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How to Settle Credit Card Debt After a Lawsuit
By Digvijaya Rau MONEY RESEARCH COLLECTIVE
You may face a civil lawsuit if you don’t pay your credit card debt. This could happen if the credit card company decides to sue you for the unpaid debt after several missed payments. Many people think creditors won’t bother to sue them for their credit card debt. Still, according to a report from the Consumer Financial Protection Bureau (CFPB), the possibility likely depends on the balance and likelihood of payment.
In this article, we shed light on your options when faced with a lawsuit over credit card debt.
Should you settle with your credit card company?
Settling credit card debt has several advantages for debtors, but it can be risky and has downsides. Your professional or financial situation may not allow you to repay your debt in full. In such cases, settling credit card debt with your credit card company may be the only viable option to avoid bankruptcy.
You may face a lawsuit if you don’t settle or pay your debt with your credit card company. Lawsuits cost money and time, and they cause considerable stress. If you are six months over in debt, you face an increased risk of lawsuits. Your debt may be sold to a debt buyer or handed to a collection agency. If you worry about a lawsuit, you may consider debt settlement.
How debt settlement works is you negotiate with your creditors to try to lower the amount of money you owe. Credit card companies sometimes accept payment less than the total debt if they feel you cannot pay it off. But not all creditors will agree to a settlement.
You can do this on your own or work with a debt settlement company, but there are risks. There are often high fees and it can seriously damage your credit score. Debt settlement should be a last resort option. Consider all methods before deciding, and consult with your financial professional to review your situation. Additionally, it’s still possible to be sued while working on a settlement.
How to settle a debt after a lawsuit has been filed
If your credit card company or debt collector ends up filing a lawsuit against you for non-payment of your credit card debt, the good news is that you have some options regarding how you proceed.
Consider getting professional help
You may need professional help to handle a credit card debt lawsuit. An attorney can help with lots of different aspects of the issue, including:
- Responding to a complaint
- Settlement negotiation
- Strategizing a defense
- Representing you in court
Lawsuits are common when you default on monthly payments. Attorneys can help analyze fine aspects of your situation, including overstepping the statute of limitations — which means you may not be legally obligated to pay the debt. Sometimes you’re faced with a lawsuit even after payment of the debt, and attorneys can help you out of such a situation.
Attorneys also represent clients who get into debt due to identity theft. In addition, when the debt collector violates the Fair Debt Collection Practices Act (FDCPA) or if you have filed for Chapter 7 bankruptcy (which qualifies you for discharge of credit card debt), an attorney can help salvage your reputation and save you money. Low-cost and sometimes free legal aid programs are an option if you cannot hire an attorney.
Another type of professional that helps you settle credit card debt is a credit counselor. Credit counselors handle several aspects connected with financial liability, including money and debt management and budget development. They can also distribute educational material or lead workshops to help promote financial health.
After discussing your situation, a credit counselor may offer a personalized path out of your credit card debt through a structured credit card debt elimination program. Several credit counselor agencies are non-profit organizations.
One way of getting in touch with a good credit counselor is through personal recommendations from family, friends and coworkers. You can also check your credit counseling agency’s ratings online via third-party review platforms or the Better Business Bureau (BBB). Ideally, the credit counseling agency should be associated with the National Foundation for Credit Counseling (NFCC) and the Financial Counseling Association of America.
After shortlisting credit counseling organizations, verify them with your state attorney general and state consumer protection agency. Also, check the status of your credit counselor on the U.S. Trustee’s list of approved organizations to verify their legitimacy. Credit counselors can help you get out of debt faster by applying for debt management programs.
Verify the debt if you’re being sued by a third-party debt settlement company
If a third-party debt settlement company is suing you, you need to know if the debt you are being sued for is accurate. You can easily verify a bank or credit card company’s debt claims through online records or printed statements that you may have.
Third-party debt settlement company claims are prone to errors, including incorrect balances, payment dates and more. Fraudulent claims are not unheard of, either. Additionally, human error is always a risk.
