Can a Credit Card Company Sue Me if I Stop Paying?

The following article explains, describes, and reviews the timeline of events that occur when you stop paying consumer debt such as credit card debt and the original creditor, a financial institution, a collection agency, or a law firm as a collection agent, files a debt collection lawsuit.

What Happens When You Default on a Credit Card?

When you open an account for a credit card, you are incurring an unsecured debt. Medical bills, student loans, and personal loans are other examples of unsecured debts. Unlike the creditor of a secured debt, like a mortgage, who requires collateral for the debt that it can sell it to satisfy the debt, the creditor of an unsecured debt, like a credit card, can only file a lawsuit against you personally as recourse to recover an unpaid debt. Until an unsecured creditor like a credit card company files a lawsuit and the court enters a judgment, it can do nothing else as far as debt collection, including garnish wages or a bank account, other than calling you on the phone and contacting you through the mail. 

In this situation, you may think you have time to find some solution to rectify the situation or even that it’s unlikely that you’ll be sued. There are some people who believe that a large bank won’t spend the time, money, and effort to sue them. But banks and credit card companies will sue them, especially since they can recover the costs of the lawsuit in a judgment. So waiting around to see whether a creditor will file a lawsuit is only avoiding the inevitable and not the wisest course of action in most cases. 

If you miss a monthly credit card payment, it’s likely that you’ll receive a notice in the mail soon thereafter. If you’re connected online with your credit card company, you’ll probably receive an email as well. By the time your next payment is due and the delinquency gets to thirty days, you will start receiving phone calls and if you miss the next payment, this pattern will escalate. The original creditor may soon pursue a collection agency to recover the debt. Missing further payments will additionally affect your credit report in a negative way and your credit score will start to drop.

Collection Accounts and Lawsuits

Debt collectors eventually turn up the heat. A credit card company and any debt collector it uses will continue to attempt to collect an unpaid credit card debt exclusively through contacting you by phone, mail, and even email, but only for a limited time. At some point, whether based on a set internal time frame for filing a debt collection lawsuit, just believing that you aren’t going to pay the debt, or finally filing suit just before the statute of limitation expires, the creditor will take action and file a collection lawsuit against you in your local court.

You sign a contract promising to repay the debt and open an account when you get a credit card. A collection lawsuit involves the credit card company, as plaintiff, filing a suit against you, the defendant, for breach of contract, and on an open account. It files a complaint that you must answer within a certain time frame, usually 20 days. In addition to requesting the amount of the debt, the complaint will request interest on the debt, attorney fees, and court costs.

Once you are served with the complaint, as a defendant, you must file an answer that acts as a response to the complaint filed by the credit card company. An answer contains replies to each numerically-listed claim on the complaint. The reply admits, denies, or asserts a defense paragraph-by-paragraph to the complaint.

Failing to file an answer is like failing to show up to play a game - you will lose by default. When you fail to file an answer within the allotted time frame after a credit card company sues you, this debt collector as the plaintiff will request the court to enter a default judgment. You will be served with the request for a default judgment and given one further chance to answer the complaint. If you fail to do so, the court will enter a judgment in favor of the plaintiff/credit card company, which will now allow it to take additional action against you to collect its debt in full.  

What Happens When a Judgment Is Obtained

When a debt collector obtains a judgment, including a default judgment, against a defendant consumer, this creditor is now equipped with more options to collect its debt. These options under state law include garnishing wages, levying a bank account, and placing a judgment lien on real and personal property.

A debt collector, whether the original creditor or a collection agency, with a judgment, is referred to as a “judgment creditor.” Once a creditor receives and possesses a judgment against you, a judgment creditor may petition the court for an order that garnishes your wages or the money that you have in a bank, such as in a checking or savings account.

A judgment creditor may also obtain a lien with the judgment known as a judgment lien. This lien may be placed on your home or automobile and when you sell either, the judgment creditor will be in line to take its share of the sale proceeds.

Once it is awarded a judgment by a court, a creditor will weigh its options. It will even give you an opportunity to pay the judgment before it takes any of these further collection measures. Of course, the debt will have increased as a result of the costs of the lawsuit. Nevertheless, some consumers may find a way to scrape up the money to pay the debt in this situation specifically to avoid any garnishments, levies, or executions. Most consumers are not in a position to do this, but it happens. 

For a judgment to have any value, a defendant must have non-exempt assets on which a lien or garnishment order can attach to allow the judgment creditor to collect any money. Otherwise, the bottom line is that a defendant may be judgment proof.

