If I stop paying my credit card bills, and the debt keeps accumulating, at what point can the credit card company initiate legal action and sue me in court to recover the outstanding balance, including interest, late fees, and potentially legal costs? What are the typical legal proceedings involved, and what defenses might I have if I am sued by a credit card company for unpaid debt? Are there differences in the process depending on the amount of the debt, the state I live in, or the specific credit card company involved?

Answer

Yes, credit card companies can sue you for debt.

Here’s a more detailed explanation:

• Legal Right to Sue: Credit card companies have a legal right to sue you to recover unpaid debt. This right stems from the contract you enter into when you open a credit card account. The cardholder agreement outlines your responsibility to repay borrowed funds, along with interest and fees.

• Debt Collection Process Leading to a Lawsuit: Before filing a lawsuit, credit card companies typically attempt to collect the debt through various means:

  • Internal Collection Efforts: The creditor’s own collection department will contact you via phone calls, letters, and emails demanding payment.

  • Collection Agencies: If internal efforts fail, the creditor may sell or assign the debt to a third-party debt collection agency. The collection agency will then pursue you for payment.

  • Credit Reporting: Delinquent payments are reported to credit bureaus, negatively impacting your credit score.

• When a Lawsuit is Filed: A credit card company or collection agency will file a lawsuit in civil court if other collection methods fail. The lawsuit is initiated by filing a complaint, which outlines the debt, the basis for the claim (cardholder agreement), and the amount owed (principal, interest, fees, and potentially legal costs).

• Serving the Lawsuit: You will be served with a copy of the lawsuit (the summons and complaint). The summons will tell you that you are being sued and give you a deadline (usually 20-30 days, depending on the jurisdiction) to file a response with the court.

• Failure to Respond: If you fail to respond to the lawsuit by the deadline (by filing an answer), the credit card company can obtain a default judgment against you. This means the court automatically rules in their favor.

• Responding to the Lawsuit (Filing an Answer): If you respond to the lawsuit, you must file an "answer" with the court. In your answer, you can admit, deny, or claim you lack sufficient information to admit or deny each allegation in the complaint. You can also raise affirmative defenses, such as:

  • Statute of Limitations: The time limit within which a creditor can sue to collect a debt. If the lawsuit is filed after the statute of limitations has expired, the claim may be dismissed. Statute of limitations vary by state.
  • Incorrect Amount Owed: The amount claimed is inaccurate due to errors in calculations of interest, fees, or payments.
  • Debt Not Yours: The debt is not yours due to identity theft or mistaken identity.
  • Bankruptcy Discharge: The debt was discharged in a previous bankruptcy proceeding.
  • Breach of Contract by the Creditor: The creditor violated the terms of the cardholder agreement.
  • Lack of Standing: The plaintiff (the party suing you) doesn’t own the debt. This is common when debt collection agencies sue. They must prove they have the legal right to sue.

• Discovery Process: After you file an answer, the case may enter the "discovery" phase. This is where both sides exchange information relevant to the case. This can involve:

  • Interrogatories: Written questions that must be answered under oath.
  • Requests for Production of Documents: Demanding copies of documents related to the case (e.g., cardholder agreements, billing statements, payment records).
  • Depositions: Oral examinations under oath where a party or witness is questioned by the opposing party’s attorney.

• Settlement: Many credit card debt lawsuits are settled out of court. You can negotiate with the credit card company or collection agency to reach a settlement agreement, where you agree to pay a reduced amount of the debt in exchange for dismissal of the lawsuit.

• Trial: If a settlement cannot be reached, the case may proceed to trial. At trial, both sides present evidence and arguments to the judge or jury. The judge or jury will then decide whether you owe the debt and, if so, how much.

• Judgment: If the credit card company wins the lawsuit (either by default judgment or after a trial), the court will enter a judgment against you. This gives the credit card company legal authority to collect the debt.

• Post-Judgment Collection Actions: With a judgment in hand, the credit card company can take steps to collect the debt, such as:

  • Wage Garnishment: A portion of your wages is withheld by your employer and sent to the creditor until the debt is paid off.
  • Bank Levy: Funds in your bank account are seized and turned over to the creditor.
  • Property Lien: A lien is placed on your real property (e.g., your house), which means you cannot sell or refinance the property without paying off the debt. The creditor may even be able to force a sale of the property to satisfy the debt, depending on state law.
• Credit Impact: Even if you avoid a judgment, the debt and associated collection activity will negatively affect your credit report and credit score. A judgment will further damage your credit.

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