The Consumer Credit Protection Act via the FDCPA entitles you to request debt verification through a written request. You must mail a certified letter (with a return receipt requested) to the organization suing you. The debt collector is then supposed to send you proof of the debt as well as the credit card agreement. In addition, you will need to provide proof of the debt sale to that debt collector and the paper trail for a debt that has been sold more than once.
See if they’re open to a settlement
In credit card debt elimination, you have only a few options. One is to check with your debt collector if they are open to credit settlement. Many debt collectors are willing to reach a credit settlement because it saves them time and money. But not all collectors and creditors will accept a settlement offer.
Expect a debt collector to ask for at least 50% of the debt amount, and often much higher. With good negotiation skills, you might get them to settle for much less.
Decide between a lump sum or minimum payment installments
You may need to decide if you can pay your debt in a lump sum or through installments. If you can, paying by lump sum may be a good choice. A payment plan comes with a few issues. They usually involve interest payments, which means you pay more for the same debt. Lump sum payments give you a fresh start and can help to ease your stress.
Debt collectors prefer lump sum payments, and they make financial sense to the debtor if attainable. You will end up paying less if you pay off your credit card debt sooner rather than make minimum payment installments.
For some, paying in monthly installments is the better choice. If you don’t have the money to pay a lump sum, you can pay down the debt in smaller increments over time.
Reach out to the debt collector and make an offer
After verifying the debt and ensuring that the debt collector is open to a settlement, finalize your payment method and then reach out to the debt collector to make an out-of-court settlement.
You can contact the debt collector privately, through a credit debt relief agency or with a professional attorney. Negotiation may involve crafting a strategy to forge the agreement that works best for you financially.
This process may involve a negotiation strategy that begins with information on the nature of your debt and your debt collector. Research how debts like yours have been settled in the past and your debt collector’s history of such deals.
Next, with the help of the professional you work with, decide how low to make your first offer and how much you can mark it up on refusal. Remember that keeping calm during negotiations often works in your favor. During negotiations, being a good listener and timing your offers right is often considered a good strategy.
Be sure to get everything in writing
It is essential to get everything in writing once you agree to credit settlement terms. The written agreement should spell out the final repayable amount which you are paying instead of the entire balance. Written contracts achieve the following:
- Help resolve possible future disputes by reducing misunderstandings
- Protect you from a fraudulently made verbal agreement
- Are enforceable by law
- Spell out every aspect of the agreement
- Give you peace of mind
Will a debt settlement program impact your credit score?
Debt settlement programs do impact your credit score. A bad credit score makes getting debt financing more difficult. You may have to pay higher interest rates on future debt, making it costlier. Typically, debt settlements are on record in your credit report for seven years. However, debt settlements are better than complete failure to pay with regard to your credit report.
Also, remember that improving your credit score after a credit settlement takes a long while. If you don’t earn enough for a creditor to garnish your wages, it will still go on your credit record. If you do start earning more, the creditor can still file a garnishment request. Wage garnishment is a legal provision that allows a portion of your paycheck to be withheld and sent to someone else.
Find the right debt management plan for your financial situation
Choosing a debt management program is a significant decision. The program you choose will often be present in your life for three to five years. Still, choosing the right debt management program for your financial situation can help you return to good financial health and give you back your peace of mind.
Nonprofit credit counseling agencies offer debt management programs that provide you with a structured path out of debt.
Remember, a poorly designed debt management program can have the opposite results. If you fall prey to a scam, you may lose money and damage your credit. When choosing a debt management program, ask yourself these questions:
- Is the debt management agency accredited and part of a professional organization?
- Are the credit counselors well-certified?
- In what way will this debt management program help me pay off my debts?
- Does this organization have a good history of success with its clients?
- Is the financial education provided by this organization valuable?
- How much does this program cost?
- What are the counselors’ ratings on third-party review sites or with the Better Business Bureau?
There are some important things to know:
- The first counseling session is usually free.
- You can use online research to find the best-certified counselor through the websites of the NFCC and the Association of Independent Consumer Credit Counseling Agencies.
- You may opt for services like phone or internet meetings at a convenient time.
- Debt management programs can improve your credit score over time.
Speaking to the right credit counselor is invaluable. Finding the correct debt management program for your needs can help you to navigate out of debt and toward the future on your terms.