How to Settle Credit Card Debt before Going to Court

on Topics: Credit Card

How to Settle Credit Card Debt before Going to Court

If you have fallen behind on your credit card payments or other debts, you may be starting to sweat. Can my creditors sue me? What happens if I have to go to court? Is there anything I can do to settle before facing a judge? 

If your balance has already been sent to a third-party collections company, then it’s worth pondering these questions: if you can’t seem to get a handle on your debt, there’s a strong chance that a legal summons and complaint may be headed your way. A lawsuit is not an automatic death sentence, but it is advisable to consider ways you might settle your debt with your creditors before heading to the courthouse. 

Here are a few tips to settle your debt before resorting to the legal process.

Whatever you do, don’t ignore the lawsuit

It may be tempting to shove those papers into a drawer or, better yet, trash them. But ignoring the complaint means you forfeit your chance to show up and defend yourself. Generally speaking, failing to respond to a complaint will result in a “default judgment,” meaning that your non-response automatically deems true each of the complaint’s allegations. As such, you will lose your right to defend yourself, and your creditor can claim a judgment against you. 

At the same time, the legal process – both pre and post-judgment – comes with costs of time and stress. Many creditors, then, are willing to entertain settlement discussions to avoid the hassle. In some cases, they may even be willing to settle for less than the full amount. Before you dismiss your situation as futile, keep the door open for this type of discussion. Engage an attorney experienced in working with debtors and creditors to help you navigate the often bumpy terrain of negotiating a steep debt.

File an answer before the deadline

If you don’t settle early – and in many cases, even if you do – you should speak with an attorney about filing a response to the creditor’s complaint. There is a strict and unforgiving deadline for which to respond and if you miss it, then the creditor is automatically granted a judgment against you for the full amount claimed in the complaint. This is not a situation you want to navigate.

To avoid this issue, ask your attorney to help you file a response. Generally speaking, you will need to specifically deny all the allegations in the complaint, or else they will all be deemed true. Also make sure to deny any of the facts that are in dispute. Your attorney will help you with the phrasing to ensure you are preserving your rights.

Pitch a settlement offer and let your creditor know you are willing to work together

Once the legal process has started, the parties will likely be working with and through their attorneys rather than directly with each other. When you make an offer, always ensure that you express it in writing and send it via certified mail unless your attorney instructs you otherwise – no matter what you do, you want to maintain a paper trail. This will legally establish your attempt to settle the case.

What to Do If You Are Sued by A Collection Attorney Representing A Debt Buyer

A debt buyer is a company that buys unpaid accounts. Unlike debt collectors, debt buyers own the debt and are not attempting to collect on behalf of the original creditor – they are acting in their own right. Generally, debt buyers pay different amounts for the legal right to the debts they obtain. Debts may be bought and sold several times within the course of a few years.

Because debt buyers invest in unpaid accounts, they are taking on a risk that they may never be paid back. Fortunately, they only pay pennies on the dollar, but still, their business model necessarily involves a chance that they may never see a return. As such, they are generally willing to entertain settlement discussions and in many cases, will take far less than the total balance owed.

First, keep in mind that when debts are transferred from the original creditor to one or more debt buyers, some of the information on the debt – and on you, as the debtor – may not be accurate. Before you start a discussion about settling, then, make sure that the information is up to date. 

  • Check to see how old the debt is. 
  • Confirm your last payment made and the total balance. 
  • Make sure that the applicable statute of limitations for your state has not tolled
  • Confirm that the debt is actually yours.

If any of the information is inaccurate, it is not your debt, or if you believe that the applicable statute of limitations has tolled, you can dispute the lawsuit in court or report the errors to the applicable credit bureaus. Check the Fair Debt Collection Practices Act (FDCPA) for specific violations of your rights, and review the Fair Credit Reporting Act (FCRA) if you suspect the lawsuit against you is the result of identity theft.

How to Go about Negotiating A Settlement

If your debt is indeed valid, work closely with your attorney to negotiate a settlement (while observing the required legal norms by responding to the lawsuit). You may choose to propose a lump sum payment or a short-term payment plan rolled out in monthly installments. Either way, consider 1) what you can afford, and 2) what you think the creditor or debt buyer may be willing to accept. Once you and your attorney come up with a solid offer, expect to go through several rounds of negotiation before you reach an agreement with the other party.

To buy yourself more time, make sure you and your attorney respond to the complaint. There are situations in which you can seek extensions, so be sure to ask about this if you think you may benefit from extra time. 

Many attorneys offer free consultations, so you have nothing to lose from reaching out to one. This will help you understand your options, costs, and rights.

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