Judgment Proof

If you are judgment proof, you are likely in a position where you do not own enough property or have enough assets for a judgment creditor to collect anything. Even if you are sued and you lose. However, this doesn’t mean that they can’t or won’t or will not sue you. They can and they still may sue you. Being judgment proof simply means that a creditor probably won’t be able to collect if it takes you to court.  

You are probably judgment proof if all of your income and assets are exempt, you don’t have any money in a bank account, or you don’t have any equity in real property. If all these circumstances are applicable to your situation, you are probably judgment proof.

Federal law limits how much a creditor can garnish from your income to a percentage of what you earn after deductions or the amount by which your income exceeds minimum wage. Also, creditors cannot take any income from certain sources such as Social Security, child support, unemployment benefits, and Social Security Disability Insurance (SSDI).

If you have little or no money in a bank account, there will be nothing for a judgment creditor to freeze and collect. A judgment creditor may not garnish exempt assets such as Social Security even after they are deposited in a bank account.

Judgment creditors may convert a judgment into a judgment lien and place it on real estate. This lien will have to be paid when you sell or refinance the property. However, if you don’t have any equity in any real estate that you own, there will be nothing on which the lien can attach to satisfy the judgment.

Finally, if all your assets are exempt or you own very few assets, such as a few household goods, there will be nothing on which a judgment can attach to satisfy it.

However, it is important to remember that even if you are judgment proof at any precise moment, circumstances may change. If a creditor garnishes your wages or places a lien on your property while you are judgment proof, and the garnishment or lien lasts until your income or ownership of assets increase at some future time, a judgment creditor can still pursue your assets at this future point in time.

Just because you are judgment proof and a debt collector chooses not to file a lawsuit doesn’t mean it will stop other collection efforts. It will continue to call you and mail you letters demanding immediate payment. It may even engage in tactics that constitute harassment. Also, a creditor will still try to levy your bank account with the only difference being that they will have to return any money that it levies. But you will have to compel them to do it through the proper legal channels which is not an insignificant burden. Thus, being judgment proof doesn’t mean that creditors will make your life easy.    

Bankruptcy and Credit Card Lawsuits

Maybe you have several credit card debts and have been unable to make the monthly payment on all of them, damaging your consumer credit. If you’ve had credit counseling and considered all your options, including debt consolidation, debt settlement, or a debt management plan to find debt relief, and none of these are presently viable based on the advice of a credit counselor, the fresh start provided by bankruptcy may be the best solution.

If life remains chaotic as creditors continue to try to collect debts, often by harassment that borders on illegal conduct, filing a bankruptcy case is a viable option, which you can do by yourself. Bankruptcy will forever stop any collection lawsuits, as well as any post-judgment activity such as wage garnishments, bank account levies, and judgment liens. 

While bankruptcy will prevent a collection lawsuit from ever being filed if it has not already been filed for a certain unsecured debt such as a credit card, it is still a useful tool after a lawsuit has been filed. Of course, this depends on the type of lawsuit filed. If it is a civil lawsuit for the failure to pay a debt, bankruptcy is an effective solution.

Bankruptcy provides a powerful mechanism known as the automatic stay that stops most collection efforts by most debt collectors. The automatic stay goes into effect the moment that you file a bankruptcy case and lasts for the duration of the case.  

Once you receive a Chapter 7 discharge, it will serve infinitely as a bar to any collection efforts for any discharged debt, including a credit card debt reduced to a judgment. Any debt properly scheduled or listed in a Chapter 7 bankruptcy case will be discharged and any creditor or debt collector related to this debt will be forever prohibited from collecting this debt. Upsolve can also help if you’re considering bankruptcy, whether you want to file with the help of a bankruptcy attorney, or you want to file pro se, without an attorney. 

Conclusion

Failing to pay credit cards will result in a credit card company escalating its efforts to collect the debt. First, this will result in more letters and phone calls by the original creditor. Next, it will use a collection agency to collect the debt. If these efforts fail, it will file a civil lawsuit to recover the debt. It may even wait until the statute of limitation is about to expire. Once a creditor receives a judgment, it can take other measures, such as a wage garnishment, bank account levy, or judgment lien to satisfy the debt. Some defendants may be judgment proof because they don’t have enough assets for a judgment creditor to seize. Filing bankruptcy either before or after a lawsuit is filed will provide debt relief in most circumstances. Just about anyone can use the Upsolve web app to file. We can also refer you to a bankruptcy attorney in the Upsolve Local community for a free consultation.