How Often do Debt Collectors Take You to Court?

Debt Collectors Sue

When Do Debt Collectors Sue, and How Often Does It Happen?

In around 15% of collection instances, credit card companies file lawsuits for non-payment. Litigation is often only a concern for debt holders if their accounts are 180 days overdue and charged off or default. When that happens, the credit card firm cancels the debt and records the loss in the books.

However, even after a charge-off, credit card issuers can still go after the debtor for payment or sell their account to a collection agency. The debt collector may sue the debt holder in civil court if the debt holder still refuses to pay. 

However, the creditor is less inclined to do so if the total outstanding amount is less than $1,000 or the debt has been settled. Additionally, if the statute of limitations—generally 3 to 10 years, depending on the state—has passed, they might not be able to file a successful lawsuit.

Getting Sued by a Creditor or a Collection Agency

The fact that litigation is expensive in terms of both time and money explains why suing in cases of non-payment is rarely a credit card company’s first course of action.  The judge not ruling in their favor is something that can also happen.

Creditors will typically opt for this option if there is a means to collect payment without filing a lawsuit, such as by lowering the minimum monthly payment to one that is more reasonable. Of course, you want to avoid litigation as a customer.

They are pricey, and if you lose in court, the result will appear on your credit report, which will lower your credit score. Therefore, it’s important to understand when you might be sued for credit card debt and what you should do in that case.

Situations Where the Debt Collectors Sue You

Below are a few situations where the debt collectors sue you:

1. It has been 180 days since your last due date

The creditor can declare a loss and write off your loan at this stage. However, they are still permitted to seek restitution through litigation, and this is something they frequently do.

2. The company thinks they are out of choices

If your credit card company or collection agency can’t reach you, there is a higher chance that you may be sued. The only option to find an out-of-court solution is to face your creditors, which might be terrifying. 

Make sure you’re reachable then or schedule another time because debt collectors can only get in touch with you between 8 a.m. and 9 p.m. unless you specifically permit them to do otherwise.

3. The amount owed is substantial enough to warrant legal action

Most credit card issuers won’t file lawsuits over a tiny sum. If you owe a lot, the business can agree to forgive some of it in return for a one-time payment.

If it can prevent you from filing bankruptcy or going to court, it can be worth it even though it will damage your credit.

Before suing for non-payment, credit card issuers frequently exhaust all available remedies first. And while failing to make payments will harm your credit, negotiating a settlement with your creditors to pay off your debt will at least limit the harm.

How to Get Out of Debt Even After a Lawsuit Is Filed

You have several debt relief options. Despite a lawsuit, you can still settle a debt. Even when a creditor wins a lawsuit against you and receives a judgment against you, you still have options for dealing with your debt. 

If you face your debt problems head-on, there are almost always options available to you that will allow you to obtain significant debt relief or restructure your debt so that paying it off becomes a more manageable process.

Many creditors will agree to settle your debt whenever you like, even after they’ve started a lawsuit, whether it’s through a debt settlement, full payment, or another method.

Settling Your Debt

You will have a new person to negotiate with, the debt collection lawyer, once a lawsuit has been filed, which presents you with a new opportunity to settle. The court frequently orders both parties to make settlement attempts. 

Additionally, it’s not unusual for disputes to be resolved out of court, especially when there isn’t much money at stake. Debt settlement may be used to settle a lawsuit brought by a creditor.

You can handle this by yourself or with the assistance of a debt settlement lawyer. With the creditor, you can agree on a repayment schedule for the total amount owed or settle the balance in a lump sum. If you pay off a large portion of the debt fast, you and your creditor will agree to pay less than the total amount owed. When it comes to debt settlement, a substantial lump sum payment might be necessary.

Consequences of Debt Settlement

When contemplating debt settlement, there are a few factors to keep in mind.

Your credit history will show a settled debt as “debt paid for less than the full amount outstanding.” 

Your credit score will probably suffer due to this adverse reporting, which will increase the cost of future borrowing in the form of increased interest rates and annual fees for credit cards. Be mindful of any potential tax repercussions that may emerge from paid debts. The IRS counts the forgiven debt as income, and the amount of the forgiven debt increases your income, which could result in future tax liabilities that you’ll have to pay to the IRS.

Conclusion

If creditors have filed a lawsuit against you, speak with a lawyer and the creditor. A lawyer can help you develop your defense, and the creditor could still deal with you. You could not be required to pay if the debt collection agency lacks all relevant documentation or the statute of limitations has passed.

About the Author: 

Lyle Solomon

Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a Principal Attorney.

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