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Can a Credit Card Company Sue you?

In this economy failing behind on a credit card bill is become a common occurrence for many Americans. But many may wonder, what are the repercussions for defaulting on your credit card payments? Credit card companies have several options available to them to recover the debt from a credit card holder. Card holders need to first be reminded that they have a contractual relationship with a credit card company. The contract is created when the card holder signs the credit card application which creates a contract in which there is an agreement to pay back any money borrowed by using the credit card as well as any interest charges and fees. Therefore, the credit company can exercise their rights through the contractual agreement where the company has a multiplicity of options to recover any debt owed by the card holder.

Will a Credit Card Company Really Sue You?

A card company is within its rights to sue a card holder to recover all debts outstanding. A card holder should always be reminded that legal action is a last resort for any credit card company. Legal action is dependent on how many payments you have missed. There are several actions a card company takes before legal action is taken to recover the outstanding debt during the first 90 to 120 days period after non-payment of the debt. During the first 90 to 120 days the credit card company seek to recover the debt through internal collection methods.

The first 30 days a late fee is added to the outstanding amount. The amount of late that is added is dependent on the balance outstanding and the credit card company. After 30 days has elapsed the credit card company uses more aggressive methods to ensure that the balance on the credit card is paid. The company increases the Annual Percentage Rate (APR) to the default increase rate which increase to over 30 per cent. The company also will frequently contact you to inquire about outstanding debt and to ascertain your willingness to set up an automatic paying option from your bank account. The company will also freeze the available balance on the card if any as a means of stopping the card holder from incurring and additional debt on the credit card account. If there was a co-signer on the account the company will use that avenue to seek assistance to pay the balance.

What Happens When You Don’t Pay Your Debt?

After 120 days of default the credit card company eventually charge-off the card and declare the outstanding amount as bad debt. The bank then sells the debt to a collections agency. The bill collector has several powers under the Federal Fair Debt Collections Act which dictates the powers of debt collectors. The debt collector can file suit for the full amount outstanding before the statute of limitations passes. The statute of limitations can be from 24 months to 15 years, depending on the particular state. There are few delinquent card holders who are actually sued for defaulting on payment but it is always a possibility. There are certain considerations a debt collector may have before the commencement of a lawsuit such as:

  • How long have you been at your job- if a debtor has been at his place of employment for a considerable period of time then wage garnishment is possible and the chances of the debtor leaving such a secure place of employment is very unlikely. Therefore, that debtor would be a good candidate for a lawsuit.
  • How long a debtor has lived at a particular address- if a debtor has lived at a particular address for a long period of time then he/she would be a good candidate for a law suit as there is less risk of him fleeing to avoid paying the debt.

If litigation process ensues between a card holder and a bill collection agency it is a very high probability that judgement will be awarded in the favour of the collection agency. If judgment is awarded in the favor of the collector then there can be an order to garnish wages, levy bank accounts or take other actions to recover the debt depending on a state’s law regarding the enforcement of judgements. It is important to remember that many times a delinquent account holder can always seek to settle the bill whether by making a full payment or lump sum payment.

A credit card holder should always be reminded that most delinquents do not end up in court, therefore, even though it is a possibility it is a last resort. Credit card companies always try other methods before seeking the assistance of the court such as late fees, high interest rates and communicating with the debtor.