Ignoring debt collection calls usually doesn’t make them go away. Ignore your credit card debt long enough and your credit card company can sell your account to a debt collection company or sue you for the balance in civil court. While it is best to work with your credit card company before filing a lawsuit, knowing what to expect when you receive a subpoena and how to respond is also important.
What to Expect If Your Credit Card Company Sus You
When your card issuer – or a debt collection agency that bought your debts from the issuer – can’t reach you pay your bill, a court ruling is obtained in a lawsuit that can give the company the right to seize your wages and bank account until the debt is paid.
In most cases, you don’t have to worry about going to jail for your credit card debt. “We no longer have debt prisons,” said Ashley F. Morgan, a Virginia-based bankruptcy attorney with Ashley F. Morgan Law. “But if you don’t respond appropriately to a court order, you can be despised and that can land you in jail.”
For example, if you fail to comply with a court order to show or pay, you can face civil penalties and the court can issue a warrant for your arrest.
The credit card company is not allowed to take legal action once you default on a debt. Morgan says creditors could try for up to a year and a half to collect debts before filing a lawsuit. But she has also seen some companies inform customers of a lawsuit after just six months.
One factor that can affect when is the statute of limitations in your state. Some states allow creditors to sue for up to 15 years for unpaid debts, while others allow three years to do so.
If your credit card company or a debt collection agency notifies you of a lawsuit with a subpoena and complaint, you typically have up to 30 days to respond. If you fail to do so, the court could issue a default judgment, which means the court will automatically rule in favor of the card issuer or collection company and enforce their request for a garnishment of your salary or bank account.
Beware: even if you respond to the lawsuit, the court may still deliver a judgment. However, if you respond, you have an opportunity to present your side of the case and your arguments could influence the outcome.
How to respond to the lawsuit
First, check the debt. While your liability should be clear if your credit card company is suing you directly, sometimes it is not that straightforward. Debt collectors you’ve never heard of can buy up your debt and sue you for it, and fees and penalties can inflate the debt. Mistakes or outright fraud can happen. So even if you know you owe the debt, if you get sued by a debt collection company, get proof of it.
The federal Fair Collection Practices Act You have the right to ask for proof of guilt, but you must make your claim in writing – and ideally send it by registered mail. The collection company must provide a copy of the original of the written agreement between you and the credit card company and evidence of the assignment of the claim. If these documents cannot be produced, you can move the lawsuit to be dismissed and you may have the right to counterclaim for failure to review the guilt.
Once you’ve reviewed the debt, it’s time to weigh your options. Here are some possible answers:
Request a comparison. Admitting to the legal process can be costly for you and the credit card company. “My experience is that (credit card companies) understand the cost of litigation,” says Bob Dremluk, a New York-based bankruptcy attorney at Culhane Meadows, “and they are willing to settle for smaller amounts to save the cost of litigation . “
You can request a statement by contacting the credit card company directly. The amount of the settlement can vary depending on the company and your solvency and can be made either as a one-off payment or as an installment, depending on the creditor.
Remember that regardless of the agreement you agree on, you must comply with it. Otherwise, the company may decide to pursue the lawsuit. If you are tight on cash, bridging loans may not be an option, especially if the defaulting account has damaged your creditworthiness. Instead, Dremluk recommends asking a family member or trusted friend for a short-term loan.
If you are reluctant to come to an agreement on your own, consider: a Debt settlement company to negotiate on your behalf. Note, however, that these companies charge fees for their services and cannot guarantee results. Since you are on a tight schedule with a subpoena, speak to the debt settlement company about your situation and speak to the credit card company about your desire to settle through a third party company before proceeding.
Pay the full amount. With debt settlement, you may be able to pay less than full and avoid litigation, but doing so can have its own problems. If you pay less than the full amount, the account may remain in yours Credit report up to seven years as a derogatory brand. The IRS may consider the portion of your debt income that has been paid off and require you to pay tax on it.
Pay the full amount and the account is settled, the lawsuit is no longer required and your credit report shows the account has been paid in full, which is not a derogatory sign. However, by the time you get to the point of lawsuit, you have likely months, possibly years, of bad payments that are derogatory signs. The derogatory note that can result from paying off debt may not make a huge difference to your creditworthiness, so it may not be worth paying an account in full to maintain your creditworthiness.
Create a debt management plan. Maybe you can work with a credit advisor create a debt management plan. With this option, you make monthly payments to the credit counseling center, which in turn pays the credit card company. The credit card company or collection agency must agree to withdraw the lawsuit and allow you to adhere to the debt management plan. Creditors may be willing to partner with credit counseling agencies because they can get payments from customers – the same result they wanted to get with a lawsuit.
As with a debt settlement company, time is of the essence. Make sure the credit card company approves the debt management plan before the subpoena expires. Failure to do so may result in a judgment by default.
Declare bankruptcy. While you may be considering bankruptcy As a last resort, it may be worth considering whether the alternative is garnishment of wages. Talk to a bankruptcy trustee about the process and consequences of filing for bankruptcy. If you choose to do this, be sure to do so before the court issues a judgment. Otherwise, you may not be able to account for the debt.
Before you proceed, however, be aware that bankruptcy can sit on your credit report for up to 10 years while consumer credit bureaus no longer include civil judgments on your credit report. So if you have the funds to either pay a settlement or a judgment, your credit will usually recover faster than if you opted for bankruptcy.
Fight the lawsuit. If you think you can win and go down this path, you need to decide whether to hire a lawyer or to represent yourself.
“It is definitely worth speaking to an attorney if you can get free advice,” says Morgan. “But if you owe $ 2,000, it might not be worth paying an attorney $ 500 to $ 1,000 to defend it.” However, she adds that some legal aid groups offer free representation to low-income defendants.
The following can help your case when it goes to court:
The limitation period has expired. If you have a record of when you made your last payment on the account, you can use this to prove that the debt is “barred”. Make sure, however, that it is really your last payment as the credit card company has its own records to show.
You were not notified correctly. Credit card companies should act in good faith in sending you notices about your debt. However, if you didn’t receive them – they were delivered to the wrong person or the company couldn’t find you – you may be able to argue that the lawsuit is unfair.
You don’t really owe the debt. If you have evidence that you paid the debt or don’t see it, you can send the credit card company a proof of debt to confirm that the debt is yours and the company owns the debt. Send your letter by registered mail so that you can prove when the letter was sent and received. If you discover a discrepancy between the records or the account is fraudulent, you can dispute the lawsuit.
You may be able to file your own lawsuit if you believe the credit card company or collection company has violated your consumer rights. The Fair Debt Collection Practices Act makes it clear what debt collection companies can and cannot do when trying to collect a claim.
The purpose of the law, says Dremluk, is to eliminate abuse and protect legitimate debt recovery efforts. For example, the collector cannot make threats or call you too early or too late. Nor will the collector be able to speak to anyone but you and your spouse about the debt. “If you are represented by an attorney, the only communication a collection agency has with the attorney can be,” says Dremluk.
Reconstruction of credit after debt settlement
Dealing with a lawsuit from your credit card company can be a stressful experience. Regardless of how you react to the lawsuit, it will take time for your credit to recover. For example, if your debt problems are due to over-spending problems, leave your credit cards at home until you can be more disciplined with them.
However, if you think you can handle credit responsibly, then you should get a secure credit card. Since you use the card regularly and pay your bill on time each month, you can build a positive payment history and work towards getting your balance back where you want it.