Can You Settle Credit Card Debt After a Lawsuit?

If you don't pay your debts, creditors could decide to sue you for the money. And if they get a judgment against you, the court may let them garnish your wages or levy your bank account to get repaid.

You might wonder whether, once you've been sued, you can settle your credit card debt. The answer is yes, debt settlement could happen even if there’s a lawsuit. Here’s how to handle it if it happens to you.

Can You Settle Credit Card Debt After a Lawsuit Is Filed?

It may seem counter-intuitive, but yes, you can potentially settle debts even when there’s a lawsuit. Creditors may prefer debt settlement over lengthy and expensive court proceedings. Rather than deal with the hassle and potential loss, a creditor could agree to settle your debt and walk away.

That said, it's typically much easier to negotiate with creditors before a lawsuit. You're much more likely to have success if you start those discussions before things reach the point of getting a court involved. However, don't assume that debt settlement is off the table if you've already been sued. 

The information provided in this article is intended for general informational purposes only and should not be taken as legal advice. For personalized legal advice, consult with a qualified attorney licensed to practice law in your state.

Why Creditors May Settle After Filing a Lawsuit

So why would a creditor agree to settle a debt with you after it's already filed a lawsuit against you? Even though your creditor spent time and money filing that lawsuit, pursuing it could be costlier still, and it could take up the resources of your creditor's legal team that could be spent elsewhere.

It’s also not a given that your creditors will win their lawsuit. Even if they do win, it's going to use more money and resources to get your bank or employer involved or otherwise collect the money you owe.

All this means that, even after filing a lawsuit, your creditor might prefer a guaranteed settlement with little effort over an unknown outcome and continued expense. There could be more profit in accepting a settlement than jumping through all those hoops.

Ways to Settle Credit Card Debt After a Lawsuit

So if you want to settle, what next? The right approach depends on you—specifically, your budget and comfort level negotiating with creditors. 

Work with your debt relief company

Negotiating a settlement with creditors can be daunting when you're going it alone, especially if you’ve been sued. That's why letting a debt relief company handle it may be a better solution. This may be an option if you're sued after you’ve enrolled the debt in a settlement program. Debt relief companies have experienced negotiators who can work with creditors on your behalf. 

If you're a Freedom Debt Relief client and a creditor takes legal action against you for an enrolled debt, the company may engage a Legal Partner Network attorney to attempt to negotiate a settlement. This service is free for qualifying clients who have made their monthly deposits on time. However, the offer does not apply to legal action taken before you enrolled, or to legal action taken on debts that are not enrolled. 

If you’re worried about a creditor suing you, it could be beneficial to enroll in a debt relief program before that happens. Although these programs cost money, fees are typically a percentage of enrolled debt, and are only charged after you've approved a settlement and at least one payment to your creditor has been made.

Negotiate directly with the creditor

If you've been sued and aren't enrolled in a program that could help, you can still try to negotiate with your creditors yourself. Even though your creditor has something to gain by negotiating, you might have even more to gain. 

Be prepared, convincing, and comfortable negotiating, and carefully review your budget and finances beforehand so you know what offer to make. You could negotiate a lump-sum payment, or an amount you pay off over time. A creditor may be more apt to accept a lump-sum payment. 

In the course of your negotiations, be firm but respectful. And be honest—if you fell behind on your debt due to unfortunate circumstances, explain that you're doing your best to make good on your debt. You may find that a creditor is sympathetic enough to work something out with you if you can demonstrate financial hardship.

Consult with an attorney

If you don't feel comfortable negotiating with creditors or feel your situation is complicated, consider consulting with an attorney experienced in matters like these. An attorney can offer guidance on the legal process, represent you in court if needed, and negotiate on your behalf.

If you're worried you can't afford an attorney, there may be some low-cost options available to you, including:

• Legal aid 

• Legal clinics

• Reduced-fee attorneys

• Employee assistance through your employer

You don't necessarily have to hire an attorney to settle your debt after you've been sued or to represent you in a lawsuit. But it could be wise in certain situations.

Consider bankruptcy

In some cases, filing for bankruptcy can be an appropriate course of action after you’ve been sued. Bankruptcy can eliminate certain debts and temporarily stop collection activity, including lawsuits. 

Chapter 7 bankruptcy is available if you meet income qualifications, and it wipes out eligible unsecured debts. It may require you to liquidate (sell) certain assets to pay some of your debts. 

Chapter 13 bankruptcy isn't income-dependent the same way Chapter 7 is, but the goal isn't to get rid of your debts. Rather, it's getting you on a court-approved payment plan. Many people choose this option when dealing with foreclosure.

It's best to consult a bankruptcy attorney to see if Chapter 7 or 13 is right for you. 

Why You Should Respond to a Debt Lawsuit

Finding out you've been sued over an unpaid debt can be overwhelming, but it's important to respond. If you ignore a debt lawsuit, you risk a default judgment, which means your creditor wins automatically. From there, the court may allow your creditor to garnish your wages or levy bank accounts to get repaid. 

If you're sued by a creditor, respond to the summons by the deadline. This preserves your rights and keeps more legal options open. Respond to and fill out any court paperwork, and attend all the hearings, even if you hope to settle your debt.

What Happens if a Creditor Gets a Judgment Against You?

If a creditor gets a judgment against you, it means they've won the lawsuit and have the legal right to collect the debt. The judgment gives your creditor a whole new timeline for debt collection separate from any statute of limitations that applied to the original debt.

A judgment also gives creditors additional legal options for collecting debts, including wage garnishment and bank account levies. Judgments can last many years (depending on state laws), and some states allow them to be renewed. The good news is that certain types of income are typically protected from creditor garnishment, including:

• Social Security benefits

• Veterans’ benefits

• Unemployment benefits

Once your creditor obtains a judgment against you, it may be difficult to settle your debt. A creditor is highly unlikely to negotiate with you if a judge has already ruled in their favor. 

How Debt Settlement After a Lawsuit Could Affect Your Credit

When you settle a debt, it appears on your credit report as having been settled for less than the full amount owed. And it can remain on your record for up to seven years, potentially harming your credit score.

That said, once you've been sued over an unpaid debt, there's a good chance your credit has already been severely damaged—so settling your debt may not cause much more damage. 

If you've been sued over an unpaid debt, you may be struggling financially. Debt settlement could help you regain financial stability sooner, and that may be a higher priority than preserving your credit score. Once you're in a better place financially, you can work on rebuilding your credit.

Freedom Debt Relief is not a Credit Repair Organization and does not provide or offer services or advice to repair, modify, or improve your credit.

Take the First Step Toward Resolving Your Debt

If you're struggling with debt, you don't want to deal with a lawsuit. Consider these options to get a handle on your debt and figure out a path forward:

• Debt consolidation, which means getting one new loan to pay off multiple existing debts.

• Debt settlement, either on your own or with the help of a debt relief company, which involves negotiating to pay a smaller amount than what you owe

• Credit counseling, which may lead to a debt management plan

• Bankruptcy, which could wipe out unsecured debts or give you a payment plan.

If you're interested in debt settlement, a free evaluation can let you know if you're a candidate.