Sued for credit card debt: Learn the steps to protect yourself

Getting sued for anything can feel scary and confusing. It can be especially difficult if you’re sued for non-payment of a debt. When you’re already struggling with financial issues, a lawsuit may seem like the last thing you’re prepared to deal with.

The good news is that you have rights, and there are ways to defend yourself when sued for a debt. So don’t be intimidated. 

By taking some logical steps, you can make the best of a bad situation. There are things you can do to improve your chances of beating the lawsuit. Even if you lose the case, there are still things you can do to significantly reduce how much you’ll owe as a result.

Who can sue you for credit card debt?

You might be surprised to find that a company you have never heard of is suing you for credit card debt. This is because credit card companies often pass their collection problems along to other organizations.

It’s important to understand who can sue you for credit card debt. This may help you negotiate with the creditor. Also, you may have additional legal protection depending on who is suing you.

Credit card companies

Your payment terms are described by the written agreement you signed when you opened your credit card account. Typically payment is due within 30 days. Once a payment is overdue, it is considered delinquent. 

Even after a payment becomes delinquent, a credit card company is likely to pursue routine collection efforts before taking legal action. These may include mailing you reminders and contacting you by phone. 

If those routine efforts fail, your credit card company might sue you for the amount owed. This may include the amount you borrowed plus any interest and penalties specified by your credit card agreement. 

Instead of pursuing you directly, credit card companies often pass along the task of debt collection to other firms. These include debt collectors and debt buyers.

Debt collection firms

A debt collection firm is a company that is hired by a creditor to collect money on their behalf. So, if you owe a credit card company money, they may hire a debt collection firm to go after that money for them.

It’s important to know whether the company trying to collect a debt from you is the original creditor or another firm. If it’s someone other than the original creditor, then their debt collection activities are covered by a law called the Fair Debt Collection Practices Act (FDCPA). This includes debt collection firms and law firms hired to collect debts. 

The FDCPA limits when and how a debt collector can contact you. It is designed to make sure debt collectors keep communications about your debt private. It also guards you against having debt collectors harass you with frequent or inconvenient contact. 

The FDCPA requires debt collectors to provide you with written details about the debt a company is trying to collect. It then requires the debt collector to give you 30 days to respond before they contact you again. 

Debt buyers

There are companies that specialize in buying past-due debts from creditors. This gives them the legal right to try to collect on that debt. They profit if they can collect more than the amount they paid for the debt. 

There are two reasons why it helps to know if a debt buyer is contacting you about a debt instead of the original creditor:

• Companies who buy past-due debt for the purpose of attempting to collect on it are covered by the FDCPA. Their collection activities are subject to the same restrictions described above in the section on debt collectors.

• When a company buys past-due debt, they typically do so at a huge discount. They typically pay only eleven cents for every dollar of debt acquired, according to the Consumer Financial Protection Bureau (CFPB). Keep that in mind if you reach the point of negotiating a settlement with a debt buyer. They can accept a lot less than the full amount you owe and still make a profit. That may give you more room to strike a bargain to reduce how much you have to pay. 

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How to respond to a credit card debt lawsuit

Just because you are late with a credit card payment doesn’t mean you’ll be sued. If it’s a fairly small amount, the credit card issuer may decide it’s not worth the time and expense of bringing the case to court. A study by the Consumer Financial Protection Bureau found that among major credit card issuers, the amount owed in cases where they took legal action typically ranged from $2,700 to $12,300. 

Another factor in whether you are likely to get sued is the likelihood that you would be able to pay if a court judgment goes against you. Credit card issuers don’t want to bother suing people who don’t have the income or assets necessary to pay any judgment that results. 

Receiving a court summons

If you are sued, you will receive a legal document called a summons. This notifies you that you are being sued and are required to respond. 

A lawsuit for collection of debt is a civil matter, as opposed to a criminal one. That means you won’t go to jail if you lose the case, but you will be subject to possible financial losses. So, it’s very important to respond if you receive a summons. 

If you fail to respond to a summons, a default judgment is likely to be issued against you. That means you automatically lose the case because you haven’t responded. 

The CFPB found that most debt collection cases brought by credit card companies result in default judgments. If you simply accept a default judgment instead of responding to a summons, you give up your right to dispute the case brought against you. Doing this might also reduce the leverage you have to negotiate a settlement with the credit card company. 

