Sued for Credit Card Debt: Learn the Steps to Protect Yourself

If you’ve been sued for credit card debt, you might worry and wonder about your options. This is a stressful situation, but there are ways to defend yourself and get your finances back on track.

By taking steps to deal with the lawsuit, you’re already ahead of the game. Most people in this situation don’t even show up to court. Multiple reports, including one by Pew Research, have found that in over 70% of debt lawsuits, the person being sued doesn’t respond. In those cases, the creditor gets an automatic win.

Sometimes, just showing up and making the creditor show evidence of a debt is enough. Creditors often lack proper documentation to support their case. If the creditor can’t provide any proof, you could challenge the debt’s validity.

You may also be able to use the statute of limitations or procedural errors by the creditor to help your case. We’ll go into more detail on valid defenses to a credit card lawsuit that could get a case thrown out. If you can’t get the case dismissed, you might also be able to go into arbitration (where you and the person suing you work out a legally binding agreement) or get debt relief by negotiating a settlement. 

You have options, and by understanding them, you can take control of your situation.

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

Understanding Credit Card Lawsuits and Your Rights

A credit card lawsuit is typically one of the last steps a creditor will take if other collection efforts fail. The original creditor or a debt buyer could be the party filing a lawsuit, depending on who currently owns your credit card debt.

What’s the difference between original creditors and debt buyers?

The original creditor on a debt is the company that first loaned you money. A debt buyer is a person or company that buys debt at a discount, often for just pennies on the dollar. The debt buyer then tries to collect on the debt to make a profit.

With credit card debt, the original creditor is the credit card company. If you don’t make your payments on time, your account becomes delinquent. The credit card issuer will likely start with routine collection efforts, such as mail or email reminders and phone calls.

If those efforts fail, your credit card company might sue you for the amount you owe. This could include the amount you borrowed plus interest and penalties. 

Or, instead of pursuing you directly, the credit card company could sell the debt to a debt buyer. The debt buyer becomes the new owner of your credit card debt. It can then make its own collection efforts or file a lawsuit.

Example:

• You owe First Street Bank $100, and they are unable to collect it.

• Squeezum Tight, Inc. buys the debt for $20.

• You still legally owe $100. Squeezum Tight, Inc. tries to collect the entire $100.

How the Fair Debt Collection Practices Act protects you from debt collectors

The Fair Debt Collection Practices Act (FDCPA) is a law that covers debt collection activities. If anyone other than the original creditor is trying to collect a debt from you, then the FDCPA applies. So, if a debt buyer purchased your credit card debt (in our example, Squeezum Tight, Inc.), then it must follow the rules in the FDCPA.

The FDCPA limits when and how debt collectors can contact you. It’s designed to make sure debt collectors keep communications about your debt private. It also guards you against having debt collectors harass you with frequent or inconvenient contact. 

Another way the FDCPA protects you is by requiring debt collectors to provide you with written details about the debt they’re trying to collect. It then requires the debt collector to give you 30 days to respond before they contact you again. 

And if you want to stop debt collection calls, the FDCPA has rules about that, too. You can mail a cease-and-desist letter to the debt collector to instruct them to stop calling. 

Pro tip: If you tell the creditor to stop contacting you, their only recourse might be to sue you. It’s often better to leave communication lines open so that you can try to resolve the situation without going to court.

If a debt collector has broken any of the rules, that could help your case in court. Here are some common violations to watch out for:

• Abusive language and harassment

• Misleading or false statements

• Threatening wage garnishment without a court order

• Failure to provide proof of a debt

• Excessive calls or calls at unreasonable hours

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How to Respond to a Credit Card Debt Lawsuit

If you’re getting sued by a credit card company or debt buyer, you’ll receive a legal document called a court summons. This notifies you that you’re being sued and are required to respond. 

A lawsuit for collection of debt is a civil matter, not a criminal one. That means you won’t go to jail for credit card debt, even if you lose the case, but you could face possible financial losses. It’s very important to respond if you receive a summons. 

Follow the instructions in the documents you receive, and pay special attention to deadlines. If you feel comfortable navigating the process, you have the right to handle your own case. But you could also consider contacting an attorney who can handle it for you. 

What happens if I ignore a credit card lawsuit?

If you fail to respond to a summons for credit card debt, a default judgment is likely to be issued against you. That means you automatically lose the case because you haven’t responded. 

The Consumer Financial Protection Bureau (CFPB) found that most debt collection cases brought by credit card companies result in default judgments. If you simply accept a default judgment instead of responding to a summons, you give up your right to fight the case. You could also lose the leverage you have to negotiate a settlement with the credit card company. 

Ways a Credit Card Lawsuit Could Be Dismissed

A credit card lawsuit can feel overwhelming, but you can take steps to try to get it dismissed. Here are ways you could protect yourself when sued for credit card debt:

Reason #1: The person suing you can’t prove it’s a valid debt

You have the right to challenge the validity of the debt. If the creditor or debt collector can't prove you owe the debt, the lawsuit might be dismissed.

