How to Settle Credit Card Debt When a Lawsuit has been Filed?

Introduction

When you have not paid your credit card debt, the credit card company will likely file a lawsuit against you to recover what you owe. This article will discuss how to settle credit card debt when a lawsuit has been filed against you for the debt.

What Happens to an Unpaid Debt?

When a debt has not been paid, the credit card company will go through a few steps. You will first get a reminder call, letter, or email reminding you your payment is late. After a period of time has elapsed, usually 14 to 30 days, a negative marker for that month is placed on your credit report, which affects your ability to get credit in the future. From this point, they will send more letters and phone calls demanding you pay the debt, while late payment fees and interest continue to be added.

If you have still not paid, the account is charged off / defaulted and is closed. They will often sell the debt to a collection agency who will hound you for payment. If you still do not pay, depending on the amounts involved and the jurisdiction, they will either continue to hound or send a letter before action or similar, detailing that they will be filing a lawsuit. Often you will get a letter from their lawyers demanding payment, or they will file a lawsuit.

At this point, if you still do not pay or try and come to an agreement, they will file a lawsuit. If they win and get a judgment and you still don’t pay, they can garnish wages, place a lien on any property/vehicles you own, or use bailiffs to collect the debt by coming to your home. The process can sometimes vary from the above, but it is a guideline.

How to Settle Credit Card Debt When a Lawsuit Has Been Filed

If a lawsuit has been filed, you can still attempt to settle the debt before you go to court. This is actually an ideal time to do so because the company often wants to avoid court, the same as you. Until the hearing date, you can agree with your creditor to pay off the remaining balance.

Try to Settle with the Credit Card Company

Before your hearing, you can contact your credit card company or the third party they have sold the debt to and try and agree on a payment plan. If you can afford it, the first method would be to offer a full and final settlement. It is important to get everything in writing of any agreements made. For example, if you owed USD 1000, you could offer to pay USD 650 in ‘full and final’ settlement. Some haggling may be involved. If they accept, then you have cleared the debt and saved quite a bit of money.

If you cannot afford a full and final settlement offer, you can offer an agreement for monthly payments that fit with your outgoings. The credit card company may ask for proof of incomings/outgoings. Many are often reasonable in this circumstance and will cancel proceedings if you set up a payment plan. For example, if you owe $1000, yet you can only afford $30 a month based on your outgoings, supply proof of that. Also, ask to be guaranteed interest is frozen if applicable, though interest in some jurisdictions is frozen when the account defaults. If they accept, they will often stop proceedings as long as you stick to the payment plan you agreed.

If you can afford to pay off the full balance and all their fees up to this point, you can offer this, on the condition they remove any unwanted markers from your credit files, depending on the jurisdiction. They may be more reasonable if you can prove issues beyond your control, such as job loss or medical issues caused the inability to pay.

Seek Legal Services

If you cannot come to an agreement with the credit card company or need clarification on where you legally stand and the lawsuit is going ahead, you should contact a lawyer as soon as possible. If you owe the money, they could help you sort it out and may be able to negotiate on your behalf/represent you at the hearing. If you feel you do not owe the money or terms and conditions are disputed, you should have a lawyer go over this with you, as they can help you prepare a defense as to why you do not owe the money.

File a Petition of Bankruptcy

If your debt is significant, there is a chance you will need to file for bankruptcy, or the creditor may petition for your bankruptcy. When this happens, you are declared financially insolvent. This will essentially wipe your debts clean, but all property you own is likely to be sold to go towards the debt; your credit file will be marked for six years, depending on your jurisdiction. You may have difficulties opening certain types of bank accounts and will have many difficulties obtaining credit for six years. This is the ‘Nuclear Option’ and should only be done as a last resort. If you feel this is what you need, you should contact a lawyer as soon as possible to ensure bankruptcy is the best option for you.

Conclusion

Just because a lawsuit has been filed, it does not mean you cannot still negotiate with the credit card company. You can still negotiate and seek legal/financial advice as required. However, if a lawsuit has been filed, the clock is ticking, so you should attempt to negotiate and seek legal advice as soon as possible. If this is handled correctly, you may not even have to go to court. If you do end up going to court because the debt is disputed or if the credit card company will not budge, keep all proof of your negotiations as this may help you in court later; you should always seek legal advice if you are going to court.