Ad Disclosure

Can a Credit Card Company Sue You?

Credit Card Collections Lawsuits

You may think that it’s just an empty threat, but credit card companies and the debt collection agencies that often assume old debt can and will sue you for amounts owed.  In fact, they aren’t legally allowed to threaten a lawsuit if they do not plan to go through with it.

The chances that you’ll be sued for an unpaid credit card balance and the odds of the plaintiff being successful in recouping amounts owed depend on a variety of factors, including how far past due you are, when you made your last payment, and whether you can work out an alternative arrangement with your creditor.  Financial institutions typically don’t sue customers who owe less than $1,000 or are making regular payments.  As such, you shouldn’t need to worry about a lawsuit unless you owe a substantial amount and are well behind on your payments.

Lawsuits aren’t the only collection methods that creditors have at their disposal, and a thorough understanding of all of their tactics is necessary to minimize the negative ramifications that can result from borrowing more than you can afford to pay back.

We will explain all of these issues in detail below:

Credit Card Debt Collection Methods

First of all, it’s important to note that creditors will not pursue extraordinary collection measures if you have re-engaged with them and are currently making the required monthly minimum payments.

When you begin missing payments, however, not only will your credit standing suffer, but bottom-line-conscious creditors will also begin to approach collection with added fervor.  Some of the steps they may take include:

  • Coarse Correspondence:  Credit card delinquency will initially trigger a few rounds of warnings and notices, alerting you to missed payments, requesting that money be sent, and laying out the ramifications of not doing so.
  • Limit Decreases & Account Deactivation:  In order to mitigate the risk of non-payment and perhaps leverage inconvenience to glean some money from you, creditors will often prevent the continued use of your account.  This might entail something as simple as reducing your limit to or below your current balance or even closing your account entirely.
  • Selling Your Debt:  Credit card companies are legally required to write-off defaulted debt (i.e. a balance that you are at least 180 days late on).  That doesn’t mean you aren’t on the hook for it, but rather that your creditor is likely to sell the debt obligation to a collection agency for cents on the dollar.Debt collectors – which most people consider to be far less scrupulous than major banks – buy old debt in the hopes of wrangling payment from consumers and thereby turning a profit on the transaction. And while the “regulatory environment has changed because the CFPB has made it clear it will be aggressive,” according to Mark E. Budnitz, professor of law emeritus at the Georgia State University College of Law, you must still be very careful when dealing with debt collectors and notify regulators if they try to pull anything fishy.
  • Threats:  As your debt situation worsens, the threats of a lawsuit, ruined credit, incessant phone calls, etc., will begin to fly, regardless of whether you’re dealing with your credit card company or a debt collector.  Take these threats seriously, but also know that regulations dictate what creditors/debt collectors can legally threaten and act on.
  • Lawsuits:  When the relationship between an indebted consumer and a creditor devolves to the point that legal action is the only way to resolve a contested balance or force payment for amounts owed, you’d better believe that legal action is what you’re going to get.  Interestingly enough, however, a creditor won’t necessarily follow through with trying a lawsuit in court simply because they’ve initiated a suit (more on that in a bit).It’s also important to note that debt collectors aren’t legally allowed to threaten a lawsuit if one is not actually being contemplated. The thing is, many debt collectors simply ignore this restriction.“Probably the most common Fair Debt Collection Practices Act (FDCPA) violations I observe are collectors threatening a debtor with a lawsuit with no ability or intention to bring a lawsuit,” Jeremiah E. Heck, partner in the Ohio-based consumer law firm Luftman, Heck & Associates, told CardHub. “Closely related, collectors will oftentimes threaten arrest or threaten to disclose the debt to an employer. There are hundreds of different ways to violate the FDCPA, and the more an indebted consumer knows, the better they will be able to stave off these abusive and deceptive calls.”

Credit Card Lawsuit Dynamics

When a credit card debt collector threatens a lawsuit, you are officially on notice because laws dictate that legal action seeking to recoup unpaid debt cannot be threatened if it is not being seriously contemplated.  As such, severely indebted, delinquent consumers should be on the lookout for court notices.  Missing or failing to respond to a summons can result in a court issuing a default judgment against you, and that can lead to wage garnishment, asset repossession, and liability for the full balance in question.

