Facing debt is stressful enough, but a creditors’ threats to file suit against you take the situation to a whole new level. And if a creditor refuses to work with you on your payments, or if you find yourself unable to catch up, it’s likely a process server might show up at your door one day. If you are organized and proactive, hopefully you can avoid this situation altogether. However, if you do find yourself facing litigation, you have options.
The paragraphs that follow provide general guidance and are not meant to be legal advice: Please note that any time you are facing a lawsuit from a creditor (or any other lawsuit, for that matter), you should reach out to an attorney for guidance.
Here, however, are a few things you can expect about negotiating credit card debt in light of a credit card debt lawsuit.
Act fast
In any legal action, litigants are afforded a set amount of time to respond, or else they effectively lose the opportunity to mount a legal defense. This period of time is known as the “statute of limitations.”
If you fail to respond to a lawsuit within this timeframe, the creditor can file a “default judgment” against you. In many states, this allows the creditor to freeze your bank account and levy your personal property to satisfy the debt. At this point, you will have little power to negotiate. As such, it’s best to contact a lawyer as soon as your creditor files suit (or threatens to) to ensure you don’t end up in this powerless situation.
In sum: even if you hope to settle your debt through a civil negotiation with your creditor, it is still vital to respond to a lawsuit once it is filed.
Assess your financial situation
You may question whether your creditor has a legal on which to stand. Nonetheless, it’s vital to carefully assess your financial situation so that you are prepared to handle any legal claims that come your way. Having a clear understanding of how much you owe, how much you make, and the terms of your loan will also empower you to make a reasonable settlement offer.
Prepare to negotiate
Before your creditor can accept a settlement, you need to be prepared to make a fair offer. Generally speaking, a creditor will hesitate to take an offer that is less favorable than a judgment it can obtain through the judicial process. As such, you will benefit from the help of an attorney and/or a financial advisor in determining how to craft a strong offer.
Start by reviewing the full picture of your financial situation. Take a look at your bank account balances, total debt balance, interest rates, and income. Then, determine how much you can realistically offer for 1) a lump sum settlement, and 2) a monthly installment amount. You will need to be prepared to offer both, as some creditors accept only lump sum payments while others are willing to take a payout over several months. Keep in mind, though, that cash generally trumps: so if you have the capacity to offer a generous lump sum, consider doing so.
At the same time, prepare to defend yourself in court
A settlement negotiation can easily go sideways. As such, prepare to head to court – even if you seriously hope not to. This doesn’t mean your dispute will never settle. It simply means you are – prudently – preparing for every possible contingency.
In some cases, a creditor will offer a better deal if you prepare to defend a lawsuit. This shows that you are serious about your position and want to seek resolution. It will also hold the creditor’s feet to the fire, potentially exposing weaknesses in their case. If a creditor’s case is particularly weak, a debtor who responds to a lawsuit with clear, cogent arguments will often move the needle forward in negotiations.
The bottom line
No matter which approach you take, there are always opportunities to settle your debt. Reach out to an attorney experienced in handling disputes with creditors and lay out an airtight plan. Handling the process on your own can be intimidating, and the last thing you want to do is make a mistake that can result in losing your case.
If your credit card debt starts to feel burdensome, you have options. A balance transfer credit card can help you manage credit card debt by rolling into a single monthly payment. And debt consolidation options can enable you to adjust your interest rates and payoff timelines. These resources can help you keep your finances in check and avoid delinquencies that lead to credit card lawsuits. Debt collectors can – and will – take you to court, so the best approach is a preventive one: don’t accrue too much debt in the first place.
For help managing your debts, consider reaching out to a debt relief program to learn about credit card consolidation options. Alternatively, you may contact a credit counselor to help you evaluate your options, from paying down a personal line of credit to settling your debt.
