The best defense against being sued for credit card debt is, of course, to pay your debts before that happens. That doesn’t necessarily mean paying them in full or right away. But even if you’ve already received notice of a lawsuit, it’s not too late to settle your credit card debt before you end up going to court.
If you think there’s a chance you could be sued or you’ve already received notice of a lawsuit, you should contact your creditor or debt collector. Lawsuits are time-consuming and expensive, so the creditor or the debt collector may be willing to negotiate a settlement with you instead.
How to prevent a lawsuit
Although not unheard of, it’s rare for credit card companies to sue you before you’ve missed several months of payments. Your risk for being sued goes up past the six-month mark, which is when many creditors charge off an account. That’s when the creditor writes off a debt as uncollectible and reports it as a charge-off to the credit bureaus. You are still responsible for the debt, though. That’s also the point when your creditor might hand your debt off to a third-party collection agency or sell it to a debt buyer.
To avoid a lawsuit, try to settle your debts before a charge-off occurs. Call your creditor or the debt collector and see if you can negotiate a settlement, meaning it will accept less money than what you owe to settle the account. You can do this on your own or hire a debt settlement company to handle the negotiations.
Negotiating a settlement and coming up with the money to pay the settlement before a charge-off happens can be tough. That’s especially true if you have more than one delinquent account. So you might target one or two accounts to settle first. It’s important to know which accounts you should prioritize — for example, the ones most likely to sue you. (The Resolve tool can help you identify which creditors to put at the top of the list.)
What to do if you’re being sued
In some cases, you might not be able to fend off a lawsuit. If you receive a court summons, the important thing is not to ignore it. Unless you negotiate a settlement in time and the lawsuit is withdrawn, you should file a response to the summons by the deadline. In most cases, you’ll have 30 days to respond, but some states provide only a few weeks.
If you don’t respond, an automatic or default judgment could be placed against you. That could give debt collectors or creditors the ability to garnish your wages, take money from your bank accounts and even seize your property to pay off your debt. You obviously don’t want that to happen.
Before you do anything, make sure you understand who is suing you. Are you being sued by a debt collection lawyer on behalf of your credit card company or is it being brought by a debt buyer?
What to do if you’re being sued by a collection attorney representing a debt buyer
A debt buyer is a company that buys other companies’ unpaid debts. Unlike debt collectors, debt buyers own the debt and are not attempting to collect on behalf of the original creditor. They pay different amounts for the legal rights to the debts they buy. The more recent the default (6 to 12 months in default) the more they typically pay for the debt. Then, the longer the debt’s in default, the less it costs to buy them. Credit card debts have been bought and resold several times over the course of years.
Because debt buyers invest in unpaid debts, they take a risk that they can get some distressed credit card borrowers to pay up. And they’re also willing to settle the debts for less than what is owed. They’ll either collect debts using their own debt collectors, assign accounts to a third-party collection agency or place accounts with debt collection law firms they have relationships with.
Whether you’re sued by an attorney or a debt collector hired by a debt buyer, they’re often rewarded financially by the results they get. In order to determine how likely you are to be able to pay some of that debt, they often use sophisticated tactics (sometimes called skip tracing) to locate you and collect information from credit reports, public records databases, loan applications, utility bills, etc.
Often, however, their information is incomplete (at best) or just plain inaccurate. First, you should find out how old the debt is. Check your records to see the last time you made a payment on the debt. There’s a statute of limitations on how long you can be sued for payment of a debt. It varies by state, but most statutes are three to six years. If the delinquent debt is past the statute of limitations in your state, it’s considered expired. But admitting that the debt is yours or paying a portion of it could reactivate the debt.
Second, if the amount of the debt is wrong or it doesn’t even belong to you, you can challenge the lawsuit by filing a response in court. You can then contest what’s in the lawsuit or ask the court to dismiss it. There are a few resources that could be helpful if you wish to dispute a lawsuit:
- Check the Fair Debt Collection Practices Act (FDCPA) for specific violations such as improperly serving you, serving the wrong person with the same name and/or violating the statute of limitations.
- Check your rights under the Fair Credit Reporting Act (FCRA) if you suspect you are being sued for a debt as a result of identity theft.
How to negotiate a settlement before going to court
If the debt is active and valid, try to stop the lawsuit by contacting the creditor or the attorney listed on the summons to discuss a settlement. You might offer to pay some of your debt with a lump-sum payment or in monthly installments. Come up with an amount that you can afford and that you think the creditor or collector will accept. If you offer a lump-sum payment, you may need to have that money ready quickly.
You or the debt settlement company you’ve hired may have to go through several rounds of negotiations before a settlement is reached.
When to hire your own attorney
To buy more time, or if the summons deadline is nearing and you don’t have an agreement yet, respond to the summons. You may want to hire a lawyer to help you file a response and continue negotiations with the parties to the lawsuit. Many attorneys offer free consultations and can help you understand your options, as well as whether the benefits of those options are worth the legal costs and what your rights are. (Resolve can connect you with attorneys who can file your response to the court summons for as little as $200 as well as continue negotiating a settlement in an effort to avoid going to court.)
As always, if you reach an agreement, make sure you get it in writing.
How Resolve can help
If you’re dealing with debt and not sure what to do, we’re here to help. Become a Resolve member and we’ll contact your creditors to get you the best offers for your financial situation. Our debt experts will answer your questions and guide you along the way. And our platform offers powerful budgeting tools, credit score insights and more. Join today.