  • You’ll Get Served (Maybe):  When a lawsuit is filed against you, the plaintiff (the party doing the suing) is required to notify you of the claim being made against you and the date on which your case is scheduled to be heard in court.  The requirements dictating the manner in which service of process must be made vary by state, but in most cases the notice will come via certified mail.  Credit card companies and debt collectors are known to routinely screw up the service process, and any breach of protocol could result in your case being dismissed.Improper servicing “has been detected as a large problem in the metropolitan NYC area recently and over the decades,” says Robert Hobbs, deputy director of the National Consumer Law Center. “Judges in other states indicate it is not an unusual complaint in their courts. No one knows whether there is poor detection of the problem outside of NYC or actually less of a problem.”Consumer attorney Jeremiah E. Heck shares a similar view on the issue.“I personally have not seen this to be a big problem in Ohio. In our California office it is more prevalent, and I have read that NY debtors oftentimes are not served properly,” he told CardHub. “That being said, an individual that was not properly served should be able to vacate the judgment at any time regardless of the length of time that has passed. If service was not proper, then the court never really had jurisdiction to render a judgment and thus the judgment is void.”
  • Your Day in Court: Even if there is no question in your mind that you owe the amount you’re being sued for, showing up in court is a must.  Debt collectors bank on consumers not appearing in court, allowing a default judgment to be levied.  Appearing in court will also give you a chance to ask for proof that you owe the amount in question.
  • Ask for Proof:  In many cases simply asking for proof that you owe the amount in question will lead the plaintiff to settle.  The time and effort required to prove the legitimacy of credit card debt often outweighs the potential reward of a positive judgment for debt collectors.  That’s especially true if your credit card company sold your debt obligation to a debt collection agency because the terms of such sales often free creditors from having to prove the veracity of their records.  Without proof, a win in court will be hard to come by for a debt collector, and the burden of providing said proof is theirs alone.
  • Court Judgments:  There are a few different ways that courts can rule on a credit card debt lawsuit.  They can dismiss the case, find that you owe less than the amount contested, or rule in the plaintiff’s favor and order payment of the entire balance.  The ruling that is ultimately reached in your case will depend on your presence in court and the evidence against you.
  • Approved Collection Methods:  While you can’t be put in jail as the result of a lost credit card lawsuit, the plaintiff may be able to garnish your wages, take funds directly from your bank account, or even repossess material assets.  At the very least, you’ll be required to adhere to a defined payment plan.

Tips for Handling Credit Card Collections & Lawsuits

There are a few ways in which indebted consumers can minimize the chances of a lawsuit, avoid losing one when brought, and prevent undue headaches in the aftermath.

  • Try to Settle:  If you have already defaulted on what you owe or are close to doing so, you can attempt to negotiate an amended payment agreement with your creditor.  Your basic options are debt settlement (a lump-sum payment for part of what you owe in return for the rest being forgiven) and debt management (creating a payment plan that will reduce your monthly burden yet ensure the creditor ultimately receives all of what you owe).Both strategies have their corresponding advantages and disadvantages, and you can choose to handle each process yourself or with the aid of a reputable attorney or non-profit organization.  In either case, adhering to an agreement reached with your creditor will eliminate the threat of a lawsuit (make sure to get that in writing).
  • Open Your Mail:  If you’ve been threatened with a lawsuit for outstanding credit card debt, you should begin paying extra attention to your mail.  While your first inclination may be to open nothing in the hopes of hiding from your problems, that course of action makes you vulnerable to missing important communications and having a default judgment levied against you simply due to the fact that you didn’t show up in court.“The best way to avoid a judgment is to respond to the lawsuit,” says Dalie Jimenez, an associate professor of law at the University of Connecticut School of Law, whose research focuses on consumer financial protection. “The procedures on how to respond to a lawsuit are different in every state, but the notice of the lawsuit itself will indicate the proper way to respond.”
  • Seek Legal Advice:  Should you receive a notice to appear in court, seek out an attorney who is well-versed in consumer debt matters in order to find out what your options are and devise a plan.  Many attorneys offer free consultations, but even if you wind up having to pay for legal services, doing so is probably worth it considering the costs associated with losing in court.
  • Go to Court & Ask for Proof:  As mentioned previously, creditors and debt collectors don’t always have the resources or even the ability to successfully contest debt lawsuits in court.  Instead, they’re using the lawsuit as a weapon to coax payment from you or garner a default judgment should you not appear.  You should therefore always call their bluff by showing up in court and requesting that proof of the debt in question be provided.  This alone is often enough to get the case dropped altogether.“In our legal system, the person/company who files a lawsuit is called a plaintiff. Plaintiffs carry the burden of proof. In a collection case, this means that the plaintiff needs to show that: 1) they are the entity who is owed the debt; 2) that the person they sued owes a debt; and 3) the exact amount of the debt. All of these things need to be proved by whoever brought the lawsuit,” says Jimenez . “Consumers should respond to a lawsuit in a timely manner and request to the court that the plaintiff present evidence to prove all of these things. It is especially important that the plaintiff show that they are the right owner of the debt. This will ensure that no one else can come after the consumer claiming that the same debt is owed to them. In the case of a debt buyer who is suing: they need to show evidence in court that they own this specific debt. The plaintiff needs to present evidence of all of these things before they can get a judgment against you.”
  • Determine if Your Debt is Time-Barred:  If you have not made a payment toward your debt for a number of years, the statute of limitations for the owner of the debt to bring a lawsuit may have expired.  At that point, your debt is considered time-barred, and as long as you broach the age of your balance in court, the case will be dismissed.  Just make sure that you’re aware of the SOL for credit card debt in your state as well as how you can use conflicting state laws to your advantage.
  • Make Sure Both Parties Adhere to the Judgment:  Whether you reach a settlement agreement with a creditor or a court rules against you, adhering to the terms of any final decision is critical to avoiding additional complications.  In other words, make sure to submit payments in the amount and by the date specified and keep close tabs on what the creditor is up to in case they try to exceed their legal rights though unapproved collections efforts.
  • Rebuild Your Credit:  Once all the debt has settled, you’ll need to start the rebuilding process.  Reversing the credit score damage done by missed payments and/or default is central to this process, as one’s credit score dictates the loan rates they can garner as well their ability to lease a car, rent an apartment, or get hired for certain types of jobs.Credit cards are actually the best credit building tools available to consumers, as they require little investment and send information to the major credit bureaus on a monthly basis.  As long as this information is positive (i.e. reflecting on-time payments and low credit utilization), it will gradually devalue the negative information in your credit reports and improve your credit score.

