Credit cards are unsecured debt, which means the creditor would need to take you to court and obtain a judgment before getting their hands on your assets. If you've fallen behind on your credit card payments, you generally have some time to catch up before facing a lawsuit. Although a creditor can legally sue for breaking the terms of the contract before you're 180 days late, it isn't common practice. Your state's statute of limitations determines how long a creditor has to file a lawsuit against you.
Creditors have the legal right to sue you for breaking the terms of your contract prior to a 180 period of non-payment. That being said, this scenario happens very rarely.
Initial Consequences For Debtors
Once you fall behind on your credit card payments, you'll begin receiving phone calls and letters from the credit card company. A single missed payment can affect your credit score. If you miss multiple payments, expect your credit score to plummet because payment history accounts for 35 percent of it. As interest and late fees build, your balance-to-limit ratio also increases. Creditors and lenders view several missed payments as a risk and are unlikely to extend you credit.
Reviewing Your Information
Creditors don't generally sue you unless it's worth the legal expenses. Once your debt reaches 60 days past due, it's known as delinquent. The credit card company will usually have their in-house collections department review your account to determine whether or not to sue, or whether to assign your debt to a collection agency. If you've got income or assets that the creditor can touch, they're more likely to sue. However, a job and assets don't automatically mean the creditor will seek legal action.
Third-Party Collection Agencies
If the credit card company can't collect the money within 180 days, it may decide to charge off the debt. The account is commonly sold to a collection agency that specializes in recovering debt. After the debt is sold, you're still responsible for payment. Although the credit card company won't be suing you, the collection agency now has the right to pursue legal action. You'll typically get phone calls and settlement offers before the creditor decides to sue.
Avoiding Lawsuit Problems
Because debt is often purchased for pennies on the dollar, debt collectors are sometimes willing to accept less than the full balance you originally owed. You may be able to negotiate a deal or work out a payment schedule with the collection agency. Suing is the most expensive collection effort, so creditors try to avoid it whenever possible. Even though lawsuits against debtors aren't common, they do occur. Depending on your state laws, the collection agency may have several years before losing the legal option to sue, and even longer to enforce a judgment.
- Nolo: What Can Creditors Do if You Don't Pay?
- MyFICO: What's in My FICO Score?
- Nolo: Defenses to Credit Card Debt Lawsuits
- Nolo: Credit Card Debt Lawsuits
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Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.