Due to the widespread presence and utilization of credit cards to make purchases and pay bills, credit card debt is very common.
Debt harms your credit score, drains your bank account, and poses a significant challenge to gaining approval for new credit applications. And, in extreme cases, your credit card companies may decide to sue you if you can’t agree.
Read on to learn more about why credit card companies file lawsuits against their clients and what to do if this happens to you.
Why do credit card companies decide to sue?
Falling behind on your credit responsibilities can be a serious issue. If you ignore calls, emails, or letters from the company, they may bring in a debt collector to settle the problem. But if you continue to ignore the debt collection agency, a lawsuit is likely the next step.
As of 2021, approximately 15 percent of card users are taken to civil court after a collector reaches out.
Late or missed credit card payments, especially over a prolonged period, negatively impact your score.
Experian, Equifax, and TransUnion, the three major credit bureaus, receive reports of your poor credit history and adjust your information accordingly. According to FICO and VantageScore, , the two most popular credit scoring models, payment history is worth 35 percent of your overall credit score.
What happens next?
The overall process of a debt collection lawsuit is similar across most states. When a credit company sues you, you’ll receive a summons from an attorney on behalf of the credit company.
Your summons will contain the following information: who is suing you (also known as the plaintiff), any co-defendants that the credit company may be suing as well (such as a joint cardholder), the amount of money you’re being sued for, the date of the court hearing, and the steps you can take to file a response against the summons if you wish.
Don't ignore a court summons. If you do, it’ll heighten the situation, and the chances of coming to a relatively peaceful solution will grow smaller.
Fortunately, you can’t go to jail for failing to pay your credit card bills or your debt. This is a federal law, falling under the Fair Debt Collection Practices Act or the FDCPA.
Things to do if a credit card company is suing you
If you find yourself in the middle of a lawsuit, here are some measures you can take to help address the situation.
Verify the debt
Credit card companies can make mistakes. Just because they’re claiming you didn’t do this or didn’t do that doesn’t mean their information is correct. You have a right to ask the company and the third-party debt collector to prove that the unpaid credit card debt does belong to you. Make sure to have your request in writing.
Talk to an attorney
Acquiring legal representation is always a smart strategy. A lawyer can help you navigate this situation by negotiating a settlement deal, handling complaints, and, most importantly, by establishing your defense and presenting that defense to a judge.
In some instances, your lawyer may discover that you are a victim of fraud or identity theft or if the statute of limitations surrounding your actions has expired.
Hiring counsel can be expensive, but don't fret; legal aid programs can help you out, and some lawyers may be willing to take on your case pro bono.
Don't ignore the court summons
Avoiding the issue doesn’t make it disappear and will only increase the severity of the lawsuit and any subsequent sentences. If you ignore a summons, you’ll automatically lose your case.
Determine how you'll respond
You have a maximum of 30 days to respond once you receive the summons. Research and review your options to determine how you should move forward, but do so quickly.
What if you lose the lawsuit?
Before going to court or going to court and losing, you can alleviate the consequences. You may want to consider the following:
One: Debt settlement.
If you can’t afford to pay off your debt, be sure to talk to your lawyer about this option, since they can help ensure that you don’t sign a settlement agreement that forfeits your rights. This avoids going to court altogether.
Two: File for bankruptcy.
Like settling the debt, filing for bankruptcy is another option that may keep you out of court if you file for it during the 30 days leading up to the hearing. Although bankruptcy is often a last resort, it can excuse all of your current outstanding debts and allow you to restart. Debt relief could also be an option.
It will dramatically impact your credit score and remains on your credit report for up to 10 years.
Three: Consult a credit counselor.
Unlike an attorney, a credit counseling service can help create a debt management plan or a payment plan that better suits your predicament. This plan can include waiving late penalties, reducing interest rates, and adjusting your monthly payment amounts. Debt consolidation, or amalgamating your debts so that you can pay them off with a single sum each month, is another potential option.
Your credit advisor will speak with the credit card company on your behalf.
Four: Fight the judgment.
If you choose to go down this road, it can be time-consuming and costly. But if you have a solid defense, it may be the best thing to do. If you don’t want a lawyer, you can choose to represent yourself in court instead.
Point's contributions
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