How Can I Settle My Credit Card Debt Before Going to Court?

Summary: If you’ve been sued for a credit card debt, you have options to help you avoid going to court. Here are some steps you can take to settle a credit card debt before going to court: Respond to the lawsuit before the deadline, send a Debt Lawsuit Settlement Letter, offer a lump-sum payment, or pay the debt in full.

Few things are as terrifying as a lawsuit. Going to court over credit card debt can cost you time and additional money, and it may even be embarrassing to take time off of work for a debt-related lawsuit.

Is there a way to settle credit card debt before going to court? The answer, fortunately, is yes. This guide will help you learn how to settle your credit card debt and avoid the additional expense and hassle of a court appearance.

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When will debt collectors take me to court?

Debt collectors will generally sue when they believe you have the ability to pay your debts but have been unwilling to do so. You probably won’t be sued for a debt under $500, but larger debts can make you vulnerable to debt collectors who use the law to collect the debt.

If you’ve been sued over credit card debt, it’s likely that the debt collector believes one or more of the following:

You owe a large amount of debt.
You’ve missed several months of payments.
You owe debt on multiple past-due accounts.
You have other accounts with your creditors, who can see your transactions.
Your creditors have access to your assets.

Your risk increases the most once your debt passes the six-month mark. That’s because creditors usually charge off an account after six months, which means that the debt is written off as an uncollectible loss. But that’s also when the creditor might decide to hand off your debt to a third-party collection agency or debt buyer, who can sue you to reclaim the debt.

Avoid being sued over credit card debt

Naturally, your best bet is to avoid a lawsuit entirely. Life happens, and it’s easy to get behind in your payments. But as you try to juggle multiple credit card payments, remember the six-month rule. You want to settle your debts before the charge-off period arrives and your creditor hands your debt over to a collection agency.

But what if you simply can’t make the necessary payments? Contact your creditors as soon as possible. You may be able to negotiate some type of payment plan to remain in good standing before a charge-off.

After all, a lawsuit costs the creditor as well, so they may accept a lower payment to avoid the hassle and expense of retrieving the entire debt.

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Follow these steps if you’re sued over credit card debt

The debt collection lawsuit officially begins when your creditor or debt collector files a Summons and Complaint with the court and serves you with a copy. When you’ve been slapped with a lawsuit, you’ll need to respond immediately. Here are your first steps in dealing with a debt-related lawsuit.

1. Check the statute of limitations

Your creditor has a narrow window of time in which to collect the debt. This window is known as the statute of limitations and is different in every state. This rule is designed to prevent creditors from targeting consumers for an old debt.

So when you’ve been sued, check the date of the debt in question, then compare this to your state’s statute of limitations. If enough time has elapsed, you can use this as an affirmative defense in your lawsuit and may resolve the issue without appearing in court.

2. Know your rights

You can challenge the lawsuit by filing a response in court. As a debtor, you have rights that protect you from unsavory creditors.

For example, the Fair Debt Collection Practices Act (FDCPA) protects you from such errors as improperly serving you, serving the wrong person, or violating the statute of limitations.

Similarly, the Fair Credit Reporting Act (FCRA) can protect you if your debt is the result of identity theft. If your rights have been in any way violated, you can say as much in your Answer that you file with the court.

3. Respond immediately

At most, you’ll have 30 days to respond to the Summons and Complaint, and in some states, you have as little as 14 days. During this time, you’ll need to craft and file an official Answer, which responds to the lawsuit by either admitting or denying the debt or by requesting additional information.

4. Consider settlement options

Assuming the credit card debt is legitimate, you may need to consider options for settlement. You’re unlikely to avoid paying your debt entirely, especially if you want to avoid appearing in court. Therefore, it’s time to consider ways to pay off at least a portion of your debt.

Below, we'll list several steps to take to settle a credit card debt before court.

You can also check out this video to learn how to go about settling your debt on your own:

Follow these steps to settle credit card debt before court

Unfortunately, you can’t always avoid a lawsuit. You can, however, find a way to settle your credit card debt before you go to court. Here are four ways to settle your credit card debt.

1. File an Answer to your lawsuit

The most vital step you can take is to file an Answer after receiving notification of the debt lawsuit. Do not procrastinate or ignore the lawsuit. You typically have 14-35 days (depending on where you live) to file your Answer, and failing to do so can result in a default judgment in the creditor’s favor.

With a default judgment, they might seize your assets or garnish your wages until the debt is paid.

