Do credit card companies actually sue debtors?
In most cases, a credit card company may threaten to sue you if you've made no attempt to pay off bills. They may not actually sue you because it's quite expensive and time-consuming. However, if there is a cosigner on your credit card account, the credit card company may call the cosigner and try to recover payments rather than filing a lawsuit against you. Most often credit card companies transfer or sell off your debt to a collection agency that'll collect the payments from you. They may even agree to negotiate a settlement on your account.
Certain credit card companies are more prone to taking legal action when they feel that debtors are trying to escape their credit card payments. But if the Statute of Limitations on your debt account expires, you cannot be sued for credit card debts. The Statute of Limitations (SOL) varies from one state to another. Moreover, it is different for each type of debt account.
What happens if you are sued for credit card debts?
In case your debt account is well within the SOL, the credit card company can file a lawsuit. If they win, they'll get a judgment against you from the court. Through the judgment, the court orders you to pay off credit card bills. The judgment order gives your credit card company the right to garnish your wages in case you fail to repay your bills. However, there are some states such as Texas, which do not allow wage garnishment unless it is the only way out for a creditor to execute a judgment.
States which do not allow garnishment may seize your bank accounts (also joint accounts) and sell off non-exempt property or place a lien on your property. However, such states cannot initiate a forced sale of your primary residence. In community property states like Texas, if you are sued for credit card debts, your creditor can seize joint marital property or place a lien against it even though your spouse may not have her name on the debt account.
Being sued for credit card debts - How do you get out of it?
Here's what you need to do when you're sued over credit card debts.
se SOL defense: If you're sued for unpaid credit card bills even after the SOL has expired, send an Expired SOL Notification Letter to the creditor stating that he cannot take a legal action against you because your account is well past the SOL. You will have to show proof of the SOL such as statements with the dates when your account has been in default and when you have been charged-off. Copies of your credit report showing the exact date of default will also serve as proof of the SOL.
Reply to court summons: If the SOL period hasn't expired and you're sued for credit card debts, then you would probably receive a court summons, which you need to reply within a certain time period. The duration for replying to a summons varies from state to state. For instance, in New York, the law gives you 20 days to answer the summons.
In order to answer the summons, you need to file a document (known as "Answer") with the court. In the "Answer", you can dispute the allegations brought about by your credit card company. You need to send a copy of the "Answer" to the attorney representing the creditor. The copy should be sent by Certified Mail with a Return Receipt Request.
When you reply to the summons, it prevents your creditor from getting a default judgment from the court. Moreover, replying to the summons gives you additional time to think about how to negotiate with your creditor and get out of debt faster.
Sued for credit card debts - how does it affect your credit?
When you're sued over credit card dues and receive a judgment order, it stays on your credit report for 7 years from the judgment filing date. This brings down your credit score by 50-100 points thereby making it difficult for you to qualify for credit (at least for the next 2-3 years) at favorable rates of interest. Moreover, if you do not pay the judgment amount, it can get even worse. Unpaid judgments are renewed for an indefinite period of time even if you do not have the funds to make payments. So, the best way to avoid such legal action is to negotiate an alternative payment plan or a debt settlement with your creditor.
When you're sued for credit card debts, you can request the court to arrange for a negotiation with your creditors. The judge may order the creditor to offer you an affordable payment plan so as to put the lawsuit on hold. This will give you the opportunity to pay as much as you can and creditors will not be able to continue with the lawsuit in court.