they contact you in writing.” Then get off the phone.
You are not judgment proof
If you have no job with wages to garnish and no assets that a court could order seized and sold, someone may tell you that you’re “judgment proof.” A judgment affirms your creditor’s right to collect from you by all legal means available, but it doesn’t make the collection happen. If you really have nothing that a creditor can legally take to settle your debt, what good will the debt collector get out of a judgment?
Since debt collectors know that people’s financial situations change, however, your current status will not dissuade them from getting a judgment against you. If you don’t get a job or acquire seizable assets before the applicable statute of limitations runs out, you may be collection proof. This doesn’t mean you’re judgment proof, however.
How can I negotiate a debt settlement with a law firm?
Before your creditor has filed a lawsuit, you can enlist the help of a debt settlement company or law firm to negotiate a settlement on your behalf. Click here to learn more about the debt settlement industry.
After your creditor files a lawsuit, you may continue to pursue settlement arrangements, provided you still respond to all court filings. Once your creditor has filed a suit against you, hiring legal representation is a good idea. Having a qualified attorney or law firm on your side is nearly always a good idea when the courts get involved. Your creditor will certainly have legal representation, and so should you, if at all possible.
Can I just pay off my debt before the court date?
If you accept that the debt is yours and you have enough money to pay off the full balance a debt collector says you owe, you can choose to pay it off in full to avoid going to court. You’ll want to fully document all your correspondence with the collector and provide that documentation, along with your proof of payment, to the court.
Before choosing this course of action, however, we recommend you have a discussion with a debt settlement professional such as an attorney. Chances are good that the right professional assistance can get you out from under your debt for less than the full balance a debt collector will be seeking in a lawsuit.
How can I get a debt lawsuit dismissed?
If the lawsuit was filed after the statute of limitations in your state ran out, the court should grant your motion to dismiss the case. If you can show that a debt collector has violated the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, or the laws of your state in an especially egregious fashion, that could also get your case dismissed.
Of course, your chances of getting the case dismissed will improve if you hire an attorney specializing in these types of lawsuits. Your attorney will know what laws to cite when accusing a debt collector of violations, how best to word and file court papers, and how to most effectively make your case before the court.
- When you first feel your credit card debt is getting out of hand, look into debt consolidation, credit counseling, and debt settlement.
- Before your debt gets out of hand, or after you get it back under control, use SuperMoney resources to ensure you manage your credit wisely in the future.
- Respond promptly, within 30 days, whenever a debt collector contacts you in writing.
- When responding to a debt collector, do not assume the debt really belongs to you. Make the debt collector validate the debt.
- If you receive a summons and complaint informing you a lawsuit has been filed, respond to them promptly, following the directions included in the summons.
- When you learn that a lawsuit has been filed, hire an attorney if possible.
- Keep careful records, saving all paperwork and copies of all correspondence.
- Enable yourself to prove when and to whom you mail correspondence by using certified mail with a receipt.
- Don’t think you have a debt-settlement agreement until you have paperwork in hand that both you and your creditor have signed.
View Article Sources
- Debtors’ Prisons, Then and Now: FAQ — The Marshall Project
- Fair Credit Reporting Act — Federal Trade Commission
- Fair Debt Collection Practices Act — Federal Trade Commission
- How Long Does a Judgment Last? — SoloSuit
- How Much Is an FDCPA Claim Worth? — Starks Law
- State Debt Collection Laws — Nolo‘s DebtSettlementLawyers.com
- Statute of Limitations on Debt Collection by State — Credit.com
- Summons — Legal Information Institute
- What is a debt collection validation notice? — Consumer Financial Protection Bureau
- What should I do when a debt collector contacts me? — Consumer Financial Protection Bureau
- 6 Strategies to Pay Off Credit Card Debt in 2022 — SuperMoney
- 15 Biggest Credit Card Mistakes You’re Still Making — SuperMoney
- A Complete Guide To Debt Consolidation — SuperMoney
- Best Credit Cards for Debt Consolidation — SuperMoney
- Best Debt Relief Companies — SuperMoney
- Can a Credit Card Company Garnish Your Wages? — SuperMoney
- Compare Credit Counseling Services — SuperMoney
- Compare Debt Settlement Companies — SuperMoney
- Debt Settlement Industry Study — SuperMoney
- How Much Is Too Much Credit Card Debt? And What to Do About It — SuperMoney
- How to Get Out of Credit Card Debt Fast — SuperMoney
- Is It Good to Pay Off Credit Card Debt with a Personal Loan? — SuperMoney
- Should You Hire a Debt Settlement Company or Do It Yourself? — SuperMoney
- The Definitive Guide to Chapter 7 Bankruptcy — SuperMoney
- Ultimate Guide to Credit Card Debt — SuperMoney
Before becoming an editor and writer for SuperMoney, David thought he’d be an academic. He now applies research skills learned from his advanced degrees, and behavioral insights gained from his background in psychology, to personal finance. He has acquired expertise in real estate and enjoys helping readers make better saving, spending, and investing decisions. Though he does most of his work in the background, you will find his name on articles from time to time.