Do Credit Card Companies Sue? The Process Explained

Credit card companies and debt collectors can initiate legal action against individuals for unpaid credit card debt. This is a possibility when traditional collection efforts have not resulted in repayment. While not every delinquent account leads to a lawsuit, it remains a mechanism for creditors to recover outstanding balances. Understanding these circumstances and the legal process is valuable for consumers.

Factors Leading to a Lawsuit

Credit card companies consider factors before filing a lawsuit for unpaid debt. The amount owed is a primary consideration, as litigation involves costs such as filing and attorney’s fees, which can be substantial. Smaller balances, generally below a few thousand dollars, are less likely to trigger a lawsuit because recovery might not justify the expense. Conversely, debts exceeding $1,000 or $2,000 often increase the likelihood of legal action.

The duration of delinquency plays a significant role in a creditor’s decision to sue. Most legal proceedings are initiated after an account has been delinquent for 180 days or longer. At this point, the credit card issuer has typically “charged off” the debt as a loss, though this does not mean the debt is forgiven. The borrower’s responsiveness to collection attempts and their overall financial situation, including employment status and income, can also influence the creditor’s decision.

Actions Taken Before a Lawsuit

Before a credit card company or debt collector files a lawsuit, they engage in collection efforts. Initial steps usually involve sending late payment notices and making phone calls to the cardholder once payments are missed. These attempts aim to prompt payment and may include offers to set up a payment plan.

If these initial efforts are unsuccessful, collection attempts often intensify. The original creditor might send demand letters or final warnings. It is also common for the original creditor to sell the debt to a third-party debt buyer or collection agency once the account is charged off. This transfer means the new entity then owns the debt and will pursue collection.

The Lawsuit Process

Once a credit card company or debt collector decides to pursue legal action, the lawsuit process begins. The creditor or debt collector files a complaint in a court with jurisdiction over the consumer’s residence. This complaint outlines the reasons for the lawsuit and the amount of debt claimed.

Following the filing, the consumer is formally notified through service of process, receiving a summons and a copy of the complaint. This summons informs the defendant about the lawsuit, the allegations against them, and the deadline to respond to the court. If the defendant fails to respond within the specified timeframe, which varies by jurisdiction, the creditor may request a default judgment. A default judgment means the court rules in favor of the creditor due to the defendant’s lack of response, allowing the creditor to pursue collection remedies without further court proceedings.

Responding to a Credit Card Lawsuit

Receiving a summons for a credit card lawsuit requires a response. The initial step is to review the summons and complaint to understand the allegations, the amount claimed, and the deadline. Ignoring the summons can lead to a default judgment, which grants the creditor significant power to collect the debt.

Consumers have a set timeframe to file a formal answer with the court. This written document formally addresses each allegation made by the creditor, allowing the defendant to admit, deny, or state a lack of knowledge regarding each claim. Seeking legal advice from an attorney specializing in consumer debt issues is recommended to evaluate the lawsuit, identify potential defenses like the statute of limitations, and navigate court procedures. An attorney can also assist in negotiating a settlement with the creditor, potentially resolving the case outside of court for a reduced amount.

Outcomes of a Lawsuit

If a credit card company or debt collector obtains a judgment against a consumer, it grants legal authority to enforce debt collection. The judgment amount typically includes the original balance, accrued interest, late fees, and associated court and attorney fees. This court order allows creditors to pursue various post-judgment remedies to recover the funds.

Common outcomes include wage garnishment, where a portion of the debtor’s earnings is withheld by their employer and sent to the creditor. Wage garnishment is subject to federal limits. Another potential outcome is a bank account levy, which allows the creditor to freeze and seize funds from the debtor’s bank accounts. Property liens may also be placed on real estate, meaning the property cannot be sold or refinanced without satisfying the judgment.