How to get a credit card lawsuit dismissed

A credit card lawsuit can be overwhelming but you can take steps to try to get it dismissed. Here's how you could protect yourself:

Challenge the validity of the debt

One of the first things you can do is challenge the validity of the debt. If the creditor or debt collector can't prove you owe the debt, the lawsuit might be dismissed. Here’s what you should ask for:

• Proof of the debt: Request the original contract you signed. Also, ask for a clear breakdown of the amount they say you owe.

• Proper documentation: The creditor must prove they own the debt, especially if a third-party buyer bought it.

If they can't provide this, you may have grounds to ask the court to dismiss the lawsuit.

Prove identity theft or fraud

If you didn't incur the debt in question because you were the victim of identity theft or fraud, you can use this as a powerful defense. Here’s how to handle it:

• Gather evidence: Collect any documents that prove the debt is from identity theft. This includes police reports and communication with creditors.

• Report the fraud: Report the fraud to the credit bureaus and any banks involved.

If the judge agrees the debt was fraudulently incurred, it could lead to a dismissal. It would mean you aren't responsible for it.

Check the statute of limitations

Every state sets limits—called a statute of limitations—on how long a creditor or debt creditor has to sue for unpaid debt. If they file the lawsuit after this period has expired, you could ask the court to dismiss the case. Here’s what you need to know:

• Check your state's statute of limitations. These statutes vary by location and type of debt. A statute of limitations usually ranges from three to six years.

• File a motion to dismiss. If the debt is time-barred, it means the statute of limitations has expired. You could ask the judge to dismiss the case.

This is a strong defense. Courts usually dismiss cases where the statute of limitations has passed.

File a motion to dismiss

If you believe there’s a legal flaw in the lawsuit, you could file a motion to dismiss. Here are some common reasons to do so:

• Improper service: If you weren't properly served with the lawsuit, you might argue for a dismissal.

• Lack of jurisdiction: Creditors have to sue you where you live or where you signed the contract for the debt. Otherwise, the case may be dismissed. 

• Lack of standing: If the creditor can’t prove they have the legal right to sue you, the court may dismiss the case.

To file a motion to dismiss, you must submit a formal request to the court. The motion should explain your reasons and provide any evidence.

You can look on the court’s website for instructions on how to answer a creditor lawsuit or file a motion to dismiss.

Do you need a lawyer if sued for credit card debt?

If there are clear mistakes in the claim against you or the statute of limitations has run out, you might be able to get the lawsuit dismissed easily. If not, you should seriously consider getting legal help. 

An attorney experienced with debt collection cases can advise you on the best strategy for how to respond to the lawsuit. This may include advice on how to fight the lawsuit as well on how to minimize what you have to pay.

There are a couple other important things an attorney with experience in these cases might be able to help you with:

• Knowing which of your resources are judgment-proof. Depending on the laws in your state, some of your assets and/or sources of income may be protected from legal judgments against you. The laws on this vary from state to state, so getting an attorney who is familiar with the laws in your state is vital.

• Deciding whether bankruptcy is the best step. It’s one thing to fight a single lawsuit. It’s another thing if you have multiple creditors coming after you. Bankruptcy has serious long-term consequences, but it can also serve a useful purpose. If you owe money to more than one creditor and can’t afford to repay what you owe, bankruptcy might be the most sensible solution.

If you have trouble finding an attorney to take your case, see if there is a legal aid society in your area. These organizations specialize in finding help for people who are inexperienced with the legal system. 

Can you settle the debt when a lawsuit has been filed?

Debt settlement can be an efficient way of getting rid of a lawsuit against you. 

Negotiating to pay part of what you owe might work best for both parties. It can allow you to settle the debt for an amount you can afford. It can also allow your creditor to collect some payment without having to go through the time, expense and risk of a lawsuit.

You might be surprised at how motivated your creditors are to settle a debt rather than take the case to court. A CFPB study found that even when a court rules against a debtor, creditors collect an average of less than 20% of the amount owed within the first year after the judgment. Even four years after a judgment, creditors collect an average of just over a third of what they’re owed.

Creditors know that even if they win in court, they are likely to collect only a fraction of what they are owed. It may be much more cost-effective to accept partial payment upfront. So, make an offer, or work with a debt settlement specialist who can negotiate on your behalf.