You can request debt validation as soon as a debt collector contacts you. If you’re not facing a lawsuit yet, send a debt validation letter to the debt collector asking for more information about the debt. Make sure to use certified mail so you have proof of delivery. Here’s what to ask for to validate the debt:

• The name and address of the current creditor

• The name and address of the original creditor

• Documentation showing you’re responsible for the debt, such as the original credit card agreement you signed

• A copy of the last billing statement issued by the original creditor

• The name, address, and licensing information of the debt collection agency currently trying to collect the debt

• Proof that the debt collector owns the debt

If the debt collector has sued you, you could challenge the validity of the debt in your response to the summons. The debt collector would then need to provide documentation to prove that you owe the debt, that the amount of the debt is correct, and that they are the legal owner of the debt.

Debt collectors can’t always provide enough proof to win a credit card debt lawsuit. Credit card debt often gets sold and resold several times, passing from one debt buyer to another. To verify ownership of the debt, the debt buyer must show a chain of title—a record of every sale of the debt going back to the original creditor.

If there are gaps in the chain of title, you or your lawyer could ask the judge to throw out the case. You could also request a dismissal if the debt collector can’t provide copies of billing statements from the account or if there are discrepancies between the statements that it provides.

Reason #2: The statute of limitations expired

Every state sets a limit—called a statute of limitations—on how much time creditors and debt collectors have to sue for unpaid debt. Once this time passes, you can’t legally be compelled to repay the debt. At that point, it’s time-barred. If a debt collector tries to get you to pay a time-barred debt, it’s called a zombie debt (one that was dead but then brought back to life). If a creditor sues you for time-barred debt, you could ask the court to dismiss the case.

To be clear, your debt is always your debt. It doesn’t magically disappear after time passes. The difference is that once it’s time-barred, the creditor doesn’t have legal standing to win a debt lawsuit against you and then use more forceful methods, like wage garnishment, to collect.

Here’s the statute of limitations on credit card debt in each state:

The statute of limitations normally starts when you miss your credit card payment. For example, your credit card payment was due on Feb. 5, 2022, but you didn’t pay it. You don’t make any further payments toward your debt. If you live in Alabama, there’s a three-year statute of limitations on credit card debt. The statute of limitations would have run out on Feb. 5, 2025.

There are ways to restart the statute of limitations, and debt collectors may try. 

Making a payment is one of several actions that could restart the statute of limitations. Here are other actions that might restart the clock on your debt and give a debt collector more time to sue:

• Make a written agreement to pay the debt

• Use the credit card again

• Negotiate a debt settlement or payment plan

• Acknowledge the debt 

Reason #3: Common procedural errors and legal defenses

If the creditor made any procedural errors, your lawyer could use that as grounds to ask the judge to dismiss the case. A dismissal doesn’t necessarily mean you’re out of the woods, though. Even when a case is thrown out, the creditor could correct the error and refile.

Still, a procedural error could be an effective legal defense for the current case and possibly buy you some time. Here are some common procedural errors and other legal defenses:

• Improper service of process. When a creditor sues you, it must make sure you get the summons (this is called service of process). Every state has its own rules regarding this process, but people who file lawsuits usually need to ensure that the summons is hand delivered to the person being sued. If you didn’t receive a summons, you could ask for a dismissal for improper service of process.

• Jurisdiction and venue challenges. Lawsuits normally need to be filed either where the defendant lives or where the dispute arose. If the creditor filed the lawsuit somewhere else, you may be able to argue that the court there doesn’t have jurisdiction over your case.

• Standing issues. The plaintiff in a lawsuit needs to prove it has the legal right to sue. In a credit card debt lawsuit, that means the creditor must prove it owns the debt. As mentioned earlier, debt buyers don’t always have documentation proving ownership of a debt, meaning they have no standing to sue.

• Identity theft or fraud defenses. If the debt isn’t yours because you were the victim of identity theft or fraud, you can use this as a powerful defense. Collect any documents that prove the debt is fraudulent, such as police reports and communication with creditors. Report the fraud to any banks involved if you haven’t already, and save documentation of this, as well.

• Improper assignment of debt. Assignment is the transfer of a debt from one party to another. If there aren’t valid assignment contracts for every sale of your debt, you could use improper assignment as a reason to ask the judge to throw out the case.

• Violations of the Fair Debt Collection Practices Act. If a debt collector harassed you, lied to you, or made any other violations of the FDCPA, that could help your case in court. You may also be able to file a lawsuit of your own against the debt collector.

Reason #4: Both sides agree to arbitration

Arbitration is a way to settle a dispute over debt. A neutral third party, called an arbitrator, hears both sides of the story and makes a ruling. The arbitration process is less formal than going to court, but the arbitrator’s decision is still legally binding.

Many credit card agreements include mandatory arbitration clauses. These clauses require that both parties settle disputes through arbitration. A mandatory arbitration clause could help your case. The arbitration process can be expensive, and the filing party pays the fees. Debt collectors often want to avoid arbitration due to the costs involved.

If your credit card debt has a mandatory arbitration clause, your lawyer might file a motion to compel (force) arbitration. The judge then decides if arbitration is appropriate. If so, the debt collector might decide not to go through with arbitration because of the fees, and your case could be dismissed.

