When you go past your due date on your credit card, there is a chance that the creditor will end up filing a lawsuit against you. This will not happen overnight, but following a barrage of collection calls and letters, you will risk having a judgment against you if a lawsuit is served.The best way to defend against being sued for credit card debt is actually settling the debt before that happens. This doesn’t mean that you have to pay in full right away, but it does mean that you will need to reach some sort of settlement. Lawsuits can be incredibly expensive and time-consuming for both you and your creditor or debt collector, meaning that they may be willing to negotiate a settlement instead of going to court. It is a creditor’s last resort.
If a creditor is suing you, chances are, that you have already been in default for many months without reaching a new agreement with your creditor. Oftentimes, the main reason for the lawsuit is a lack of communication after defaulting. The creditor thinks it has no other means of collecting on your debt and will try and get their money through legal action. In this article, we will cover all the possible scenarios of being sued for your outstanding credit card debt.
How to Prevent a Credit Card Lawsuit
Only very rarely do credit card companies actually sue someone before they’ve missed at least several months of payments. However, the risk of a lawsuit grows after six months of missed payments, at which point the creditor will charge off the account. When financial institutions write off a debt as uncollectible, they will report it as a charge-off to the three major credit bureaus, and you will, technically, be in default. This is also when the majority of creditors will hand off your debt to a third-party, typically a debt collection agency or a debt buyer.
As we previously mentioned, the best course of action is to try to settle your debt before a charge-off occurs and you end up defaulting on your debt. If you cannot afford to pay in full, contact your credit card issuer and see if they are willing to reach a settlement. However, keep in mind that a settlement means that they will have to accept a smaller sum than what you originally owed on your account. Trying to negotiate a settlement and coming up with the money before you default on your debt is always easier said than done, particularly if you are dealing with more than one delinquent account. If this is the case, you should try to target one or two accounts to settle in the beginning, prioritizing those you are most likely to be sued for.
You can try to negotiate a settlement on your own or work with a reputable and professional debt relief company to negotiate on your behalf. It’s not every day that people have to handle these sorts of discussions with their creditors. For this reason, contacting a debt relief professional as soon as you know you are about to default is important. In most cases, a suit can be avoided when a third party communicates the issue to the creditor while seeking a settlement. The majority of the time, a lawsuit will end in a settlement for less than the full balance anyway, but the settlement amount is not as advantageous to the consumer because both the creditors and debtors (if not enrolled with a professional debt management company) are out of pocket for their legal costs.
How To Settle A Credit Card Debt
If you are not careful, you might not be able to avoid a lawsuit. One of the most important things you can do in this regard is to never ignore a court summons if you receive one. Unless you are able to negotiate a settlement so that the lawsuit is withdrawn, you should file a response to the summons by the deadline. In the majority of cases, you are given 30 days to respond. Nevertheless, this is not the case everywhere, and some states will only provide you with a couple of weeks.
Keep in mind that if you don’t respond in time, a default or automatic judgment can be placed against you. If this happens and a default judgment is issued against you, your creditor or debt collector will have the ability to garnish your wages, take money from your bank accounts, or even seize your property to pay off the debt. But if you remain organized and proactive, you can still avoid a lawsuit altogether and settle your debt. To do so, you will need to:
- Evaluate your Liability – Aside from keeping track of your court summons and knowing when you should file an answer to avoid a default judgment, you also need to assess your liability to properly prepare a defense for your case. For starters, check to see who exactly is suing you. Is it your original creditor, a collection agency, or a debt buyer. Second, make sure that the amount they say you owe matches your records. Keep in mind that the credit card industry’s practices in the United States are deliberately set up to deceive customers, so you shouldn’t automatically trust everything you receive from your creditors. Also, know that simply saying that you can’t pay your debt is not a real defense. By reviewing the complaint carefully, you may find things that can help you negotiate a settlement.
- Assess Your Current Financial Situation – You also need to take into account how much a creditor can take from you in the event that they receive a judgment against you. Therefore, you will need to take a close look at your finances and what property you have under your name. For example, if you’re renting, they will not be able to take your house. Similarly, if all of your income comes from Social Security, they can’t freeze your bank accounts. However, if you have an actual salary, you should calculate just how much they could take in the event of wage garnishment. Like before, you can use this information in order to reach a settlement.
- Provide a Reasonable Offer – Another important thing to keep in mind in these situations is that, for a creditor to accept a settlement, your offer needs to be at least a reasonable portion of the owed debt. If you offer too little, depending on the creditor, it will make it more difficult to accept, they will most likely deny the offer. As such, you will need to put together a realistic offer. (It can still be less than what’s, however.) This implies looking at your bank balances, possessions, and anything else that you could sell to come up with a proposal that they will likely accept as settlement.
Depending on the creditor, your offer can be in the form of a lump-sum payment or as monthly installments. While some will only accept a lump sum, others will also be fine with you paying your debt over time. In general, paying the whole negotiated sum upfront will tend to get you a better deal than an installment plan. If you offer a lump-sum payment, you should have that money (first payment or lump sum) readily available at a moment’s notice. Regardless of the exact situation, you should know that you or the debt relief company you are working with will typically have to go through several rounds of negotiations before an actual settlement is reached.
- Know How To Defend Your Lawsuit – In some instances, settling a credit card debt lawsuit is not possible before filing an answer. But this doesn’t automatically mean that a settlement isn’t possible. In some cases, it’s only a matter of timing. If the creditor feels that they will be getting a better deal by suing, they will. Yet, if you are willing to defend yourself against the lawsuit, you need to show that you have done your homework and are serious about the situation, in which case they will be more inclined to settle. If you fight the lawsuit, there is still a chance that the judge will decide to rule in your favor. If you do win the case, they will get nothing, so it never hurts to be prepared.
When you are being sued, selling credit card debt is a far better alternative to having your accounts frozen, your wages garnished, or your home repossessed to pay what you owe. You can tackle credit card lawsuits on your own, or you can receive the assistance of a professional experienced in dealing with debt management and credit counseling.
Our seasoned financial professionals and legal team will help you navigate the entire process and get you a settlement that won’t cripple you financially. Avoid court costs, legal fees, and phone calls from attorneys. Request a free counseling session today, and let’s figure out a solution to your debt collection lawsuit together!