What to Do When Your Credit Card Company Sues You

If you’ve ever missed a credit card payment, you’re not alone. In fact, according to a recent study by WalletHub, an estimated 42 million Americans are expected to miss a credit card payment in 2022 alone. 

Similar to a track of dominoes, missing a credit card payment can start a chain reaction. 

First, your credit score will likely see an immediate hit that can take months to recover. Next, you’ll probably be hit with late fees on top of the payments you already owe. If you need to take out new loans or lines of credit, the hit to your credit score will result in higher APR on new balances. 

The good news is that all of this is reversible – but only if you’re able to get back on track, manage your budget, and begin paying off your debt. 

But what happens if things have already gotten beyond that point? What happens if you’ve missed multiple payments? 

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Can your credit card company sue you?

Yes.

It’s important to note that from the credit card company’s position, a lawsuit is the last resort. 

Because of the expensive legal fees associated with lawsuits, creditors will exhaust all other avenues before bringing you to court. 

Once you miss a credit card payment, the clock begins ticking. If you make a late payment, there will still be penalties, but it’s better than not paying at all. However, when multiple payments are missed, that’s when creditors begin exploring their options:

• 90 days past due. If you haven’t made a payment in 3 months, then your issuer will attempt to contact you about the situation. In addition to fees for the late payment(s), you should also brace for a higher interest rate, which is referred to as a “penalty APR.” It is also likely that your credit score will have dropped by this point. However, it’s not too late to make payments and try to get back on track.
• 90 to 180 days past due. By this point, the issuer will “charge off” your account, which is a fancy way of saying that they’ve closed your credit card. This means you can’t charge anything else to your account and any recurring bills being charged to the card will stop. Most credit card companies have in-house collection services. During this stage, it’s likely that collectors will be after you. In some cases, your credit card company may even sell the debt to a third-party debt buyer.
  
• 180 days or more past due. If you haven’t made an effort to pay off your debt or organize some sort of repayment plan, then the risk of getting sued increases dramatically. It doesn’t matter whether the debt belongs to your initial issuer, collection agency, or third-party buyer – any holder of your debt could file a lawsuit against you.

PRO TIP: If you have gotten to this point, whatever internal judgment you have against yourself, I encourage you to let it go. There will be an opportunity to learn, grow, and get on a proper budget in the future. This is why embracing a growth mindset is so important. 

Right now is not the time for guilt, shame, or even embarrassment. 

Rather, it’s time to face this challenge head-on.

Here are the next steps to take.

Make Sure Your Credit Card Company Is In the Legal Right to Sue You

“But wait a minute – I thought you said credit card companies can sue me after 180 days or more past due?”

Yes, they can…

But this doesn’t mean that mega corporations are infallible. They can make mistakes, too. There are many cases where innocent people have been wrongfully sued over credit card debt. So the first step is to make sure that they can actually sue you. Here are some factors to consider:

• What is the statute of limitations in your state? The “statute of limitations” refers to the timeframe in which one party can sue another party for wrongdoing. This statute varies from state to state, but is generally in the 4-to-6 year range. So what does this mean? If the statute of limitations has expired, then your credit card company cannot sue you. This period begins on the date of your last payment. For example, let’s say the statute of limitations in your state is 4 years, but your credit card issuer is trying to sue you 5 years after your last payment. In this situation, the case will be thrown out, but only if you show up to court and demonstrate to the judge that the statute of limitations has expired.
• You no longer have the debt. Perhaps you’ve paid off all your debt in full. Or perhaps you declared bankruptcy and all your debt was supposed to be forgiven. If either of these are true, then these are viable defenses to have the lawsuit tossed out. In some cases, the debt may have never been yours to begin with – such as fraud and identity theft. Pull together whatever documentation you need to prove your case.
• FDCPA (Fair Debt Collection Practices Act). Is your debt collector harassing you without giving you any information about your debt? They are legally required to provide this information to you. If they break these rules, you can actually countersue your credit card provider.

Whether it’s shoddy bookkeeping, mistaken identity, identity theft/fraud, or an expired statute of limitations, there are many reasons why a debt collector might not be allowed to sue you. 

Don’t get me wrong – it’s still scary and intimidating to get a legal notice in the mail, but before doing anything else, it’s important to double-check that the lawsuit is actually legally valid. 

Try to Settle with Your Credit Card Company

Lawyers are expensive. 

For both sides.

And if you’re already in unmanageable debt, lofty legal fees might not be feasible or wise. 

Credit card companies realize this, which is why they’re usually more willing to settle than you might expect. Even if you settle for less than you owe, this might be cheaper for the credit card company compared to hiring a lawyer and bringing the case to court. 

Here’s the good news: you don’t need to hire a lawyer or accountant to settle your debt. You can negotiate a debt settlement on your own.

You’ll need to contact your provider directly, and if you come to an agreement, remember to acquire everything and keep everything in writing. 

You can generally settle based on your ability to pay (i.e. “I can pay 50% of my outstanding debt”), and coordinate that on either a lump-sum or installment basis.

However, no matter which option you choose, it is critical that you follow through and make good on the settlement. Otherwise, it is likely that the lawsuit will proceed in full force.

Again, you don’t need a lawyer, accountant, or debt settlement company to do this. Read my post here on how to negotiate on your own!

Take the Issue to Court

If you believe the debt or lawsuit isn’t valid, the only way to throw this out is by responding to the complaint. 

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While you can negotiate a debt settlement on your own, it’s always wise to seek legal representation if the lawsuit moves forward. An attorney can help you answer the complaint, craft a defense, and represent you in court. 

The U.S. Government established the Legal Services Corporation in 1974 to help people with this very issue. You may be eligible for free or extremely low-cost legal representation through the LSC. 

The Last Resort: File Bankruptcy

Chapter 7 bankruptcy discharges consumer debt such as credit card debt.

However, there are many downsides, the most financially damaging of which is a major hit to your credit score. This makes it extremely difficult to get loans and credit cards with favorable terms in the future. Furthermore, a bankruptcy stays on your credit report up to 10 years, so be sure to keep that in mind. 

With perseverance and dedication, you can improve your credit score over time, so just remember that it isn’t the end of the world if you have to declare bankruptcy.  

Final Thoughts

Chances are that you feel some sort of panic, but try to stay calm and view the situation as objectively as you can. No matter how bad the situation seems today, there is always hope for a better financial future. I mean it. 

Most importantly, there are always multiple options and paths you can take: negotiating a settlement, taking the case to court, or filing bankruptcy.

Still have questions?

There are many people who have been where you are right now. No matter how dire the situation may seem, you are never alone.I encourage you to join the TBM Family on Facebook, where there are many people in different stages of their financial journey. It’s a great place to find encouragement, learn from others’ experiences, and find camaraderie. I hope to see you there!