Consumers are required to make a minimum monthly credit card payment or the account will eventually default. This will damage the individual’s credit score and could result in legal consequences such as a lawsuit.
The Effect of a Delinquent or Defaulted Credit Account on Credit Ratings
Regular payments on accounts are an important part of maintaining a good credit score. Payment history makes up 35% of each consumer‘s credit score. Payments that are more than 30 days past due will have a significant negative impact on credit scores (See Learn How to Read a Credit Report).
Any payments that are 180 days past due typically become charge-offs. When an account is charged off, the credit card company will write off the bad debt for tax purposes. Although a charge-off may not directly alter a score, it is detrimental to an individual’s credit history simply due to the fact that a past charge-off is a red flag to future lenders.
Charge-Offs Are Often Sent to Collections
Charged-off debt will very rarely just vanish. Credit card companies often sell these uncollectible debts to collection agencies. Collection agencies are legally allowed by the Fair Debt Collection Practices Act to contact individuals through telephone calls, e-mail and letters unless the debtor requests in writing that all contact cease.
A collection agency may also opt to sue for the full balance of the old debt provided that the debt still falls within the statute of limitations for debt collection in the consumer’s state of residence (See The Statute of Limitations for Debt Collection). A successful debt collection lawsuit can result in a judgment which is detrimental to the individual’s credit rating. If the consumer’s state of residence allows wage garnishment, a collection agency may also petition the judge for a writ of garnishment to be allowed to intercept the individual’s wages to procure payment.
How to Avoid a Lawsuit and Wage Garnishment Over Credit Card Debt
The best way to avoid a lawsuit is for consumers who have trouble keeping up with credit card debt to restructure their budgets to allow for regular credit card payments. Some other options for avoiding a lawsuit are:
- Stop making purchases on the card. The lower the debt on the credit card is, the less likely an individual is to be sued.
- Negotiate a settlement with the credit card company. For individuals who are expecting a tax refund, tax time can be the best time of year to attempt to negotiate lump sum debt settlement agreements (See Debt Settlement and Debt Collectors).
- File for bankruptcy. Bankruptcy provides protection for debtors who cannot pay their bills yet live in fear of a creditor lawsuit.
Candice Edwards - Candice Gillingwater is a credit specialist and consumer advocate currently living in Georgia. Her goal is to educate the public about ...
