Expert Explanation: When Can You Be Sued for Credit Card Debts?

Susan Weber
Curtis Arnold, CEO CardRatings.com

Can you be sued for credit card debts? Yes. In this interview Curtis Arnold, CEO and founder of CardRatings.com, a credit card consumer education website, explains when you can be sued and what actions you should take before and after the judgment is finalized. Curtis Arnold is the author of How You Can Profit from Credit Cards and a frequent contributor on national morning shows such as The Today Show and Good Morning America and to newspapers including The Wall Street Journal and The New York Times.

Interview with Curtis Arnold, CEO of CardRatings.com

Can you be sued for credit card debts by your credit card company?

Yes. Creditors differ from one to the next as to what amount it takes before they will sue. They can take you to court for a number of years after you have defaulted on your payments. The number of years, called the statute of limitations (SOL), differs for each state. If they try to sue after the SOL date, you can defend yourself with the SOL defense. You'll need to show the judge proof of the SOL such as statements from when the account initially defaulted leading to charge off or copies of the credit report specifically showing the default date.

If a judgment is filed against you, it can remain on your credit report for seven years from the filing date. To protect your credit history, it may be in your best interest to settle the debt in exchange for a dismissal of the judgment.

Can you be sued by a collection agency?

Yes, but not all collection agencies have a lawyer in house. Sometimes they illegally make false threats of suing when they can't. That is a violation and they can be made to pay fines if they are caught. They have to serve you notice which can be delivered, sent by certified mail, or included in a listing in the local newspaper. The rules for serving notice differ for each state. You can call your local courthouse to determine the rules that apply in your situation. If not served proper notice, you could dispute this in court. Sometimes a notice can be sent to an old address, so it is important to monitor your credit report or call your local courthouse to check if there are any judgments scheduled against you.

If you dispute a merchant charge, can you be sued by the merchant?

Sure, merchants can sue for anything. But they would be wasting their time because consumers have the legal right under the Fair Credit Billing Act to dispute purchases made with their credit card. The Act says that the item or service must be worth more than $50 and you must have purchased the item in your home state or within 100 miles of your mailing address; however, these caveats are rarely enforced.

If your identification is stolen, can you be sued for the actions of the identity thief?

Yes. If you are a victim of identity theft, it is important that you take steps to protect yourself such as:

  • Activating a fraud alert with all three major credit reporting agencies
  • Filing a police report
  • Keeping copies of all your records. Keep originals and take them to court with you to show the judge a reason to have the case thrown out. If you are not prepared, it is possible that a creditor might sue and obtain a judgment.

Can a card issuer freeze your credit if you are being sued?

The issuer can close the account that you are being sued for, but they can't affect other credit with other lenders. If they get a judgment they can freeze a person's savings and checking accounts until they figure out what income in the accounts can be garnished. Some income is exempt, like Social Security SSI and disability. It is wise to close out such accounts when you know you are being sued.

What is "binding arbitration" and how is it used to solve disputes?

The Terms and Conditions of many credit cards include a clause which protects the card issuer from lawsuits and class action suits. If you have any problem or dispute regarding your account, you're limited to a binding arbitration hearing. The arbitrator is generally hand-picked and hired by the card issuer, and your legal options are normally severely limited. Once an arbitrator has made a decision, it's next to impossible to get a court to overturn the decision.

How does credit insurance protect you from being sued?

Credit insurance pays the minimum monthly payment when a cardholder cannot make their payments. It is sold by credit card companies, stores, car dealers, and more. The average premium is about $.50 for each $100 of loan coverage per month. For example, if you carry a monthly balance of $3,000, you'd pay about $15 a month for credit insurance. For almost all situations, the expense of credit insurance outweighs the potential benefits.

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Expert Explanation: When Can You Be Sued for Credit Card Debts?