When you stop paying your credit card bill, there's a chance you could find yourself in the middle of a lawsuit. Although a credit card company doesn't always sue to recover the debt, it's a possibility. In some cases, the original credit card company may decide it isn't going to recover anything and charge off the debt. It will often sell the debt to a collection agency that can attempt to recover the balance. Different rules apply to original creditors and collection agencies.
According to Nolo, if the original creditor is filing a lawsuit against you, it must produce the original contact, preferably signed. Because credit cards are commonly issued online, a signed contract isn't always available. The court won't automatically throw out the case if the documentation is missing, so you'll have to file a separate motion asking the court to dismiss the lawsuit. Certain states even grant you the right to countersue the creditor for damages if it can't verify you owe the debt.
If the debt was sold to a third-party collection agency, you are protected under the Fair Debt Collection Practices Act. Under the act, the collection agency must prove it has the right to collect the debt. A description of the amount owed and the name and address of the original creditor counts as sufficient verification. If the debt collector can't produce this information, it is required to stop collection efforts immediately. If the collection agency sues, it must show proof the debt was purchased from the original creditor.
The Creditor's Role
Once the account is sold, the original creditor no longer has the ability to sue you. The original creditor usually gives the collection agency your account information, which may include statements and your payment history. The original contract isn't always handed over. If the court asks for the contact, the credit card company may choose to supply it, but it is under no legal obligation to submit any documentation.
The laws regarding requirements for original creditors are clear, but when it comes to collection agencies, there's a gray area. A lack of a contract doesn't guarantee the case will be dismissed. Ultimately, the judge has the discretion to determine whether or not the collection agency has provided sufficient evidence proving you owe the debt. Your state's statute of limitations specifies how long the creditor and collection agency have to file a lawsuit against you. The clock usually begins ticking on the date of the credit card's last use. Statutes of limitation for contracts vary from three to 10 years, depending on the state.
- Nolo: Debt Collection Defense -- Requiring That the Collector Document the Debt
- Federal Trade Commission: Debt Collection
- New Economy Project: Common Defenses to Creditor Lawsuits
- Consumer Financial Protection Bureau: How Can I Verify Whether or Not a Debt Collector Is Legitimate?
- Bankrate.com: State Statutes of Limitation for Old Debts
- Equifax. "What is a Charge-Off?" Accessed Oct. 31, 2020.
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- Federal Trade Commission. "Fair Credit Reporting Act," Page 1. Accessed Oct. 31, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act," Pages 50-52. Accessed Oct. 31, 2020.
- Consumer Financial Protection Bureau. "Key Dimensions and Processes in the U.S. Credit Reporting System: A Review of How the Nation’s Largest Credit Bureaus Manage Consumer Data," Page 4. Accessed Oct. 31, 2020.
- FTC. "Consumer Reports: What Information Furnishers Need to Know." Accessed Jan. 24, 2020.
- Federal Trade Commission. "Fair Credit Reporting Act," Pages 50-51. Accessed Oct. 31, 2020.
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- Federal Trade Commission. "Fair Credit Reporting Act," Page 22. Accessed Oct. 31, 2020.
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.