Why is my credit card company suing me?

Credit Card Lawsuits

You’ve received a summons and complaint from your credit card company. What to do now? Should you file for bankruptcy?

First, understand that credit card debt is a type of unsecured debt, meaning that if you can’t make payments, your credit card company cannot come after your property right away. However, this all changes when the credit card company brings a lawsuit to enforce a past due account. If the debt owed is valid (which it usually is), it is likely that the credit card company will be able to obtain a judgment for the full amount that is past due. This is not because the credit card companies have a team of star litigators on the payroll. No, it’s rare that a debtor will file an answer to a complaint to dispute a valid debt. This allows the credit card company to win the lawsuit by default. Why is this important?

The Judgment

The judgment is the court’s determination that the debt is due. In most states, obtaining this validation of the debt from the court system is a condition that must be met before the credit card company can attempt to change its position from unsecured creditor to secured creditor. In other words, they sue to obtain a judgment which allows them to come after your property or income in satisfaction of the debt. The judgment will be recorded in the county where you live. From there the credit card company can go forward with a bank levy or wage garnishment. Your credit card company may even put a lien on your real estate.

Is Bankruptcy an Option?

While filing for bankruptcy can eliminate the personal liability associated with the judgment, once it attaches as a lien on the property it will be harder to get rid of. For this reason, it is not a good idea to wait too long to act once a collections proceeding has been initiated against you. You will not be able to sell the property until the lien is paid or removed, and in some cases the creditor may sell the property to pay the lien.

If the property is exempt (i.e. your homesteaded house, or mobile home) that lien can be removed pursuant to 11 U.S.C. Sec. 522(f). This is not part of the ordinary bankruptcy procedure. While your bankruptcy is open, you must request your attorney to file a Complaint to Avoid a Judgment Lien; there is typically an extra charge for such an action.

Debt Settlement Options for Credit Card Lawsuits

In some cases, being sued by a credit card company can be a positive thing as you or your attorney can call the firm on the other side of the suit and negotiate a large reduction in the balance you owe. Often debt settlement negotiation can help the debtor avoid bankruptcy as well as an unpleasant judgment.

The bottom line is this: if you’ve been sued by a credit card company, call an attorney right away to explore your options.