Can My Credit Card Company Sue Me?

Every responsible credit user (or irresponsible credit addict, for that matter) should know that credit cards are an unsecured debt. This means that your credit card provider cannot suddenly show up and ask for the keys to your car or your house if you stop making your credit card payments. The only collateral that you offered up to your credit card provider was your "word."

When you signed on the dotted line of your credit card agreement (a legally binding contract), you promised to pay off any debts you incurred on that credit card. However, if your "word" leaves a lot to be desired and you default on your credit card payments, then you have essentially breached your contract with your credit card provider. To retaliate, your credit card provider may seek a judgment against you in a court of law. But can you really blame them? You did tie their hands with your debt…

What you could lose in court

There is no need to get all nervous if you have been late or even missed one credit card payment. Your account has to be seriously delinquent to be sued by your credit card provider. By serious, I mean 60 days or more without so much as an "I’m Sorry" sent in your creditor's general direction. The truth is, seeking a judgment against you will often cost the creditor more money than the amount you owe them. So needless to say, suing you in court is oftentimes the last resort. However, if this is the route your credit card provider decides to take—and it wins a default judgment against you—the credit card provider can move forward with a bank levy or a wage garnishment. In some states, the creditor can garnish up to 50% of your wages. Wage garnishment would result in your employer finding out about your financial woes, which may cause you to be ashamed or embarrassed in your working environment.

By the way, if you are summoned to court by your credit card provider, please do everything in your power to get to that court date. If you fail to appear, your credit card provider will automatically win the judgment. That’s not to say that the creditor will not win if you do appear, but if you feel you have a valid excuse for defaulting, you forfeit the chance to refute the debt if you fail to show up.

Debt collectors more likely than court

Wipe the sweat off of your brow. In most cases, your credit card provider will not even go through the headache of suing you in a court of law. In an effort to rid their books of you and your debt, they will sell your debt to a third-party at pretty much pennies on the dollar. At that time, the third-party (more commonly called a debt collector) will come after you for the original amount you owed the credit card provider. Debt collectors will use collection practices that are slightly more aggressive than your credit card provider. However, they have to stay within the legal guidelines described within the Fair Debt Collection Practices Act. This particular law was enacted to protect consumers.

Your credit rating down the drain

At the end of the day, your credit card provider can sue you if you default on your loan. But the truth of the matter is that they probably won’t—especially if it will cost them more to sue you than the debt owed.

Whether sued or not, though, your credit card rating will go down the drain. Credit card defaults and court judgments are black marks that stay on your credit report for up to seven years. With a credit score in the gutter, your integrity as a borrower will be null when seeking credit from another lender. Your "word" or promise to pay back debts will fall on deaf ears.

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Photo courtesy of http://www.flickr.com/photos/emdot/ / CC BY-NC-ND 2.0