How Credit Card Companies Sue
Credit cards are unsecured accounts, meaning that a bank gives you a credit line to tap whenever you wish without any specific property backing up the loan. This is in contrast to vehicle financing or home mortgages, which are tied to cars and houses that can be repossessed upon default. Banks are not entirely powerless if you stop paying on credit cards. They have various options, including lawsuits, according to Bankrate.com columnist Justin Harelik.
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Factors
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Banks consider many factors before they file lawsuits for credit card debt. Harelik explains that they look at your work history, because long-term employment means you are a good candidate for a wage garnishment after a successful suit. They also consider the length of time you have lived at your current address, because long-term residence is a sign of stability, which makes you a better legal target. A card issuer may sue you if you are under 40, even if you are not currently employed, because of the likelihood that you will eventually get a job and give the lender the opportunity to get its money in the future.
Time Frame
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Banks make many attempts to resolve your credit card debt before they sue you. Special agents call once your account falls more than 60 days behind, and they usually try to come to a settlement or make a new payment agreement with you. The bank stops these efforts after about six months, according to MSN Money writer Liz Pulliam Weston. The lender decides on its next action, which might be a lawsuit or charge-off and sale of the account to a collection agency.
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Process
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Your bank will most likely have an attorney notify you of its intention to sue, Bankrate.com columnist Steve Bucci advises. This gives you a chance to agree on a settlement for the credit card bill. Otherwise, you receive a summons and appear in court on the appointed date to argue your case. If you lose, the judge orders you to pay the bill and usually gives you 30 days to do so. The bank can garnish your wages or put a lien on certain types of property, depending on your state of residence, if you refuse to send the money. The judgment goes on your credit reports, where it lowers your credit score and impedes your ability to get new accounts.
Considerations
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Seven years is the allowable reporting time for judgments, according to the Federal Trade Commission. Judgments get erased from your Experian, TransUnion and Equifax credit reports after that time elapses. The judgment stops hurting your credit rating once it is purged from your files, even if you never pay the creditor.
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