When a person takes out a credit card with a finance company, he is essentially being offered a line of credit against which he can draw loans. The person is legally obligated to pay back any loans that he takes out, according to terms that he agreed to before he took out the card. If he doesn't, the credit card company may potentially sue him for breach of contract.
Line of Credit Contracts
All people who take out credit cards are required to sign a legal contract that states they agree to terms set forth for use of the line of credit. One part of this contract will cover the repayment of the debt. This contract will likely have stipulations for when the debt must be paid and consequences if the person fails to abide by these stipulations. This contract is legally binding if the borrower signs it.
Breach of Contract
If a person does not abide by his end of the signed contract, then a credit card company may interpret his actions as being a breach of the contract. Initially, the credit card company will assess the person punitive fees, such as late charges, for failing to pay, and it may hike up his interest rate. When exactly the company will decide that the person is not merely delinquent in paying, but is in breach will depend on the company's policies.
If a credit card company believes that a cardholder has breached the contract, it may choose to sue the person in civil court for this infraction. When this happens, the company will take its case to a civil court judge and ask for damages in the amount of the debt that the borrower owes, as well as, in some cases, legal fees. If the judge rules in the finance company's favor, he will order the borrower to pay up.
Just because a credit card company can sue a person for breach of contract doesn't necessarily mean that it will. Lawsuits cost money, and the credit card company may not find it financially worthwhile to sue the individual in court, particularly if the person does not owe a significant amount of money. However, as the debt grows through fees and interest charges, the probability of a lawsuit grows, too.