• Can a Credit Card Company Sue You Over a Debt?

    Brandon Cornett

    By Brandon Cornett
    © 2011 All rights reserved

    Reader Question: "We have two credit cards with balances on them. We have not made a payment in some time due to financial hardship. The card companies have sent us warning letters about debt collections and whatnot. My question is, can a credit card company sue me for a debt we owe?"

    We have addressed this question before, but it's still one of the most common questions we receive through email. I'll start with the short answer, in case you're in a hurry. Then we can get further into the nuts and bolts.

    In a Nutshell: Yes, credit card companies can sue you for an unpaid debt. You agreed to certain terms and conditions when you opened up the credit account (whether you remember it or not). Among other things, this agreement stated that you are responsible for repaying all debts associated with your account. So you are legally obligated to make your payments.

    If you do not make your payments, the company can either sue you or turn the account over to a collection agency. 

    Credit Card Woes in the Post-Recession World

    The fact that we get this question so often is a sign of the times, I'm afraid. As more and more Americans lose their jobs and face foreclosure on their homes, the credit card bills fall to the bottom of the priority list. I can see the logic in this. In fact, most personal finance experts recommend this very thing -- protecting the home first, and dealing with unpaid credit cards later on.

    So let's get to the question at hand. Can a credit card company sue you for failure to pay? The answer is yes, a card issuer can sue you in a court of law. This should come as no surprise really, and I think that deep down most people realize this. You make a legal agreement with the card company when you obtain the credit card, and that contract is legally binding for both parties.

    You have the right (and responsibility) to respond to the lawsuit. You can do this on your own or through a lawyer. You have a right to explain the situation in a court of law. The judge will then make a judgment on the case. If the judge decides in favor of the credit card company, you will probably be ordered to pay the outstanding debt.

    The Company Can Sue You - But They Can't Harass

    Credit card companies can sue you in a court of law for failure to repay your debts. We have covered this much already. But there are several things they cannot due, so we should address those as well.

    Neither the card issuer nor a collection agency can threaten to sue you, or otherwise scare you into paying. They are also prohibited by law from contacting you at work, or at weird hours of the day. If they do any of these things, they have violated federal laws.

    Additionally, if you tell a creditor or debt collector (in writing) to stop contacting you, they must abide by that request. They can still sue you for the debt, but they have to honor your written request and stop contacting you. The only allowable contact after your written request would be a court summons.

    When I mentioned "federal laws" earlier, I was referring to the Fair Debt Collection Practices Act. If you are behind on your card payments, and you're being contacted by debt collectors, you should read through this federal law. The link provided above takes you to the Federal Trade Commission (FTC) website, where you can get a summary of the act. It explains your rights as a consumer, as well as the card issuer's right to file a lawsuit.

    Related: Can a Debt-Collection Agency Sue Me?

    With Court Approval, They Can Garnish Your Wages

    Here's another common question we receive a lot: Can a credit card company garnish my wages over an unpaid debt? This is a logical follow-up to the first question we addressed. And once again, the answer here is yes. A creditor could garnish your wages, but only as part of a court decision.

    Let me stress that key stipulation again. Before a card company can tap your wages or your bank account, they must (A) sue you, (B) win the court case and (C) get court approval for whatever action they are seeking.

    A lot of federal benefits are exempt from garnishment (i.e., they cannot be touched by a credit card company or anyone else). This includes Social Security payments, military / service member's pay and more. For a complete list of exempted benefits, visit the link provided above to the Fair Debt Collection Practices Act.

    So let's summarize what we have discussed in this lesson:

    Yes, credit card companies can sue you if you fail to pay your debts. If you feel the company has acted illegally, you should contact your state attorney general's office. If the courts side with the card issuer, they might be able to garnish your wages or your bank account (with the exception of certain federal benefits that are exempt from such action).

    I hope you have found this lesson helpful. Remember, there are more than 170 articles and tutorials on this website. So if you have additional credit-related questions, try using the search box at the top of the site.