Understanding the Lawsuit Process for Credit Card Debt

If a creditor is unable to settle credit card debt during the debt collection process, the next step for a creditor is to seek legal action by filing a lawsuit. The lawsuit process involves filing a complaint with the court, serving the debtor with the lawsuit, and potentially going to trial to determine the debt’s validity and the appropriate remedies. Throughout this process, an agreement can be reached to settle the debt.

Updated on January 19, 2025.

If the case fails to settle or the agreement is not complied with, creditors can seek to enforce the court judgment. Creditors have multiple ways to collect on a lawsuit judgment. This includes wage garnishment, a bank account levy, or personal and real property liens. This blog post will focus on the details of the lawsuit process.

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Key Points:

• Once served with a lawsuit, make sure you know the date a response is due to the complaint or petition.
• Failing to respond to a lawsuit will make things worse.
• Writing a letter to the judge is not a proper legal response to a complaint or lawsuit filed by a creditor.
• Even with a lawsuit filed, you can still try to settle your case with the creditor at mediation.
• Debtors can garnish your wages, freeze your bank accounts, and place liens on your property, even for credit card debt.

The Creditor and Debt Collection Process

Before a creditor files a lawsuit, the creditor will typically contact you to make payment arrangements. Unfortunately, at this stage, creditors rarely are reasonable with the payment arrangements.

If the creditor has not been able to collect from you, after 90 days, they transfer the debt to collections. Generally, the debt stays with the creditor and only switches to another department within the company. At this point, the calls continue or become more frequent. I will create a separate post explaining your rights under the Fair Debt Collection Practices Act.

Eventually, the creditor will sell your debt to a debt collection agency. This is common and is why a debtor may not recognize the collection agency, but at this point, the debt collection agency bought the debt from the original creditor. This is legal as your agreement with the credit card company is a contract, and most contracts can be sold or transferred.

• Credit Card Debt Continues to Rise

However, always ask the debt collection agency for proof that they own the debt. There are plenty of scams out there.

The debt collection agency does have the right to file a lawsuit against you to collect on that debt. But generally, before the debt collector gets to that next step, they will attempt to settle the case by contacting you by phone, e-mail, and snail mail.

If an agreement has not been reached, the only remaining option for the creditor is to file a lawsuit.

The Lawsuit Process

The first step in a lawsuit is to get served the court documents. This is known as service of process, and the person who serves you with the lawsuit is usually a private process server or a police officer from the local Sheriff’s Office.

Service should be accomplished by handing you or someone at your household the court documents, although I will be the first to admit that some process servers are less than ethical and leave the documents on the front door pretending they served you.

Once you have been properly served with the lawsuit, proof of service is filed with the clerk’s office. At this point, read the summons carefully, as you have to file a response generally within 20 to 30 calendar days. Each state varies as to when the response is due, but it will be listed in the summons. More importantly, remember it’s calendar days, not work days, so weekends are included.

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To file a response to the complaint or petition to collect on the debt, note that it’s a form or template that is filed. Often, a letter is written to the judge, but not only is the letter the wrong process, but the response is not sent to the judge but to the clerk’s office.

The forms to file a response to the lawsuit are usually published online by the clerk’s office free of charge. Many clerk’s offices have programs or self-help centers that will help you complete the forms or may even h Iave videos published on their website on how to do so.

Depending on where you reside, sometimes a mediation conference is scheduled at the same time the lawsuit is filed. If so, you could try to settle with the creditor at the mediation conference. If no agreement is reached, then the case proceeds to trial.

If the creditor gets a judgment against you, the second phase of the lawsuit begins, which is the collection action. At this point, the creditor has several options to enforce that money judgment, which includes wage garnishment, freezing bank accounts, and putting liens on your home or car.

However, note that if bankruptcy is filed at any point during this process, the automatic stay will prevent the case from moving forward until your bankruptcy case is concluded.

What Not to Do When Getting Sued by a Creditor on Credit Card Debt

Unfortunately, I’ve seen people often ignore lawsuits, but my response to that approach is simple: do problems typically disappear by ignoring them? Next time your car’s dashboard has that little yellow light turn on that warns you that you are low on gas, ignore it and let me know what happens.

If a response is not filed timely to the complaint or petition, a default is entered against you. This means the court will grant whatever the creditor listed in the complaint. At this point, the debtor can continue with the collection process, and sometimes, this can be a costly outcome.

Case in point: the seller of my home. The seller was having criminal legal issues. He intended to sell the house and use the money for his criminal attorney, but at the closing, what he expected to receive in net proceeds and what he received were two different figures, as far apart as two canyons in Arizona. Why? He ignored endless lawsuits.

The seller had liens from utility companies, credit card companies, and the county for ignoring his dog’s rabies tag notices. Not only did this reduce significantly what he was to receive, but the interest and attorney’s fees tacked on didn’t help. A $1,000 problem can quickly become a $5,000 problem. So, whatever steps you decide to take with a creditor once a lawsuit is filed, one step you will not take is to ignore the lawsuit!

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