Being served with a lawsuit over debt can feel incredibly overwhelming. But it’s not uncommon. Lawsuits for unpaid debts are among the most common cases in the United States.
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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 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.
Lawsuits for 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 can legally attempt collection. Another option that they have is to hire a debt collection agency. This is often a law firm used to assist in collections, or they might sell your debt to a debt collector.
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 cannot 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.
Collection Lawsuits
If a debt collector files a case against you, you will receive a summons and 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.
Statute of Limitations
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 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 a debt collection lawsuit. If this defense is successful, 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.
Your Credit Card Debt Lawsuit Can Be Settled
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, 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 fix it. There are two options to resolve debt:
- Pay in full
- Settle the debt
The Debt Should Be Settled
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 payment.
Often 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.
Choose Your Payment Method
Payment plans typically require you to pay 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 total 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.
Debt Settlement Considerations
Taxes
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 choice, it is essential to understand this and avoid getting into trouble with the IRS.
Credit Report
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.
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Settlement Options for Credit Card Debt Lawsuits
Settling a credit card debt lawsuit can be frightening, but it is possible. The worst mistake you can make is avoiding debt because your creditors will not. There are many ways to resolve debts, and settlements are one of them. Regardless of your debt, settling a credit card debt is always a solid option to finish the cycle and move on.
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