If a credit card company sues you and wins, and you're unable to pay, the court will issue a judgment against you, giving the company legal authority to pursue various collection methods to recover the money owed.
What Happens After a Lawsuit and Judgment?
When a credit card company or debt collector sues you and the court rules in their favor, they obtain a legal document called a judgment. This judgment confirms you owe the debt and empowers the creditor to take stronger collection actions that were not available to them before the lawsuit. These actions can significantly impact your financial life and assets.
Here's a breakdown of the common consequences:
| Consequence | Description |
|---|---|
| Wage Garnishment | A portion of your paycheck can be legally withheld by your employer and sent directly to the creditor until the debt is paid off. Federal law limits how much can be garnished, typically to 25% of your disposable earnings or the amount by which your disposable earnings exceed 30 times the federal minimum wage, whichever is less. State laws may offer additional protections or different limits. |
| Bank Account Levy | The creditor can obtain an order to freeze and seize funds directly from your bank accounts up to the judgment amount. This can clear out savings or checking accounts, potentially leaving you unable to pay for essential living expenses. Certain funds, like Social Security or veteran's benefits, are often protected from seizure. |
| Property Liens | A lien can be placed on your real estate (like your home) or other valuable assets. This means that if you try to sell the property, the lien must be paid off from the proceeds before you receive any money. In some cases, depending on state law and the asset, the creditor might be able to force a sale of the property to satisfy the debt. |
| Asset Seizure | While less common for credit card debt, in some jurisdictions, personal property (like vehicles or valuable possessions) could be seized and sold to pay off the judgment. However, many states have "exemption laws" that protect a certain amount of property from seizure. |
| Credit Damage | A judgment will appear on your credit report for up to seven years from the filing date, severely damaging your credit score. This makes it difficult to obtain new credit, loans, or even rent an apartment. |
Wage Garnishment
Wage garnishment is a direct and impactful consequence. The court order is sent to your employer, who is then legally obligated to deduct a percentage of your disposable income and send it to the creditor. It's important to understand that there are federal and state laws that protect a portion of your wages from garnishment to ensure you have enough money for basic living expenses.
Property Liens and Potential Forced Sales
As mentioned, if the credit card company wins, they can ask the judge for authority to collect their money, and liens could be placed on your property or forced into a sale to satisfy the debt. This typically applies to significant assets like real estate. While a lien on your home doesn't immediately mean you'll lose it, it does mean the debt must be paid when the property is sold. In some cases, depending on the state's laws, a creditor could seek a court order to force the sale of non-exempt property to collect the debt.
What to Do If You're Sued and Can't Pay
Being sued for debt can be overwhelming, but ignoring the lawsuit is the worst possible action.
Don't Ignore the Lawsuit
If you ignore the lawsuit, the court will likely issue a default judgment against you. This means the credit card company wins automatically, without having to prove its case, and gains the immediate right to pursue collection actions like wage garnishment or bank levies.
Explore Your Options
Even if you can't pay the full amount immediately, you have options to consider:
- Respond to the Summons: File an answer with the court within the specified timeframe. This prevents a default judgment and gives you time to understand your options.
- Negotiate a Settlement: Even after a lawsuit is filed, you might be able to negotiate a settlement for a lower amount than what's owed. Creditors often prefer to settle rather than go through lengthy collection processes. Consider offering a lump sum or a structured payment plan.
- Seek Legal Aid: Consult with a consumer law attorney or a legal aid service. They can explain your rights, assess any potential defenses (e.g., statute of limitations, incorrect debt amount), and help you navigate the legal process. They can also advise on state-specific exemption laws that protect certain assets or income from collection.
- Consider Bankruptcy: For overwhelming debt, filing for bankruptcy (Chapter 7 or Chapter 13) can halt collection lawsuits and potentially discharge (eliminate) unsecured debts like credit card debt. This is a serious step with long-term consequences for your credit, but it can provide a fresh financial start.
- Debt Management Plan (DMP): While typically for pre-lawsuit situations, if you have other debts and income, a non-profit credit counseling agency might help you explore a DMP, though it's less common once a judgment is in place unless part of a settlement negotiation.
Protecting Yourself from Debt Collection
- Know Your Rights: The Fair Debt Collection Practices Act (FDCPA) protects consumers from abusive, unfair, or deceptive debt collection practices. Understand what collectors can and cannot do.
- Understand Exemptions: Many states have laws that protect certain assets and income from being seized by creditors. These "exemption laws" can shield a portion of your wages, certain retirement accounts, some equity in your home, and specific personal property. An attorney can help you understand what's exempt in your state.
Facing a credit card lawsuit when you can't pay is challenging, but by understanding the process and your rights, you can take proactive steps to mitigate the impact and explore solutions for your financial situation.
