Can a Bank Sue for Credit Card Debt?

When credit card debt becomes unmanageable, individuals often wonder about potential legal action. Banks and other financial institutions can sue for unpaid credit card debt. This legal recourse is typically pursued after other collection attempts have been unsuccessful.

Factors Triggering a Lawsuit

Creditors typically consider a lawsuit when a credit card account has a significant outstanding balance, often several thousand dollars or more. The cost of legal action can be substantial for the creditor, making smaller debts less economically viable for a lawsuit. Legal proceedings usually begin after about six months of non-payment.

At this point, the account is often “charged off” by the original creditor. A charge-off means the creditor has written off the debt as a loss for accounting purposes, but it does not mean the debt is forgiven or that collection efforts will cease. The original creditor may continue collection attempts or sell the debt to a third-party debt collection agency. Both original creditors and these third-party agencies can initiate a lawsuit to recover the owed amount.

The Legal Proceedings

The legal process for a credit card debt lawsuit begins when the creditor or debt collector files a complaint or summons with the appropriate court. This document formally initiates the lawsuit and outlines the reasons for the legal action and the amount of debt claimed. The debtor is then officially notified of the lawsuit through “service of process,” which can involve personal delivery or certified mail.

Upon receiving a summons and complaint, review the documents carefully. These papers typically include information about the plaintiff, the total amount sought, and instructions on how to respond. The deadline for responding to the lawsuit is commonly between 20 to 30 days, though this timeframe can vary.

Failing to respond within the specified timeframe can lead to a “default judgment” against the debtor. A default judgment means the court automatically rules in favor of the creditor, granting them the right to collect the claimed debt, including potential interest, fees, and court costs. If a response is filed, the case may proceed to court appearances where both sides can present their evidence. A court judgment grants the creditor legal authority to pursue collection.

Post-Judgment Collection Actions

Once a creditor obtains a court judgment, they gain access to more powerful, legally supported collection tools to compel payment.

One common collection method is wage garnishment, where a portion of the debtor’s earnings is legally withheld by their employer and sent directly to the creditor. Federal law limits the amount that can be garnished from disposable earnings; generally, it is the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage. This means a portion of each paycheck can be automatically diverted until the debt is satisfied.

Another action is a bank account levy, also known as an attachment, which allows creditors to seize funds directly from a debtor’s bank account. A court order is required for a bank levy, and once the bank receives the order, it typically freezes the account up to the amount of the debt. The funds are then transferred to the creditor to satisfy the judgment.

Creditors can also obtain a property lien, which is a legal claim against a debtor’s real estate, such as a home. This lien does not immediately force a sale of the property, but it attaches to the title, meaning the debt typically must be paid before the property can be sold or refinanced. The lien serves as a security interest for the judgment amount.

Steps for Debtors to Consider

When facing a potential or actual credit card debt lawsuit, reviewing any received legal documents is an initial step.

Communicating with the creditor or their legal representative can be beneficial. In some cases, it may be possible to discuss payment plans or negotiate a settlement for a reduced amount, even after a lawsuit has been filed. Proactive engagement can sometimes lead to an arrangement outside of court.

Seeking professional guidance is often a valuable consideration. Consulting with a credit counselor can provide insights into managing debt and exploring repayment options. Engaging with a legal professional can help individuals understand their rights and the lawsuit’s implications.