A line of credit from a bank is an unsecured loan, which means that the bank cannot automatically take your assets if you fail to repay the money. To recover a delinquent credit card debt, the bank can try to collect the debt itself, hire a third-party collection agency or sell the debt to a debt collector. Regardless of which party is attempting to collect the debt, if you fail to repay the money, you can be sued.
Pre-Lawsuit Collection Activities
Under federal law, the debt collector can take legal action after the debt has been delinquent for six months. At this point, the collector has likely unsuccessfully tried to recover the money from you through phone calls and invoices. Ignoring the phone calls and letters generally leads to the collector becoming even more aggressive in attempting to collect the debt and filing a lawsuit the minute it’s legally able to. If the debt is for a few hundred dollars, the collector might not bother to file a lawsuit. It is likely to take legal action if the debt is for thousands of dollars.
If the bank sells your debt to a debt collector, the latter can sell the debt to another collector, who may then sell it to another collector, and so on. At some point, the debt may reach the current collector’s attorney, who is entrusted with filing a lawsuit against you. Upon receiving notification of the lawsuit, you must file an answer by indicating whether you agree or disagree with the complaint. If you fail to file an answer, the judge may grant the collector a judgment against you. If you file an answer disagreeing with the lawsuit, you must show up at court on your hearing date and prove to the judge why you are disputing the charges.
Enforcing a Judgment
If you live in any state except Pennsylvania, Texas, North Carolina or South Carolina, the debt collector can garnish your wages for a credit card debt, providing it has a judgment against you. All states allow debt collectors to collect on a judgment via a bank levy. If you live in a state that does not allow wage garnishment for credit card debts, the collector can ask the judge for an order to levy your bank account. To satisfy the debt, the collector can take all the money out of your account, provided the funds are not exempt under federal or state law. If necessary, check with the court to clarify which funds are exempt and file the required paperwork to protect those funds. The collector also might be able to execute the judgment by attaching a lien to your real estate or selling your nonexempt property, such as your rental or business property, if you have any.
Interest and Statute of Limitations
State law dictates post-judgment interest rates and the enforcement period for the judgment. For example, in Texas, interest accrues on a judgment at the smaller of 18 percent per year or the rate stated in the credit card contract. Debt collectors have 10 years to act on a judgment, which can be renewed.
- Public Broadcasting Service: How Credit Card Works
- ClearPoint Credit Counseling Solutions: Your Guide to Debt Buyers and Debt Collection Agencies
- Bankrate: How Debt Collectors Get Your Money
- Nolo: Credit Card Debt Lawsuits
- Debt: Garnishment Process
- Nolo: Using Exemptions to Protect Your Wages From Garnishment
- Nolo: Collect Your Court Judgment With a Real Estate Lien
- Weston Legal: Judgments in Texas
- Texas Legislatures: Finance Code
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