It’s also important to file your Answer even if you reach a settlement agreement with the collector. This way, the collector can’t pull a fast one and request a default judgment after you make an agreement. The court must have your Answer on file to understand what arrangements have been made to settle your debt.

Always file your Answer as soon as possible. Get help from SoloSuit, which can help you craft an official and customizable Answer to ensure your rights are protected.

Let’s consider an example.

Example: When Thomas was sued by LVNV Funding for an old credit card debt, he used SoloSuit to respond to the case by filing an Answer. In his Answer document, Thomas denied most of the claims against him and listed several affirmative defenses to give himself a stronger case. After receiving his Answer, LVNV Funding realized they had no right to sue him for the debt because the statute of limitations on debt had already passed. LVNV Funding dismissed the case, and Thomas was let off the hook.

2. Use SoloSettle to offer a lump-sum settlement payment

When offering to settle the debt, it’s better to offer a one-time, lump-sum payment and not a payment plan. Why? A payment plan can still involve interest payments, which can be even more costly in the long run. Additionally, it only prolongs your credit card debt challenges rather than clearing the slate entirely.

Besides, most collectors would prefer to take a lump-sum payment. That’s because debt collectors are third-party agencies that purchase your credit card debt from the original creditor. It’s easier for them to reclaim these expenses if you offer a lump-sum payment than if you pay over time.

SoloSettle is a tech-based approach to debt settlement. Our software sends and receives debt settlement offers to creditors and debt collectors until you reach an agreement. The goal is to empower consumers, like you, to take matters into their own hands and settle their debts for good.

Let's take a look at an example.

Example: When John fell behind on his credit card payments, he felt like he was drowning in debt. Several months passed, and John’s creditor marked his account as a charge-off. Then, a debt collection agency called Encore Capital bought the charged-off account and started aggressively contacting John about the debt. Encore Capital purchased the debt for less than half of the actual debt amount. John, having done some research on the debt buying process, decided he would offer a lump-sum settlement payment of 60% of the debt to Encore Capital. He used SoloSettle to send the offer and start negotiations. Eventually, John was able to settle the debt for 75% of the original amount, saving him hundreds of dollars in the process.

Check out this video to learn more about how to settle your debt before going to court.

3. Pay the debt in full

If your other negotiations fail, you can simply offer to pay the remaining credit card debt in full. Be cautious about this option since you’re no longer dealing with the credit card company itself but with a debt collector. You’ll have to adhere to their repayment terms, which might not be ideal.

Plus, the other options allow you to settle your debts for a lower amount, which can help you get out of your debt more quickly. Paying your debt in full should therefore be a last resort.

Finally, take a look at this last example.

Example: Paula got sued by Chase bank for a past-due credit card balance. She didn’t have enough money to pay off the full debt, so she asked her family members for help. Her parents and siblings pitched in, and she was able to pay off the debt in full and avoid going to court. The case was dismissed, and Paula could then focus on paying her family back without dealing with the stress of going to court.

We know that paying off a debt in full isn't an option for everyone. If you've been sued for a debt and you want to fight back, start by responding to your case with SoloSuit's Answer form.

Consider these alternatives to settling credit card debt

Settling your debt is clearly the best option, and many debt collectors are more than willing to accept a reasonable settlement as opposed to tying up resources in court. But if you can’t afford to settle, you might consider these alternatives.

File for Chapter 7 bankruptcy

Filing for Chapter 7 bankruptcy, often called “liquidation bankruptcy,” clears all judgments. Filing for Chapter 7 is inexpensive and can bring about fast results.

But be cautious. For starters, you’ll have to meet the government’s “means test” to determine whether you qualify for this option. But more significantly, filing for liquidation bankruptcy can have broader implications for your finances and your credit score and can negatively impact you for years afterward.

File for Chapter 13 bankruptcy

A Chapter 13 bankruptcy, or “wage earners plan,” allows you to repay your debts through a monthly plan, commonly between three and five years. As with any bankruptcy filing, this can have negative implications beyond the lawsuit, so this option should be a last resort.

How can I settle my credit card debt before going to court?

To answer this question, we interviewed a debt lawyer, John Skiba, and asked him for some tips and tricks on negotiating with debt collectors and creditors. Here's what we learned:

Be truthful about your financial situation, as creditors often have detailed information about you.
Make a realistic offer, considering they will likely counteroffer.
For junk debt buyers, settlements of 10-35% of the total debt are typical, while original creditors may accept 50-75%.
Paint a picture of your financial hardship to the creditors or their lawyers.
Show proof of your limited ability to pay, like being on Social Security, facing multiple debts, or having wage garnishments.
Avoid threatening bankruptcy if you don't mean it, as this empty threat is often ineffective.
If you propose a payment plan, ensure it's realistic for your budget.