To find out if mandatory arbitration applies to your case, check your credit card agreement. You could also check the online CFPB credit card agreement database. Search for a section covering the arbitration agreement. Use Ctrl+F to search for the word arbitration.

Reason #5: Both sides agree to settle the debt

If you think you can challenge a debt’s validity, or if it’s past the statute of limitations, your lawyer might advise you to ask the judge to throw out the lawsuit. But if the debt is valid and the creditor might have a case, debt settlement could be the better option.

It’s possible to settle credit card debt when a lawsuit has been filed. An agreement with the creditor could still be on the table. Once the person suing you knows you plan to fight, they might be more willing to negotiate an out-of-court outcome. They may not be completely confident in their case. A settlement is a way for both parties to find a solution that works for them. Note that debt settlement may negatively impact your credit.

Depending on your financial situation, you could try to negotiate either a lump sum settlement or a payment plan. To help you decide between the two, here’s what to consider:

• If you negotiate a lump sum settlement, you’ll need enough money to pay the agreed-upon amount right away.

• The benefit of a lump sum settlement is that you could pay a smaller amount overall.

• You could set up a payment plan even if you don’t have any savings. It only requires that you have stable income.

• The creditor might expect you to pay the entire amount if you set up a payment plan.

A debt settlement could also have tax implications. When you settle debt for less than what you owe, the IRS normally considers the forgiven debt to be taxable income. But you might not owe taxes on the forgiven amount if you’re insolvent at the time you settle the debt. Insolvent means the total value of your debts is greater than the total value of your assets. 

Freedom Debt Relief doesn’t offer tax advice. Consult a tax professional before you make any final decisions about how to deal with your debt.

Get any debt settlement agreement in writing so that you have proof. As part of the agreement, your lawyer will want the creditor to agree to dismiss the credit card lawsuit with prejudice. That means the creditor can’t sue you again for the same debt.

The plaintiff, in this case the creditor, must file the paperwork asking for the case to be dismissed. You can’t do that part, but you can request a copy of the request for dismissal. You may also be able to look up your case and see the current status online on the court’s website.

Do You Need a Lawyer if You’re Sued for Credit Card Debt?

If there are clear mistakes in the claim against you or the statute of limitations has run out, and you’re confident in your ability to fill out the court’s forms correctly, meet all deadlines, and understand what’s required of you, you might feel confident asking for dismissal on your own. If not, you consider getting legal help. 

An attorney experienced with debt collection cases can advise you on the best strategy for responding to the lawsuit. This may include advice on how to fight the lawsuit as well on how to minimize what you have to pay.

An attorney who’s experienced in these cases might also be able to help you:

• Know which of your resources are judgment-proof. Depending on the laws in your state, some of your income or the things you own may be protected from legal judgments against you. The laws vary from state to state, so getting an attorney who is familiar with the laws in your state is vital.

• Decide whether bankruptcy is the best step. It’s one thing to fight a single lawsuit. It’s another thing if you have multiple creditors coming after you. Bankruptcy could serve a useful purpose. If you owe money to more than one creditor and can’t afford to repay what you owe, bankruptcy might be the most sensible solution. Bankruptcy is the only way to stop creditor lawsuits from proceeding.

If you have trouble finding an attorney to take your case, find out if there’s a legal aid organization in your area. These groups specialize in finding help for people who are inexperienced with the legal system. National Legal Aid & Defender Association and LawHelp.org are national organizations to check out for assistance.

Can You Settle Credit Card Debt When a Lawsuit Has Been Filed?

Debt settlement could be an efficient way of getting rid of a lawsuit against you. 

Negotiating to pay part of what you owe might work best for both parties. It could allow you to settle the debt for an amount you can afford. Settling gives your creditor the chance to collect some payment without having to go through the time, expense, and risk of a lawsuit.

You might be surprised at how motivated your creditors are to settle a debt rather than take the case to court. Even when a court rules against a debtor, creditors collect an average of less than 20% of the amount owed within the first year after the judgment.

Creditors know that even if they win in court, they’re likely to collect only a fraction of what they’re owed. It may be much more cost-effective to accept partial payment upfront. So make an offer. 

At Freedom Debt Relief, if a creditor takes legal action against you for an enrolled debt, we may engage a Legal Partner Network attorney who will attempt to negotiate a settlement. This service is free for qualifying clients who have made their monthly deposits on time. The offer does not apply to legal action taken before you enrolled, or to legal action taken on debts that are not enrolled.

How to Avoid Being Sued for Credit Card Debt

It’s possible to defend yourself from a credit card lawsuit, but if you can avoid it entirely, that’s even better. The most reliable way to ensure you’re not sued is to get your credit card debt paid off or settled.

Even if you have past-due credit cards, you’ve got options to get control of the situation. You could contact your card issuers and ask if they have a credit card forbearance program. Some card issuers may temporarily pause or lower your payments if you’re dealing with a financial hardship.

You could also seek out professional assistance, such as professional debt relief. A professional debt settlement program could help you organize your credit card debt and run the numbers on how much you can afford to pay per month, based on your income and expenses. Then, the company’s Debt Consultants could negotiate with your debt collectors and make a deal that works for you.