Sued For a Credit Card You Can’t Pay? Find Out How to Settle Credit Card Debt Before Going to Court in 6 Steps

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In a Nutshell

If you have a pile of unpaid debt from a credit card that you aren’t able to make even the minimum monthly credit card payments on, you might be facing a credit card lawsuit. Many companies will consider filing this kind of lawsuit about six months after someone stops paying. To avoid facing debt lawsuits, you can try to work out a settlement with your credit card so you can get some debt relief without paying the full amount of debt. Read on to learn some tips to prepare for negotiations.

Written by Amy Carst.  Reviewed by Attorney Andrea Wimmer
Updated July 22, 2020


If you have a pile of unpaid debt from a credit card that you aren’t able to make even the minimum monthly credit card payments on, you might be facing a credit card lawsuit. Many companies will consider filing this kind of lawsuit about six months after someone stops paying.

To avoid facing debt lawsuits, you can try to work out a settlement with your credit card so you can get some debt relief without paying the full amount of debt. Read on to learn some tips to prepare for negotiations. 

1. Remember That the Other Side is Motivated to Settle

If you’re at a point where your credit card company is threatening to file a lawsuit for nonpayment, they probably recognize the odds of getting payment in full are fairly low. Going to court would only increase their expenses.

These companies recognize that agreeing to a settlement earlier, rather than later, can save them a lot of time, expense, and headache. Most would rather get some of the money you owe them, than face a long, drawn-out court battle where they might get nothing. It’s much cheaper to have a few phone calls and move on to the next person.

Credit card and debt collection companies also know that you simply may not have enough money to go around. If you decide to file bankruptcy in order to get some debt relief and breathing room, they probably won’t get much money from you.

Credit card debt, in particular, is non-priority, unsecured debt. This means that, if you end up filing bankruptcy, they will get paid last, with whatever is left over after you pay back priority debts, like back taxes and child support, and secured loans, like your mortgage and car.

For these reasons, the other side will probably be motivated to settle. After all, collection agencies would rather get a piece of the cake than crumbs.

2. Do Your Research

When the time comes to settle your case, it’s a good idea to do some research. After all, knowledge is power. You’ll want to figure out how much you owe, how much money you can put towards the debt, and decide if settlement is really the right route for you.

Research the Debt

Many people are embarrassed by having debt that follows them around, especially old debt. They may not know exactly who they owe, or what the amount is.

If you want to settle, the first thing you should do is figure out how much you actually owe and who owns the debt. Even though the credit card company was the original creditor, they may have sold the debt to a debt collector company. Before trying to settle a debt, you should send the collection agency a verification letter. Under the Fair Debt Collection Practices Act (FDCPA), debt owners must tell you how much you owe, and who you currently owe the debt to.

When researching the debt, you also should look at how old the debt is. This is important, because if it’s an old debt, your obligation to pay it might be past the statute of limitations. That is, the company might not even be able to sue you to collect the money. If that’s true, then you won’t need to pay anything towards it. Debt collectors aren’t required to tell you if your debt is past the statute of limitations, so you will need to research your state law, or speak with a local lawyer.

How Much Can You Afford to Put Towards a Settlement

The next thing you should do is figure out how much money can actually go towards settling a credit card debt.

This will involve a look at your own personal finances. Make a list of all your important payments, like your mortgage, car, utilities, taxes, etc. and see what’s left over. What other accounts do you have to make at least minimum payments on? It doesn’t make sense to put a lot of money towards eliminating one debt, if you’ll just be in another hole with a different debt.

Next, take a moment to look at your savings, if you have any. If your car breaks down next month, will you have to take on more debt to get it up and running again, or do you have some cushion to work with? While it might feel good to put every drop of savings to closing off an account, it doesn’t make sense to continue an ongoing cycle of draining savings to pay debt, only to take on more debt every time you hit a bump in the road.

At the same time, when looking at your personal financial situation to figure out how much you can pay, you should understand that the company probably won’t accept an insulting low number. You should be realistic and try to find an amount that is reasonable, whatever that amount is for your situation.

Decide if Settlement is Really the Best Option For You

Finally, if you’re considering trying to settle debt from a credit card, you should also make sure you know that settlement is really the best option for you.

This is especially the case if you’re considering filing bankruptcy in the near future. When you file bankruptcy, all debt collection efforts must stop. This includes debt collection lawsuits against you to collect unpaid bills, which gives you breathing room so you can have time for debt management.

