10 Steps To Take If You’re Sued For A Credit Card Debt

To many people, falling behind on credit card payments means a ruined credit score and an endless string of calls and letters from collectors. If you let those calls and letters go unanswered for long enough, however, the credit card company may decide to file a lawsuit.

These lawsuits, usually filed in state and local courts, are increasingly common and can have devastating financial implications. Wages and bank accounts can be seized to collect on the resulting judgments, which continue to accrue interest for years to come. Four million Americans had their wages garnished over consumer debts in 2013, and reports indicate that Black communities are hit much harder by debt collection lawsuits than others.

Buying Credit Card Debt Is Big Business

Past due credit card accounts are sold along with thousands of others to a debt buyer such as Midland Funding or Portfolio Recovery Associates. These companies buy credit card and other consumer debt accounts at steep discounts with the expectation that they will collect enough to make a profit overall.

The business model works. PRA Group, the publicly traded corporate parent of Portfolio Recovery Associates, reported net income of $86.9 million in the fourth quarter of 2017. Encore Capital Group, Inc., the largest publicly traded United States debt buyer by revenue and parent company of Midland Funding, reported revenue of $1.19 billion in 2017. These numbers have caused thousands of smaller players to enter the market, each one buying thousands of credit card accounts and employing people all over the world in a determined effort to squeeze the last dollar out of your wallet.

How Do Debt Buyers Make Money?

When a debt buyer purchases your credit card account, the first thing they do is send a letter or make a phone call asking you to make a payment. By the time that happens, you have been getting the regular statements for a few months.

The collectors know the psychological effects of past due debt, and use it to their advantage as a way of getting you to pay the credit card balance.

That initial contact is terrifying. You are distressed about not being able to pay, and admitting it to a faceless collector on the phone heightens the negative feelings. As a result, you’re likely to begin screening your calls and letting the mail pile up unopened.

The calls and letters increase in frequency and intensity, and the account will get transferred from one collection agency to another. Each subsequent debt collector will be more aggressive than the last, knowing full well that they are unlikely to get you to pay the credit card debt just because you’ve been asked to do so.

As the psychological pressure increases, it becomes clear that the goal is to scare you rather than extract a voluntary payment.

Collectors Use the Court System to Maximize Profits

Many people think debt buyers prefer to avoid lawsuits to collect old credit card debts because it requires them to pay lawyers and incur costs of litigation. If this were true, however, credit card lawsuits would be far less common than is the case. In fact, there were nearly 200,000 credit card collection lawsuits filed in New York in 2011 alone. Moreover, a report by ProPublica found that these lawsuits accounted for 48% of the court judgments filed in New Jersey in 2011.

Credit card lawsuits are common because they are profitable. Over 95% of consumers do nothing when they receive court papers because they have become convinced that there’s no way to prevent a judgment from being filed against them. Some end up filing for bankruptcy, but most people accept the consequences of a court judgment.

Those consequences can include wage garnishment, funds seized from bank accounts, liens on property, and even the forced sale of automobiles and other assets to pay the debt. What’s worse is that the judgment continues to accrue interest, rising steadily over the years as the balance remains unpaid.

How Collectors Train You to Ignore The Lawsuit

When you get court papers about a credit card lawsuit, you have a choice: take no action, or use the laws to level the playing field.

The debt collectors have done everything possible to convince you they have all the power, but that’s not true. Being sued for a credit card debt merely means that someone is claiming you borrowed money, that you failed to pay, that the balance is what they claim it to be, and that you are legally obligated to pay this company.

Do nothing, and the court will assume the debt buyer is telling the truth. If you defend the case, however, you can force the credit card company’s lawyers to prove every claim they have made against you.

Defending the case forces the collection attorney into a defensive posture because their entire business model depends on you taking no action. Not only do the statistics bear this out, so do your actions up to the point when you got sued – you didn’t make payments, you didn’t answer the phone calls, and you didn’t respond to the letters.

In other words, the entire collection process is designed to condition you to do nothing. Like a sick psychological experiment, you’ve been unwittingly trained to be passive in the face of the credit card collector.

Take These Steps Instead of Accepting a Judgment Against You

Here’s what you’re going to do.

1. Don’t panic. Nothing terrible is going to happen to you so long as you keep on top of the situation.
2. Identify who’s suing you. This is the name you’ll see before the word, “Plaintiff.”
3. Identify who’s being sued. This should be your name. If your name doesn’t appear here then you’re not being sued. If someone else’s name appears with yours, that person is also being sued – you should have a talk with them about what’s going on.
4. Note the name of the law firm representing the Plaintiff. These are the people you need to communicate with from now on. The creditor won’t communicate with you directly anymore (that’s why they hired the lawyers).
5. Write down the date, time, and how you got the papers. Remember, you’ve got a limited amount of time to do anything about the lawsuit before the court enters a judgment against you. Better to know when the clock starts running than to guess about it later on.
6. Review the claims. You’ll want to read the Complaint carefully because it will give you valuable information about the name of the original creditor (the debt may have been sold or transferred, so the Plaintiff may not be the same as the original company) as well as the amount of money they claim you owe.
7. Organize any documents you have. Go through your files, bank account records, and old mail to get any information you may have about the credit card debt. Even if you don’t think a document is important, it may contain helpful clues.
8. Get your most recent paystub and tax return. These financial documents will help analyze your ability to pay a settlement or judgment, as well as to understand what you may have at risk in the event of a wage garnishment or bank account freeze.
9. Talk with a collection lawsuit defense lawyer. You aren’t legally required to have a lawyer represent you in court, but you should make sure to talk with an attorney who practices in the field of collection lawsuit defense. Even if you don’t hire that attorney or decide to go it alone, it’s important that you have all the information you need to figure out if you’ve got any valid defenses or should use the magic words. An attorney will also tell you how long you have to file papers with the court to protect yourself – and what the impact of a judgment will be on you.
10. Show up. You have to either hire a lawyer or go to court to file papers within the period of time provided for under the law (a phone call to the credit card company’s lawyers won’t protect you). If the court schedules a hearing, you or your lawyer have to appear in the right place and at the right time. When a trial is scheduled, you need to be there as well. If you don’t do what you’re required to do, the creditor wins a judgment against you. That’s why it’s important to always show up – there’s no legal excuse for forgetting to file papers with the court or for failing to hire a debt collection lawsuit defense lawyer on time.

Over Your Head? Here’s Where to Get Help.

The mechanics involved in defending a credit card lawsuit can be confusing. Pleadings need to conform to certain standards, and making a mistake could mean the difference between success and failure. That’s why it’s a good idea to get some help before venturing into the courtroom on your own.

I’m available to speak with you if you’re being sued in either New York or California, but I may not be the right lawyer for one reason or another. If you’re looking to go it alone, many courts have weekly or monthly events when you can speak with a volunteer lawyer to get tips on defending yourself. Go to the courthouse and speak with the clerk to learn about the resources available in your area.

Free and low-cost legal services are also available for people who have incomes below certain thresholds. Get in touch with the bar association (a good starting point is to search online for “bar association near me”) and ask about pro se (that’s the legal term for someone who handles their own case without a lawyer) resources.

No matter what you do, one thing is for certain: when facing a credit card lawsuit, don’t ignore it. Your financial future is at stake.