Credit Card Debt Lawsuits: What to Expect and How to Defend Yourself

Falling behind on credit card payments can have serious consequences, including the possibility that the credit card company (or a debt collector) might sue you to recover the money you owe. A lawsuit can lead to a judgment for the money owed, which can lead to wage garnishment or property liens. Understanding when you might be sued, the steps involved in a credit card lawsuit, and how to defend yourself is critical for protecting your rights and finances.

When Can a Credit Card Company Sue You?

If you're delinquent on your credit card payments, the credit card company or a debt collector hired by the credit card company might sue you to recover the money you owe.

Credit Card Company Could Sue You If You Break the Terms of the Contract

When you originally obtained the credit card, you signed an agreement electronically or in writing. This agreement defines your rights and responsibilities, as well as those of the credit card company. Falling behind or failing to make payments on the credit card typically violates that agreement, and the credit card company may then sue you.

A Collection Agency Might Buy the Delinquent Credit Card Debt

Before you get sued, credit card companies typically try to minimize their losses by selling the debt to a debt collector or debt buyer. That collector or buyer becomes the legal owner of the debt and possesses most of the same rights as the original creditor.

If you fail to settle the debt with the debt collector, it might be sold and resold again. Eventually, the debt buyer or collector will probably refer the debt to an attorney's office to initiate a lawsuit.

The Debt Collection Attorney's Office Will Then Probably Sue You In State Court

Once your debt reaches the debt collection law firm, the attorney will usually give you one last chance to settle the debt to avoid a lawsuit. If attempts at settlement fail, the credit card company's attorney files a lawsuit.

If you don't defend against the suit, you will automatically be held legally liable for the full amount stated in the lawsuit.

Steps in the Lawsuit Process

State law controls the procedures the credit card company must follow when filing a lawsuit against you.

Credit Card Company Files a Complaint

The credit card company (the plaintiff) typically files a document (a "complaint") to begin a lawsuit against you. The complaint outlines how much you owe and why the credit card company thinks you owe it. You'll receive a copy of the complaint and summons explaining your right to respond to the suit when the company serves you with the lawsuit papers.

You May Then File an Answer to the Complaint

In the answer, you should admit or deny each statement in the credit card company's complaint or state that you don't have sufficient information to admit or deny a statement. When you deny the statements in the complaint, you're defending against those statements by arguing that they're not true. These denials are typically a question of whether something is factually true or not. In addition to making denials, you should raise any affirmative defenses that your case merits. Include a section where you raise defenses to the complaint in your answer.

What Happens If You Don't Respond?

However, if you don't respond to the suit, the credit card company will probably get a default judgment against you.

Discovery: Getting the Information You Need to Defend Against the Lawsuit

Filing discovery requests force the credit card company to share relevant information to your case. If you believe the credit card company possesses documents or other information that supports your arguments, file a request with the court. The request should specifically describe the items you seek and why you believe they're relevant to your case.

Possible Outcomes of a Credit Card Lawsuit

The outcome of your credit card lawsuit will likely necessitate further action on your part. Your understanding of those possible outcomes helps you to prepare for the worst.

Court Rules in Your Favor

If the court rules in your favor, the credit card company loses and can't collect against you for the debt. You should consider requesting damages from the court against the credit card company to help pay your attorneys' fees.

Court Dismisses the Case

The court may dismiss the case for many reasons. This outcome might initially sound good. However, a dismissal without prejudice typically still leaves open the possibility for the credit card company to refile the lawsuit to correct any error that led to the dismissal. You should always ask the court to dismiss the case "with prejudice" to protect yourself from a future lawsuit.

Court Rules in Favor of the Credit Card Company

If the court rules in favor of the credit card company, you now have a judgment against you for a specific dollar amount.

After a Judgment: Wage Garnishment, Bank Levies, and Liens

The credit company will then ask the judge to allow it to collect on the judgment. Typical collection methods include but are not limited to, garnishing wages, placing liens on property, and seizing property.

Common Defenses to Consider

With an affirmative defense, you argue that even if everything the credit card company alleges against you is true, it should still lose the lawsuit. Here are some common affirmative defenses to credit card lawsuits:

Statute of Limitations Expired (The Debt Is Too Old for a Lawsuit)

The statute of limitations is an affirmative defense where you argue that the debt collector can't sue you because of the age of the debt. Each state defines how long a debt remains collectible, typically ranging from three to ten years. You must raise this defense in court yourself; the court won't raise it for you.

Failure to State a Claim

Most states require credit companies or the debt collector collecting on the account to attach a complete set of documents to the complaint. These documents usually consist of the original contract and any document showing that the company suing you actually owns the debt. If the credit card company or debt collector doesn't attach these documents, you can argue that it failed to state a claim.

Improper Service of the Lawsuit

Each state's laws describe how, when, and where a credit card company can give you notice of a lawsuit. Proper service usually occurs when the creditor's or collector's agent personally delivers to you a copy of the lawsuit or leaves it with someone, usually over the age of 15, at your residence. Examples of invalid service are when the credit card company simply leaves it with a neighbor or just drops it at your doorstep. If the credit card company notified you of the lawsuit in an improper manner, you may argue invalid service.

Bankruptcy Discharge

If you filed for bankruptcy and the debt was discharged, the creditor or collector can't sue you or try to collect on the debt. For this defense to work, you'll need to produce proof of a bankruptcy discharge and your petition showing you listed the debt.

Lack of Standing (Debt Ownership Issue)

The suing party must prove they have the legal right (called "standing") to collect the debt. This means they have to show the debt was legally transferred from the original creditor (or its successor) to them, proving that they own the debt.

Inaccurate Debt Amounts

Debt buyers and collectors often make mistakes when calculating the fees, interest, and total amount owed. You can require the plaintiff to show how they derived the total amount they claim you owe. If they can't provide a complete, accurate accounting, the court might dismiss the claim.

Identity Theft/Mistaken Identity

In certain circumstances, such as in cases of identity theft or a clerical mistake, you might be able to argue you're not the person who owes the debt.

Frequently Asked Questions (FAQs) About Credit Card Lawsuits

Here are the answers to some FAQs about credit card lawsuits.

Can credit card companies sue you?

Yes. If you have a delinquent credit card account, the credit card company or a buyer who acquired the delinquent account may sue you in court to recover the unpaid debt. You might have a defense to the lawsuit, such as the action is time-barred.

What are your chances of winning a credit card lawsuit?

Your chances of winning a credit card lawsuit depend on several factors, such as whether you have a strong defense to the action (such as the statute of limitations has expired, mistaken identity, or improper documentation). Keep in mind you must answer the suit in order to win; otherwise, the plaintiff will probably get a default judgment (an automatic win against you).

However, if you owe the debt and the plaintiff has strong evidence, your chances of prevailing in the suit are lower.

What should I do if I'm being sued by a credit card company?

You should respond to the lawsuit by the deadline given in the summons. You'll need to file an answer, raising any valid defenses available to you. It's a good idea to get help from an attorney. A lawyer can prepare the response and represent you in court. If you fail to respond to the suit, the plaintiff will probably get a default judgment against you.

When to Talk to a Lawyer

If you've been served a lawsuit for nonpayment of a credit card debt, consider hiring a lawyer to represent you. Having a lawyer can greatly improve your chances of a positive outcome. But keep this in mind: If hiring a lawyer costs more than the creditor seeks in the lawsuit, it might not make sense to seek attorney assistance. Still, you should respond to the suit. To learn about representing yourself in court, get Represent Yourself in Court by Paul Bergman and Sara J. Berman (Nolo). Also, you might qualify for free or low-cost legal advice from a legal aid organization.