Final Thoughts

Getting sued for credit card debt is no joke.  It’s not something that will go away if you ignore it either.  Rather, it’s something that you must approach with care, a thorough understanding of how the debt collection process works, and a bit of resolve.  Oftentimes, simply requesting that a creditor provide proof of the debt it says you owe will be enough to get them to drop the case, thinking that the juice isn’t worth the squeeze.

Regardless of whether you escape the debt collection process unscathed or find yourself on the wrong end of a court’s default judgment (which will necessitate payment in full), it’s important to note that your work cannot end there.  Not only will you have to abide by the terms of whatever debt resolution you and your creditor reach, but you must also work to rebuild your credit standing so as to avoid higher costs and major financial headaches for the rest of your life.

It’s also important that we create an increasingly tough regulatory environment for debt collectors, despite their efforts to roll back the rules already in place. “The debt collection industry regularly seeks to reduce the consumer protections that apply to them. Retaining the existing protections is a fundamental concern,” Hobbs says. “The debt buying industry has grown incredibly to a multi-billion dollar industry, filing tens of millions of lawsuits in the last decade but has never taken the trouble to purchase the legal evidence that is necessary to prove their case or validate that they own the debt and the consumer sued is the one responsible for it. Debt buyers use the technicalities and weaknesses of the state legal systems to steamroll 80-90% of the consumers they sue but walk away if the consumer is represented by a lawyer or able to navigate the rules of civil procedure on their own. Addressing these injustices is an important challenge for the CFPB, FTC, state legislatures, and the courts.”

Image: Mariusz Szczygiel/Shutterstock

Editorial Disclaimer: Editorial content is not provided or commissioned by financial institutions. Opinions expressed here are the author’s alone and have not been approved or otherwise endorsed by any financial institution, including those that are CardHub advertising partners. Our content is intended for general educational purposes and should not be relied upon as the sole basis for managing your finances. Furthermore, the materials on this website do not constitute legal advice and should not be relied upon as such. Please let us know if you have any questions or suggestions.

Ad Disclosure: Offers originating from paying advertisers are noted as “Sponsored” on the offer's details page. Advertising may impact how and where offers appear on this site (including, for example, the order in which they appear). At CardHub we try to list as many offers as possible but we don't make any representation of listing all available offers.

Previous How to Fix Credit Report Errors   Investing in Precious Metals: Fool’s Gold or Hidden Gem? Next
Feb 9, 2016
Photo of Cindy W.
Feb 9, 2016
I am wondering what if anything I can do......Capital One uses a third party law firm Fenton and McGarvy to pursue past due credit card accounts. Fenton and McGarvy filed a judgement against me in the State of Indiana and also said they served me in the State of New Jersey. I HAVE NEVER LIVED IN EITHER STATE...........Needless to say the judgement is being vacated so they say. I have been dealing with this mess since November. I am attempting to purchase a house but of course cannot do so until this is removed. What can I do? I call and get nowhere with Fenton and McGarvy - called the more
Mar 4, 2015
Photo of Greg P.
Mar 4, 2015
If your bank account has only Social Security funds in your account it can not be garnished or frozen even with a court order they bank can not collect a garnishment fee. If you spend all your Social security it won't be garnishable and no garnishment fee will be allowed. If you have more than two months back they can garnish that amount and take the garnishment fee. You can still ask for that back minus the garnishment fee. However, the bank can not freeze the past two months of Social Security or garnish it in any case. One another thing, the bank can not freeze the account or freeze more
Jun 18, 2014
Photo of Coral S.
Jun 18, 2014
Good information shared. I agree with you. Credit card companies usually overdue payment accounts give to debt collection agencies and debt collection agencies use different methods for debt collection from debtors so they can also sue to recover the debt.