Can a Credit Card Company Sue You for Unsecured Debt?

This letter will come from the credit card company, debt collection agency, or law firm. It states how much you owe and that they will file a lawsuit if you do not contact them. There will be a deadline to respond. Before that deadline, verify the following:

Make sure the debt is yours - errors happen. If it is not yours, you notify the credit card company in writing about the error. If you have been the victim of identity theft, you may be required to file a police report.

Make sure the debt amount is accurate - again, errors happen.

Make sure your debt is within your state’s statute of limitations - most states have a statute of limitations between three and six years, after which the debt ages out, or the debt falls off, and you are no longer responsible for it. There are a few exceptions to this!! It's also essential to understand what happens to credit card debt after 7 years, as its implications might differ from the usual statute of limitations.

Make sure your debt is within your state’s statute of limitations - most states have a statute of limitations between three and six years, after which the debt ages out and you are no longer responsible for it. There are a few exceptions to this!!

Make sure your debt is within your state’s statute of limitations. Most states have a statute of limitations between three and six years, but do you know what happens to credit card debt after 7 years? It's essential to be informed.

If anything is incorrect, immediately contact the credit card company in writing and explain the circumstances. Keep copies of the letters and send only copies of supporting documentation. DO NOT send the originals.

What NOT to do when responding to a demand letter

When you speak to a debt collector, or creditor or in a response letter, do not do the following:

Make promises to pay - this restarts the statute of limitations clock, and the date of delinquency is now the day you promised to pay. If you plan to pay, great! Set up a payment plan in writing and follow through.

Admit that you are responsible - this gives the credit card companies or debt collectors extra ammunition in court.

Make threats - it will look very bad when you get to court if you are threatening the credit card company or debt collectors.

Lie - lies will not play well in court. If it is your debt and you say that it is not, the court will not look at you favorably.

The Court Summons

Once the credit card company has sent a demand letter and passes the deadline, then the credit card company sues by filing a debt collection lawsuit.

Remember that the state civil court where you are sued is defined in your credit card agreement. It may not be in your state of residency. For instance,  California residents have specific concerns when it comes to getting sued over credit card collection bills.

The court summons is a legal demand that you appear in a court of law on a certain date. If you ignore it, the court can issue an arrest for you, and/or they can find a default judgment against you.

As with the demand letter, verify that the debt is yours, the amount and circumstances are correct, and the debt has not aged out. If anything is incorrect, respond immediately in writing to the issuing court with the court's name, case number, your name, and creditor's name.

Notice of Intent to Defend

Within the summons will be a Notice of Intent to Defend. This means that you contest something within the lawsuit and should not be required to pay the debt. This may be because the claim is incorrect, the amount is wrong, or you plan to file a countersuit or third-party suit.

Most courts have a ten-day limit to respond. When you fill out the Notice to Defend, make two copies. Take the copies and the original to the courthouse. Have them stamped by the court staff. Give one copy to the court staff. Take to other to the plaintiff's lawyer, in person if possible. Have the original stamped by the plaintiff's lawyer if possible. Keep the original.

Consider hiring a lawyer.

I Can't Pay. Should I Ignore the Summons?

NO! If you cannot pay, you must still go to court. If you do not go to court, the court will make a default judgment against you, and you may be hit with liens or garnishment.

Punitive Measures

In this article, we have mentioned four ways a court can collect money from you. Here are the definitions for each.

What is a Default Judgment?

A default judgment means that someone did not show up for their court date to defend themselves or prosecute the claim. The court finds for the party who did show up. If it is the collector, the creditor can now request that liens and garnishments be enacted. Otherwise, the court finds it in the debt collector's favor.

A judgment stays on your credit report for up to twenty years or until you pay it off.

Wage Garnishment

Wage garnishment is a legal action that involves notifying your employer that a certain percentage of your wages must be withheld from your paycheck. The garnishment is then sent to the creditor to repay your debt.

For more about wage garnishment, follow this link.

Judgment Lien

A judgment lien prevents you from selling personal property before paying your unpaid debts.

You may have heard of a mechanic's lien, where a mechanic can prevent you from selling your car if s/he did work on it and you failed to pay. The insurance money must go first to the lien holder if you have insurance on the item.

Levy

A levy is placed against your bank account, preventing you from withdrawing money. It requires the court to notify your financial institution as to your status. It is also known as freezing an account.

For more on avoiding bank account levies, follow this link.

Can you settle credit card debt after a lawsuit?

It is always possible to settle with a creditor before, during, or after a lawsuit. Learn more about how to settle credit card debt before going to court to better prepare yourself. With a settlement, you offer to pay part of what you owe, and the creditor forgives the rest.

There are several caveats to this method. First, you may end up with a tax bill from settling as the IRS considers the forgiven debt as income. Second, it does appear on your credit report (as do the other events). Third, the creditor will probably not settle for a payment plan but want a lump sum payment. Always get your settlement agreement in writing!

We are not an attorney or law firm, so this is not legal advice. Contact a Lawyer for legal assistance.

Available Debt Relief Options

If you are heading for a lawsuit to collect unpaid debt, you do have some options.

Credit Counseling Agency

Credit counseling helps you learn money management, including developing a budget, helping you understand your credit report, and setting up a debt management plan. This is probably your best option if you have just begun to get into trouble paying your debt.

