Credit card debt is unsecured. When you fail to make the payments, there is nothing for the creditor to repossess. Without collateral, it is often difficult for a credit card company to collect the money owed. Card companies can't force you to return your purchases, but they can hit you with a judgment. If a creditor files a lawsuit against you and wins, the judgment will appear on your credit report and you are required to pay the debt. You can stop collection activity.
Before the credit card company or collection agency pursues a judgment, try negotiating. Attempt to settle the debt for a lesser amount or set up a payment plan. Explain your financial situation and discuss what you can afford. Taking you to court is expensive, so it is in the creditor's best interest to settle with you. if you can reach an agreement, ask for a copy for your records. Without proof, the creditor can still seek a judgment.
Statute of Limitations
The statute of limitations specifies how much time a creditor has to file a claim against you. Credit card collection limitations vary by state. In some, the window is three years; in others, a debt collector has at least seven years to collect payment. Debt that sticks around past the statute of limitations is referred to as "time-barred debt." According to the Federal Trade Commission, if a creditor tries to sue you on a time-barred debt, let the court know how old the debt is to have it dismissed.
Filing a Response
Although a potential judgment is scary, it must be addressed -- ignoring the debt won't make it go away. When you are served with papers, it is important to file a response with the court. If you fail to answer, you will not have the opportunity to dispute the claim and the court will automatically rule in the creditor's favor.
When you file, the creditor will need to provide proof to show the debt is valid. Prepare to present evidence of payment and any attempts you made to reach a settlement with the company. If the debt is valid and the amount owed is correct, there is a good chance the judgment will be granted. Even with a judgment, you can try to settle with the creditor before it is enforced.
If you cannot afford to pay the debt, bankruptcy can wipe the slate clean. Your credit card company and other creditors must immediately stop all collection activity once you file. In Chapter 7 bankruptcy, all debt is discharged. All assets must be liquidated to pay your debt. For someone with a home or other assets, this option may not be the best.
Chapter 13 bankruptcy allows you to restructure your debt and keep certain secured assets. Unsecured debt, including credit cards, is discharged. Bankruptcy has a significant negative impact on your credit score. Explore all options before considering bankruptcy.
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.