You might find yourself struggling to pay your bills because of a job loss, financial hardship or poor planning. You could end up in court if you fail to repay your credit card debt. Any time your card has a balance, you must make a monthly payment. However, credit card companies usually exhaust a number of other options before taking you to court.
If you carry a balance on your credit card, you must make a payment on or before the monthly due date. Under federal law, your creditor can assess a late fee of $25 on your account if you don't pay the bill on time. For a second offense, the late fee rises to $35. Your card company can also raise the interest rate on your account if you don't make a payment for two consecutive months. Lawsuits are expensive, so it's unlikely that a credit card company will sue you if you're just a few months behind on your payments. However, the late fees and penalties may make a bad situation worse.
Within a few months, credit card companies turn past-due debts over to internal collection teams or sell the accounts to outside debt collection firms. Normally, collection agents try to contact account holders and arrange payment plans. A firm may offer you a debt settlement, through which the creditor agrees to close the account if you make a single lump-sum payment of less than the balance owed. Collection agents have the right to contact friends or family members who cosigned on your account. They also notify credit bureaus about the past-due debt. This hurts your credit score and reduces your chances of being able to get loans and other credit cards in the future.
As a last resort, a credit card company may take you to court. The larger the debt, the more likely you are to receive a court summons. It wouldn't make much sense for a firm to spend hundreds of dollars on a court case to collect a debt of $50 or $100. However, it might make sense to sue you if you owe hundreds or even thousands of dollars. In such cases, a judge may allow your creditors to garnish either your bank accounts or your wages until the debt has been repaid. Every state has its own debt collection laws that place limits on the percentage of your wages or savings a creditor can claim.
As with any court case, you're innocent until proven guilty, and you have the right to defend yourself. It's important to stay in contact with your creditors so you hear about any upcoming court dates. More often than not, judges rule in favor of debt collectors if the defendant doesn't show up in court.
Some firms take several years to bring collection cases to court, in which case the statute of limitations may come into play. Statutes of limitation vary between states but limit the amount of time a creditor has to collect a past-due debt. If you live in Alaska or Alabama, for example, the limit for collecting past-due credit card debt is three years. In Kentucky, creditors have 15 years to pursue you.