What to Do If You're Sued By Your Credit Card Company

Whether the notice comes in the mail, or is delivered to your doorstep, being told that you are being sued for a credit card debt can be terrifying. For many people, the first reaction is to shut down and ignore the situation. “The tragedy…is not that the consumer was sued but that most never respond,” says Steve Rhode, founder of GetOutofDebt.org who is also working on a research project about lawsuits filed over consumer debts.

If a debtor ignores the lawsuit, however, the creditor will get a judgment against the debtor, which in turn will provide the creditor with additional powers to collect the debt, including seizing bank accounts or garnishing wages, in some states. (Note that in this story we are talking about situations where a credit card company itself sues you – not when a debt collector sues you.)

How to react when you are sued by your credit card company depends on a number of things — including, first and foremost, whether you acknowledge that you owe the debt in question.

You Know You Owe

If you know you owe the debt and the amount is correct, there are a few different ways this can unfold.

If you can scrape together some cash – perhaps with a loan from a friend or family member, for example, then one option is to pay or settle the debt immediately. “A reduction in balance owed or beneficial repayment terms are entirely possible outcomes,” says Rhode.

But you must act quickly.

“Once sued for collection, get immediately involved in the solution,” says debt settlement expert Michael Bovee, founder of the Consumer Recovery Network. In his experience, consumers will typically have to come up with 60% – 100% of the amount owed to stop the lawsuit, though smaller settlements are possible in some situations.

If you are able to resolve the debt at this point, you must get written documentation from the creditor acknowledging your payment and stating that the lawsuit will be dropped. This is especially true in cases where you are settling the debt for less than you owe. Otherwise, the creditor may say your settlement was a “payment” and still sue you for the balance.

“Be certain you are agreeing to a settlement that will also result in the dismissal of the lawsuit,” Bovee insists. “Settling quickly means you can avoid a judgment damaging your credit report.”

If you know the amount is correct, but you can’t afford to pay or settle it, it’s a good idea to talk with a bankruptcy attorney to find out whether filing for bankruptcy is your best option for dealing with the debt that you can’t afford. If it turns out that bankruptcy isn’t a good option, the attorney can explain to you what may happen once there is a judgment against you.

There Must Be Some Mistake

What if you don’t believe you owe the amount they are trying to collect? Maybe you disputed a purchase but the creditor refused to correct it. Perhaps you believe you were a victim of fraud. Or maybe your balance has just ballooned with bogus charges. Robert Brennan, a Southern California consumer law attorney, explains:

Look at the amount that is being collected and the amount that is being reported (on credit reports) as delinquent. When accounts go into collections, the collections departments frequently tack on fees, penalties and interest which do not belong there. If you see your $2,500 balance suddenly balloon to $5,000, or higher (not uncommon), write a certified letter to the credit card company asking for a detailed accounting of the penalties, fees and interest, along with a copy of the contract that permits the card company to charge these items for a defaulted account. Sometimes the card company will give you the info; most times they will not. If the card company cannot verify the proper amount of the debt, then it can only credit-report the amounts which it can verify, which is usually the principal-plus-interest at time of default. It may not be a big case, but consumers who fall victim to this type of false credit reporting can probably use the Fair Credit Reporting Act to pressure the card companies to at least lower the demand to the principal-plus-interest at time of default.

Fighting Back

If you think something is amiss – you are being harassed or the amount you owe has been inflated, for example — you may want to talk with a consumer law attorney with experience in credit and collection issues.

William Howard, a Florida consumer protection attorney with Morgan & Morgan points out that in a few states, including Florida and California in particular, there is a “collection harassment law that allows you to sue “Any Person” (including the original creditor or credit card issuer) directly for harassment such as: collecting one penny not owed, collecting fees they are NOT entitled to such as attorney fees or higher interest, too many calls, calling at work, etc.”

Consumer law attorneys usually offer a free or low-cost consultation, and may take the case at no cost to the consumer since the creditor or collection agency will be required to pay their fees if it turns out they are breaking the law.

While a lawsuit for a debt isn’t something anyone wants to have to deal with, try to keep it in perspective, and focus on resolving it one way or another.

“My advice is to not look at the suit as a negative,” says Rhode. “But as a positive opportunity to negotiate with the lender to work out a solution that might be affordable and beneficial to both parties.”

Image: Hemera