Credit card companies are in the business of extending credit so they can get paid back. If you're behind on your credit card bills, expect the credit card company to aggressively pursue you for the debt. The law does provide some protection for you, however, in the form of statute of limitation laws and restrictions on third-party debt collectors.
Collection Techniques
When you first become late on your credit card bills, expect the credit card company to begin calling you at work and at home. The credit card company will also send you letters in the mail requesting payment. After six months of not receiving the minimum payment due, your credit card company "charges off" the debt. "Charge-off" is an accounting term and does not mean that you are no longer obligated to pay the debt. Instead the credit card company writes your debt off as a loss for tax purposes and turns it over to a collection agency. If the bill is high enough, the credit card company or its collection agency may eventually file a lawsuit against you. If the debt collectors win, they can possibly garnish your wages, seize your bank accounts, and file a lien on your home to satisfy your debt.
Credit Card Companies vs Collection Agencies
Collection agencies are in the business of collecting debt. Their employees, also known as debt collectors, usually work on commission and are very motivated to get you to pay your bill. Both federal and state laws offer you certain protections against collection agency harassment and deception. The federal Fair Debt Collection Practices Act forbids debt collectors from contacting you at odd hours (usually before 8 a.m. or after 9 p.m.), calling you at work if you have told them not to, threatening you with arrest, or using obscene or abusive language.
The protections of the FDCPA do not apply to original creditors such as credit card companies, unless the credit card companiy's collections department does business in a way to make it appear as though it is a third-party collection agency. However, some states, such as California, have their own version of the FDCPA that does apply to original creditors.
Statute of Limitations
The statute of limitations on collecting credit card debt varies by state, but is usually between three and six years. After the statute of limitations on a debt expires, neither a credit card company nor collection agency can sue you in court for the debt. If a creditor or debt collector does try to sue you after the statute of limitations expires, you can ask the judge to dismiss the case. However, once a creditor gets a judgment against you for the debt, the statute of limitations for collecting the judgment can be longer than that for credit card debt (as much as 10 to 15 years in some states). Plus, the judgment collection statute of limitations is often renewable, which means that a credit card company or collection agency could have decades to pursue you.
Credit Consequences
Not paying your credit card bills can have a devastating effect on your credit. Late payments remain on your credit report for up to seven years. Charge-offs stay on your report for up to 7 1/2 years. Once you miss a payment and it's reported on your credit report, other creditors may take notice and raise your interest rates or lower your credit limit.
Prevention/Solution
Protect your credit score and avoid dealing with debt collectors by working things out with your credit card company. Some credit card companies are willing to work with you to reduce your debt or help you get back on track with your payments. Call the credit card company and ask about eliminating fees, reducing your interest rate, or working out a payment plan. Some card issuers will even let you settle the account for less than you owe. If you're unsuccessful in your negotiations, contact a non-profit credit counseling service or a bankruptcy attorney for advice.
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