Chloe Meltzer | July 21, 2022
Summary: Thinking about negotiating a credit card debt settlement? Here's the definitive guide on how to settle a credit card debt lawsuit and move on with your life.
Being served for a lawsuit over debt can feel extremely overwhelming. But it's not uncommon. Lawsuits for unpaid debts are one of the most common types of lawsuits in the United States.
Debt is a common issue that many people face at one point or another in their lives. If you are facing debt-related challenges, don't give up. There are many options when you're going through a credit card debt lawsuit. Even if you are already being sued due to not paying a debt, you have the opportunity to resolve this problem by settling your credit card debt.
When you first miss your monthly payments towards your credit card, the original creditor will attempt to collect these funds. They may call you, or even send you a notice by mail.
After you have not paid your account for 90 days, your credit card company is then legally allowed to attempt collection. Another option that they have is to hire a debt collection agency. This is often a law firm that is used to assist in collections, or they might sell your debt to a debt collector.
Most often when it comes to credit card debt, your debt will be sold to a debt collection agency. When this happens, your credit score may decrease, and the debt collector will begin collection activity against you.
If this debt collector is unable to collect the debt from you, their next option is to file a lawsuit against you. This will make matters worse for your credit score. But can also lead to being sued. You will want to avoid this at all costs. But if it happens, you will need to deal with it.
If a debt collector files a case against you, then you will receive a summons as well as a copy of the complaint. This explains how much you owe and why you are accountable for the debt.
If you receive a summons, you must respond. Do not ignore a lawsuit. If you ignore it, then you will be given a default judgment. You want to avoid this at all costs because it means that you did not fight, and you automatically lost your case. This can lead to wage garnishment and even a freeze on your assets.
If you want to fight the lawsuit, one good option is to invoke the statute of limitations. There are different lengths for the statute of limitations in every state, but typically it is within three to 10 years. This period starts from the first defaulted payment or the date of the last payment received.
You can use this defense to attempt to file against the debt collection lawsuit. If this defense is successful, then your case will be thrown out or dismissed. The only negative part of this option is that the debt will stay on your credit report for seven years. But you cannot be sued for this debt ever again.
Fighting your credit card debt is an option, but if the statute of limitations does not apply to you, or the debt collector has not violated any laws, then you may want to take another route.
The best option is to resolve your debt with the creditor. If you admit your mistake and face your debt, then you have the opportunity to ask to resolve it. There are two options to resolve debt:
After a lawsuit is filed, you will have the opportunity to negotiate a settlement with your creditor. Typically the court will require you and the creditor to agree on the settlement.
Oftentimes a debt collection lawsuit can be resolved with debt settlement even before making it to court. In this case, you will be able to arrange a payment plan which can come in the form of a lump sum or payment plan.
Payment plans typically require you to pay a bit more of your settlement in the long run. Despite this, it may be more manageable to pay your debt off slowly over time.
Lump-sum payments, however, usually mean that your creditor has agreed for you to pay less than the full amount that you owe. This means that as long as you pay a specified amount at once, your debt will be forgiven.
It is good to note that payment plans are not always possible. Often, creditors don't want to risk that you will go into default. Therefore, they are looking for a lump sum.
Be aware that debt settlements will be reported on your credit history. It will show as “debt settled for less than the full amount owed.” This will not only decrease your credit score but can also make it more difficult to borrow in the future. It may also affect your ability to buy or lease a home and can lead to higher interest rates and annual fees on credit cards.
There are also potential tax implications that result from settled debts. The forgiven debt is considered income by the IRS. This means that your income will legally be increased, requiring you to pay income taxes on that amount. Depending on the size of the debt, this additional reported income may push you into a higher tax bracket. Although sometimes you may have no other choice, it is important to understand this and avoid getting into trouble with the IRS.
Settling a credit card debt lawsuit can be frightening, but it is possible. The worst mistake you can make is to avoid your debt because your creditors will not. There are many ways to resolve debts, and settlements are definitely one of them. Regardless of the debt you have, settling a credit card debt is always a solid option to finish the cycle and move on.
SoloSuit makes it easy to respond to a debt collection lawsuit.
How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
Here's a list of guides for other states.
Being sued by a different debt collector? We're making guides on how to beat each one.
Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.