Creditors go to significant lengths to recover delinquent debts. While not all creditors will sue you for your unpaid credit card debt, facing a lawsuit is always a possibility when you stop paying your credit card bills. Either the credit card company or any collection agency it transfers your account to reserves the right to file a lawsuit against you. After a lawsuit, a creditor can seize your assets, including a percentage of your wages and bank account balances. Depending on your state's laws, a creditor might even be able to seize some of your personal property. Avoiding a lawsuit is in your best interests.
No set debt amount automatically triggers a lawsuit. In general, the more you owe, the higher your risk of facing legal action. Filing and pursuing a lawsuit costs the creditor both time and money, thus the amount it stands to collect must make the lawsuit worth the resources the creditor expends to recover the debt. The Neighborhood Economic Advocacy Project notes that creditors typically begin considering legal action against you once your debt exceeds $1,000.
Each company's policies regarding when to sue debtors differs. Certain credit card companies and collection agencies have preset debt values that automatically trigger a lawsuit. Still others file suit against every debtor who owes an unpaid debt, regardless of the amount of the debt. Even if your current creditor does not file a lawsuit against you, you have no guarantee that the creditor will not eventually sell your account to another company that is willing to file a lawsuit.
Amount You Owe
Credit card debt continues to rise even if you are not making payments on your account. Late fees and interest charges result in your debt steadily climbing until the original credit card company either files a lawsuit against you or sells the account to a collection agency. Even after a debt collector purchases your account, interest continues to accumulate. According to the Fair Debt Collection Practices Act, an unpaid credit card debt continues to accrue interest regardless of who owns the account or how many times the debt is sold.
Just as a low credit card does not provide you with protection against a lawsuit, a high credit card debt does not guarantee one. Creditors sue debtors in order to receive permission through the courts to practice alternate collection methods such as garnishment. Commercial creditors, however, cannot garnish federal benefits, child support, unemployment and other sources of exempt income. Nor can they seize exempt income from your bank accounts. If a creditor knows that a lawsuit will not further its efforts to collect your credit card debt, it might be less likely to file suit against you. Individuals from whom creditors cannot force payment are often known as "judgment-proof." Like the amount that can trigger a lawsuit, whether your exempt income influences a creditor's decision to sue depends upon each company's individual policies.
- Bankrate; Debt, Collection Agencies and Your Rights; Steve Bucci; 2009
- Neighborhood Economic Development Advocacy Project; Debt Collection Basics; 2007
- Federal Trade Commission: The Fair Debt Collection Practices Act (Section 808/p.10)
- Lawyers.com; What It Means to Be Judgment-Proof; 2010
- U.S. Department of the Treasury: Answers About Credit Card Payments and Late Payments
- CNN Money: Credit Card Debt Reduction Planner; 2011