Check out the full interview below:

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Frequently asked questions about settling credit card debt

How do I negotiate credit card debt?

To negotiate credit card debt, contact your creditor or debt collector in writing, demonstrate financial hardship, and make a realistic settlement offer starting around 60% of the total balance. Document everything in writing and never agree to terms over the phone alone. If you have been sued, file an Answer with the court first to prevent a default judgment before negotiating settlement.

Can you negotiate credit card debt?

Yes, you can negotiate credit card debt with both original creditors and third-party debt buyers. Creditors often prefer a partial settlement over the cost of litigation, especially once the debt is past 180 days old. Settlement offers are most likely to be accepted when you document financial hardship and propose a lump-sum payment rather than a long-term payment plan.

How do I negotiate credit card debt by myself without a lawyer?

You can negotiate credit card debt yourself by contacting the creditor in writing, stating your inability to pay the full amount, and making a specific lump-sum settlement offer. Be honest about your financial situation, request a written settlement agreement before paying, and keep records of every communication. Tools like SoloSettle handle the back-and-forth negotiation in writing on your behalf.

What percentage should I offer to settle credit card debt?

A reasonable opening offer to settle credit card debt is 30% to 40% of the total balance, with most settlements landing between 40% and 60%. Original creditors typically accept 50% to 75%, while debt buyers often accept 10% to 35% because they purchased the debt at a steep discount. Older debts settle for lower percentages than recently delinquent accounts.

How do I write a credit card debt settlement letter?

A credit card debt settlement letter should include your name, account number, the amount you owe, your specific lump-sum offer, and a request for a written settlement agreement before payment. State that the offer resolves the debt in full and request that the creditor stop collection activities once accepted. Keep the letter short, factual, and professional in tone.

Is a lump-sum payment better than a payment plan for debt settlement?

A lump-sum settlement payment is generally better than a payment plan because creditors accept lower percentages for immediate cash. Lump-sum settlements typically resolve debt for 40% to 60% of the balance, while payment plans usually require paying 70% to 90% of the balance. Lump sums also close the account permanently, while payment plans can fall through if payments are missed.

How does credit card debt settlement affect my credit score?

Credit card debt settlement negatively affects your credit score because credit bureaus mark settled accounts as "settled for less than full balance" rather than "paid in full." The impact typically ranges from 50 to 125 points, depending on your starting score. Settled accounts remain on your credit report for 7 years from the original delinquency date.

Can I settle credit card debt after being sued?

Yes, you can settle credit card debt after being sued, and many cases are resolved through settlement before reaching trial. First, file a written Answer with the court before your state's deadline, which is typically 14 to 35 days, to prevent a default judgment. Then send a settlement offer to the plaintiff's attorney while the lawsuit is pending.

Can I still use my credit card after debt settlement?

No, you cannot continue using a credit card after settling the debt because the account is closed by the issuer as part of the settlement agreement. The settlement resolves the outstanding balance and ends the account relationship. Opening a new credit card after settlement is possible but will be difficult for 1 to 2 years due to the credit score impact from settlement.

What is the difference between settling with an original creditor and a debt collector?

Settling with an original creditor such as Chase or Bank of America typically requires paying 50% to 75% of the balance because the creditor owns the full debt. Settling with a third-party debt buyer such as Portfolio Recovery Associates or Midland Funding often resolves for 10% to 35% because debt buyers purchased the account for pennies on the dollar.

Should I settle credit card debt or file bankruptcy?

Settling credit card debt generally causes less long-term credit damage than bankruptcy and may be preferable for smaller debts. Chapter 7 bankruptcy stays on credit reports for 10 years and requires passing a means test, while debt settlement remains on reports for 7 years from the original delinquency. Bankruptcy is typically considered when total debts exceed what can realistically be settled.

When should I settle credit card debt — before or after charge-off?

Settling credit card debt before charge-off, which typically occurs at 180 days of non-payment, preserves more negotiating leverage with the original creditor and avoids transferring the debt to a collection agency. After charge-off, the account may be sold to a debt buyer at 4 to 10 cents on the dollar, which means you can often settle for a much lower percentage.

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