When you fail to make payments toward a credit card debt, the issuer will eventually consider the account to be in default. At that point, they can take more aggressive steps to collect from you, which can culminate in a credit card lawsuit.
Here’s what you should know about these lawsuits, including when they typically occur, what they involve, and what happens if you lose. We’ll also go over some practical steps you can take to avoid them.
Why Credit Card Companies Pursue a Lawsuit
Missing a credit card payment once or twice only leads to interest and late fees, but when payments are missed for a longer period, the account will eventually go to collections. When this occurs, the issuer will attempt to contact you more aggressively to encourage you to repay the balance.
If the account remains unpaid, they may close it and classify the debt as a charge-off. This doesn’t erase the balance. Instead, it marks the account as unlikely to be collected through normal billing. Charged-off accounts are often transferred or sold to debt collectors, who may continue efforts to recover the amount owed.
Either the original creditor or a debt collector may decide to file a lawsuit to recover the balance, but not both. To move forward, they generally need records that prove the account existed, the amount owed, and their legal right to collect it.
What Usually Happens Before a Lawsuit Is Filed
Before a case reaches the courts, creditors and collectors must follow a series of steps according to your card agreement and applicable regulations. That often includes imposing fees and making written, digital, and over-the-phone requests for payment.
In other words, lawsuits are usually a weapon of last resort. Creditors and collectors would rather avoid going to court too, so they may not escalate the matter until an account has been delinquent for several months.
What It Means to Be Sued for Credit Card Debt
A credit card lawsuit begins when a creditor or debt collector files a complaint with the court. This document outlines the amount claimed to be owed, the name of the account holder, and the reason the suit is being brought. The court then sends notice to the person being sued, often through mail or in-person delivery, depending on state rules.
In these cases, the creditor or collector is generally responsible for showing that the debt exists and that they have the legal right to collect it. This may involve account statements, contracts, or records showing how the debt was transferred if it was sold to a third party.
Importantly, receiving notice of the lawsuit isn’t the same as a judgment being rendered. It’s only the beginning of the legal process, in which both parties can present information, and the court reviews what is provided.
What Happens If You Don’t Respond
If you don’t respond to a lawsuit, the case typically continues without your participation. And in many cases, courts will issue a default judgment to the creditor or collector as the only one side to provide information.
This will allow them to pursue aggressive collection options permitted under state law, such as wage garnishment or placing a lien on your property. However, rules vary by state, and some forms of income or assets may be protected.
In other words, ignoring the lawsuit does not stop the process.
How to Address Credit Card Debt Before It Reaches a Lawsuit
If you’re behind on your credit card bills, there are several options you can explore before legal action becomes a concern. Start by contacting your creditors, explaining your situation, and asking about ways to manage temporary financial strain.
If that’s not an option, you might consider more aggressive debt relief, such as a debt settlement program. Providers negotiate with creditors on your behalf to reduce what you owe as an alternative to letting your debts become a charge-off.
Ultimately, the right path depends on your unique financial situation. If you’re not sure which makes the most sense, consider meeting with a non-profit credit counselor.
Final Thoughts
Credit card debt lawsuits typically follow a predictable path. When an account becomes seriously delinquent, creditors or collectors escalate their collection efforts, eventually filing a lawsuit to recover the balance. Filing to respond can result in a default judgment.
As a result, addressing your credit card debt before it reaches the legal stage is often best. Some good options include negotiating with your creditors directly, exploring alternative debt relief strategies, and consulting a qualified professional.
