Can Creditors Sue You?

Don't think that a creditor can't sue if you default on a payment. Creditors employ various collection methods. Some sue shortly after you default on a debt, whereas others refer the account to collections and never take legal action. Being sued can create financial and credit damage, and the effects can have lasting consequences.

Charge-Offs and Collection

Missing a credit card payment for six consecutive months may not prompt a lawsuit from the creditor. On the other hand, the creditor may decide to charge off the account and potentially sell the debt to a collection agency. After taking possession of this debt, the collection agency can file its own lawsuit to recover funds. Agencies typically start communication with letters and telephone calls. But once debtors make no attempt to resolve the balance, agencies can file suit and request a judgment. Creditors and debt collectors must follow through with any threat to sue. Threatening a lawsuit without the intent of pursing the matter in court is prohibited, according to the Fair Debt Collection Practices Act. Also, creditors must sue within the statue of limitations, which varies by state.

Judgments from Debt

Creditors and collection agencies sue with hopes of acquiring past due funds from debtors. Mention or threats of a lawsuit motivate some debtors to pay their balances to avoid a hearing and a possible credit judgment. Judgments are decisions or verdicts given by judges that mandate payment of a debt. A judgment appears on the debtor's credit file once the judge announcing his ruling, and this information remains for seven years. A drop in credit score is common with judgments and some debtors have difficulty acquiring new financing.

Avoid a Lawsuit

Creditor lawsuits are avoidable; and sometimes, payment efforts are enough to defer a lawsuit. You can negotiate partial payments with your creditors to keep your account active, or you can ask the creditor for different terms to lower the minimum payment on debt. Ignoring your creditor and going months without paying your account is almost certain to trigger a lawsuit from the company.

Bankruptcy and Creditors

The term "automatic stay" is used in bankruptcy cases; and with an automatic stay, creditors and debt collectors cannot contact the courts to file a civil lawsuit, nor practice other debt collection methods. Bankruptcy is a technique to help reduce a debtor's liability or completely extinguish the amount owed to creditors. Following the filing of documents, debtors receive notification of a court date. Creditors receive the same notification, and creditors have the option of being present at the hearing to contest the bankruptcy and seek payment of past due monies. If a debtor's creditors fail to appear, the judge can decide to wipe out balances and give the debtor a new start.