Can a Credit Card Company Sue You? | The Motley Fool (2024)

Can a credit card company sue you?

Yes, a credit card company can sue you if you don't pay your credit card bill. While this is usually a last resort because of the time and money involved, it becomes more likely the longer an account is unpaid.

Since credit card debt is unsecured debt, the creditor needs a judgment to collect from you. If it gets that judgment, you could be subject to bank account or wage garnishment, and liens on property you own.

Many credit card companies sell long-overdue accounts to debt collectors who try to recover the debt. Debt collectors can also sue you if they've purchased your debt.

How credit card debt collection works

Having a past-due credit card could result in a lawsuit against you. However, this doesn't happen right away. The steps a credit card company takes depend on the amount of time since your last payment.

Up to 90 days: The card issuer notifies you and likely charges you a late fee for each monthly payment you miss. When your account is 60 days past due, the card issuer can start charging you a higher interest rate, known as a penalty APR. At this stage, your credit score may drop, but you can still get caught up on payments and keep your credit card account.

90 days to 180 days: The card issuer typically charges off your account, meaning it closes your credit card. It either passes the debt to its own in-house debt collection service or sells it to a third-party debt buyer. The issuer could sue you at this point, although it's unlikely for this to happen yet.

Past 180 days: At this stage, there's a much higher risk of getting sued for your credit card debt. This is the case whether the debt is in the hands of the credit card company or a debt collection agency -- either one could file a lawsuit against you.

How to handle overdue credit card debt

Even if your credit card bill is past due, you can usually avoid a lawsuit. If your card issuer is trying to collect the debt, the best strategy is communication as you work to get out credit card debt.

Call the credit card issuer at the number on the back of your card. Explain that you're in a difficult financial situation, and that you'd like to learn what type of payment assistance the card issuer can offer. Here are some common debt-relief options that may be available:

• Reducing your monthly payment amount. If your biggest issue is that you can't afford your monthly payments, you can ask the card issuer to let you pay less.
• Lowering your credit card's interest rate. The card issuer could be willing to offer you a lower APR so you don't get charged as much interest every month.
• Making one large payment to settle the debt entirely. If you have a lump sum of money you can access, you could ask for a debt settlement, which means you pay a smaller amount than what you owe to wipe out your debt.

There's a good chance that you and your card issuer can work out a solution, such as a payment plan for an amount you can afford. Remember: Credit card companies don't want to sue cardholders. If you stay in contact and show that you're willing to make even small payments, that can ensure you don't go to court.

You might also be able to keep your credit cards open with that card issuer, depending on the resolution you reach. If you settle the debt for less, your card issuer will almost certainly close your cards. But if you pay your debt in full, you could potentially keep your cards.

LEARN MORE: How to Negotiate Credit Card Debt

What to do if you're sued over credit card debt

If you're sued over unpaid debt, you're served with a complaint. You're required to respond to this complaint, unless you can come to a settlement agreement with the plaintiff first and they withdraw the debt-collection lawsuit.

The first thing to do after receiving a complaint is see if it's valid. Here's what to check:

• Does the debt belong to you? Confirm that it's your credit card debt. There can be mix-ups, especially if you're sued by a debt collector and not the credit card company itself.
• Can the plaintiff prove you owe them the money? Check for evidence from the plaintiff in the complaint, or request it. The plaintiff needs to have proof of the debt. Credit card companies usually have it, but a debt collector may not.
• Is the debt within the statute of limitations? Each state has a statute of limitations on debt. Most (but not all) fall between three and six years. Review your state's debt law, because if the statute of limitations has passed, the creditor likely can't collect anymore.

It's highly recommended that you consult with a lawyer to assist you. Although this can be expensive, there are legal aid services across the country that offer low-cost or free legal services to those in need. A lawyer can see if your debt is valid, and negotiate a settlement or defend you in court.

Now, let's look at your options for dealing with the complaint:

• Settle with the plaintiff. You or your lawyer negotiate with the plaintiff's lawyer to reach a settlement agreement. If the debt is valid, this may be the right solution to avoid court.
• Go to court. Respond to the complaint. You must admit or deny every numbered paragraph in the complaint and explain in your answers any defense you plan to use. If you believe the debt isn't valid, then this is the most appropriate option.
• File bankruptcy. When you file bankruptcy, an automatic stay goes into effect. An automatic stay stops any creditor from taking further action during the bankruptcy case, even if it already filed a lawsuit. If you have an overwhelming amount of debt, bankruptcy could be the best way to eliminate that debt and get a fresh start.

LEARN MORE: What Is Bankruptcy, and How Does It Work?

No matter how bad the situation seems, try not to panic. You're not at risk of jail because of unpaid credit card debt. Most importantly, you have ways to fix the situation, whether it's settling, fighting the complaint in court, or filing bankruptcy.

Still have questions?

Here are some other questions we've answered:

• How much credit card debt is too much?
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• How to pay off over $25,000 in credit card debt