Debt Consolidation 

In debt consolidation, you apply for a lower-interest loan, pay off all the debt you can with that loan, and then focus on paying off the loan with monthly payments. For this to work, you must have a good enough credit score to get a low-interest loan and a plan to pay off your debt as quickly as possible.

Click here to learn more about debt consolidation.

Debt Settlement

Debt settlement means that you (or a company like Pacific Debt, Inc.) work with your creditors to reduce to amount you owe the creditor. You then pay off the reduced debt in a lump sum payment. You are required to set aside a minimum monthly payment amount. Because this comes with a tax implication and damages your credit score, this is a last resort option before filing for bankruptcy.

Bankruptcy

Declare bankruptcy as a last resort – this legal action wipes out most of your debt and severely damages your credit for up to ten years the legal fees are expensive and filing for bankruptcy is time-consuming. You should consider hiring a bankruptcy attorney to help you in bankruptcy court.

Click here to learn more about bankruptcy.

Federal Fair Debt Collection Practices Act

The Fair Debt Collections Act protects you against harassment from debt collectors. This federal law prevents abusive collection efforts and limits the amount of contact between you and a collection agency.

This law requires debt collectors to adhere to some pretty strict requirements. However, it's essential to be aware of the common myths and scare tactics used by debt collectors to ensure you're not misled.

For more information on the FDCPA, follow this link. If a debt collector violated the law, you may have recourse against them.

Credit Card Debt Forgiveness Programs

Many major credit card companies offer their own credit card debt forgiveness programs that can help consumers settle debts for less than the full amount owed. These programs allow you to pay a lump sum, usually 50-60% of your total debt, and the credit card company will forgive the remaining unpaid balance.

To qualify for credit card debt forgiveness, you’ll need to meet certain requirements set by the issuer. These often include having a history of timely payments up until financial hardship made you fall behind. Your accounts must be closed as well.

Pros of credit card debt forgiveness:

• Settle credit card balances for less than you owe
• Avoid bankruptcy

Cons of credit card debt forgiveness:

• Negative impact on your credit score
• Any amount forgiven by the credit card company may be considered taxable income by the IRS

When negotiating with your credit card issuer, start by requesting detailed information on their forgiveness program and its specific terms. Be prepared to share information about your financial situation and ability to pay. Aim for the best possible settlement offer before accepting. Get all settlement details in writing.

How Debt Settlement Works

Debt settlement involves working with a third-party debt settlement company to negotiate reductions in your total owed credit card and unsecured debts. The process typically takes between 2-4 years from start to finish.

When you begin a debt settlement program, you'll set up a dedicated bank account and make monthly contributions to it that are earmarked for future settlement offers. Once enough funds have accumulated to put forward worthwhile settlement offers, the negotiation process with your creditors begins.

Most creditors will agree to accept 40-60% of the total amount owed as payment in full to settle the debt. However, debt settlement comes at a cost. Debt settlement companies charge fees, usually based on a percentage of your enrolled debt. And because settlements are reported to the credit bureaus, your credit score will drop. Lastly, any amount forgiven by your creditors may be considered taxable income by the IRS.

Before choosing debt settlement, realistically assess how much you can afford to save each month to build up your settlement fund. Also, have a plan to eventually rebuild your credit.

Using Home Equity to Pay Off Credit Cards

For homeowners with sufficient equity in their home, taking out a home equity loan or line of credit at a lower interest rate can provide funds to consolidate and pay off higher-interest credit card debt.

Requirements for home equity financing include having at least 15-20% equity built up and a good credit score for approval. While tapping home equity can help lower the total interest paid on credit cards, it also puts your home at risk if you default on the home equity debt.

It's critical to budget carefully and exercise financial discipline going forward to avoid racking up new credit card debt and jeopardizing your home. Consult with a nonprofit credit counseling agency to analyze if this debt consolidation option is right for your situation.

Debt Management Plans (DMPs)

Debt management plans allow you to consolidate multiple unsecured debts like credit cards into a single monthly payment through a credit counseling agency. The agency works on your behalf to negotiate lower interest rates, waived fees, and a repayment plan with creditors.

Benefits of DMPs include simplified payments, lower interest rates, and avoiding bankruptcy. To qualify, you'll need regular income to maintain the monthly DMP payments. Upfront enrollment fees apply based on the amount of debt included.

When choosing a credit counseling agency for a DMP, look for a reputable nonprofit agency that is accredited by the National Foundation for Credit Counseling or the Financial Counseling Association of America.

FAQs

Conclusion

It is easier to pay off bills before they become debts, especially when considering the implications of unsecured credit debt. However, this is just not happening for many Americans, and people are sinking into debt. Some often face the dilemma of deciding between building an emergency fund vs. paying off debt. Both have their merits, and the best choice often depends on individual financial situations.

If you are getting a lot of calls from collection agencies, and definitely before you get to a debt collection lawsuit, give Pacific Debt, Inc. a call. We are a debt settlement company located in San Diego, California. Our certified debt specialists offer a free consultation that can help you understand all your options and help you make a plan to get out of debt.

If you are not a candidate for our debt settlement program, we can refer you to a trusted partner who better fits your unique situation.

*Disclaimer: Pacific Debt Relief explicitly states that it is not a credit repair organization, and its program does not aim to improve individuals' credit scores. The information provided here is intended solely for educational purposes, aiding consumers in making informed decisions regarding credit and debt matters. The content herein does not constitute legal or financial advice. Pacific Debt Relief strongly advises individuals to seek the counsel of qualified professionals before undertaking any legal or financial actions.