However, if you negotiate and pay a settlement but file bankruptcy within three months, your time might be wasted. Under the rule for preferential payments, the bankruptcy court could take back the money and distribute it to your other creditors.

If you’re considering filing for bankruptcy, you can see if you qualify to work with Upsolve. You can also look for a free consultation with a local bankruptcy attorney to discuss your options.

3. Negotiate the Settlement

After you’ve done your research and confirmed that settlement is the right option for you, it’s time to make an offer. You’ll need to give the other side a solid plan of how and when you’ll pay. It’s not enough to tell them “I want to make a settlement payment. How low will you go?”

Some people like to go back and forth several rounds in negotiations; other people like to get it over and done with sooner rather than later. Regardless of your personal style, it’s a good idea to expect at least two rounds of back-and-forth before you make a deal. Most people will offer something less than they can actually afford to give themselves room to meet in the middle.  The other side might come back with a different number, which can give you room to move up to your maximum number.

If you can make a lump sum payment soon, the company might be willing to accept a slightly lower number. If you can’t pay off the credit card debt all at once, try to make an installment plan over a few months. Be specific with the monthly payments you can offer and the schedule of your payment play to increase the chances of success.

When you make an offer, it’s a good idea to put it in writing so there isn’t any confusion down the road. Don’t make an offer you can’t afford. If the party on the other side of the table accepts your number, you must give it to them.

4. Don’t Ignore Court Papers

Even if you’re in the middle of debt settlement negotiations, the owner of the debt might decide to sue you. You can continue negotiating with them, but you also now need to deal with the court case.

If your they do decide to sue you for the unpaid debt, they will have to notify you that they filed a lawsuit by sending you a court summons along with the complaint. Some courts let them mail these documents to you, but in many states, somebody will need to hand you the papers personally. If you are sued, your local civil court should have a self-help desk to help you file the correct papers.

If you get these documents, don’t ignore it! You only have a limited amount of time to file papers with the court, possibly only a few weeks. If you don’t file in time, the judge can issue a default judgment, which means that the other side will automatically win the case. You might be responsible for the full amount of the debt and the other side’s expenses, like their court costs and law firm and legal fees.

If the other side wins a judgment, they can take the money from you through wage garnishment, or even taking the money directly from your bank account as part of a bank levy.

5. Accept That You Can’t Win Them All

Even though most companies are willing to talk about wrapping up a case before it goes to court and are interested in settling with you, you won’t always be able to settle a debt before it goes to court. There are unreasonable companies and unreasonable people who are unwilling to budge. There are also times when both sides are just too far apart to make a deal, and negotiations fall apart. As difficult as it can be, that’s just the way things play out sometimes.

Additionally, if you aren’t able to settle one or more of your debts, you could consider filing bankruptcy as a different way to seek debt relief.

6. Watch Out for Scamming Debt Settlement Companies

Finally, even though there are many legitimate companies out there who can help you settle your debts, there are also debt settlement companies that take advantage of people by not following the law or scamming people.

The Federal Trade Commission (FTC) advices people to watch out for companies that charge a fee before settling your debts. You should also watch out for companies that advice you to stop paying your debts, so you can save money and pay everything off later. Many companies won’t explain the risks that come with this. If you stop paying debts, you can incur more late fees and penalties, have your credit report reflect the nonpayment, and see your credit score drop significantly over a few months.

Finally, you should reconsider any debt settlement companies that make promises or guarantees about overall success or final payment rate. Debt settlement organizations don’t have the power to force your credit card company to agree to settle at a specific rate.

Remember – if you’re worried about dealing with scammers, you can always try to settle your debts without the assistance of others.

Conclusion

Trying to negotiate a settlement with your credit card company can seem like an insurmountable task. While you’re going through the process, try to remember that you’re not the only one who’s interested in wrapping things up quietly.



About the authors
Amy Carst

Amy Carst is a writer, human rights activist, and speaker. She writes for multiple law firms and human rights organizations and studied law until she realized she’d rather write for attorneys than be one. Prior to her career in legal writing, Amy spent several years in insurance... read more

Attorney Andrea Wimmer

Andrea practiced exclusively as debtors’ counsel in consumer chapter 7 and 13 cases for more than 10 years before joining Upsolve, first as a contributing writer and editor and ultimately joining the team full time in August 2019. While in private practice, Andrea handled all ban... read more

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