Yes, a credit card company can sue you for not paying, and so can any debt buyer that purchases your account after the original issuer gives up on collecting. Lawsuits are rarely the first move, but they become a real risk once informal collection fails, and balances of only a few thousand dollars are enough to trigger one. The worst thing you can do is ignore the paperwork. A court that never hears your side can let the creditor garnish your wages, freeze your bank account, or place a lien on your home.
When a Lawsuit Becomes Likely
After a couple of missed payments, the issuer’s in-house collectors start calling and writing. If nothing changes within roughly 120 to 180 days, the account is “charged off.” That’s an accounting move that lets the creditor book the balance as a loss. It does not cancel what you owe.
Once the account is charged off, the original creditor may keep pushing, or it may sell the debt to a third-party buyer for pennies on the dollar. The buyer then owns the right to collect. Third-party collectors and debt buyers are regulated by the Fair Debt Collection Practices Act, which bars harassment, false statements, and other abusive tactics.1Federal Trade Commission. Fair Debt Collection Practices Act When calling and writing don’t work, filing suit is often the last option left.
There’s no legal minimum balance for a lawsuit, but creditors weigh filing fees and attorney time against likely recovery. Suits become noticeably more common in the $1,000 to $5,000 range and rise from there. A $300 balance rarely justifies the effort. A $10,000 balance almost always does.
One right worth knowing before suit is filed: within five days of first contacting you, a third-party collector must send written notice of the amount, the creditor’s name, and your right to dispute. If you dispute in writing within 30 days, the collector must stop collection until it sends verification.2Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts This applies only to third-party collectors, not to the original card issuer collecting its own account.
The Statute of Limitations
Every state sets a deadline for how long a creditor has to sue over an unpaid debt. Once that deadline passes, the debt is “time-barred” and the creditor loses the right to file. These windows run from three years in some states to ten in others, and the clock generally starts on the date of your last missed payment.
Which state’s deadline applies depends on your original card agreement. Many agreements name a governing state, which may not be the one you live in. Read the fine print.
Watch out for a common trap. In many jurisdictions, making even a small payment on an old debt, or acknowledging it in writing, restarts the statute of limitations clock. A collector who talks you into sending $25 “as a gesture of good faith” on a six-year-old account may have just bought several more years to sue. If you suspect a debt might be time-barred, confirm it before paying anything or putting anything in writing.
The statute of limitations blocks lawsuits. It doesn’t erase the debt, doesn’t stop collection calls, and doesn’t remove the account from your credit report, where it can stay for up to seven years from the date you first fell behind.
What Being Sued Looks Like
A credit card lawsuit begins when you’re served with two documents. The summons is the court’s official notice: it names the court, gives the case number, and states your deadline to respond. The complaint is the creditor’s version of events: who is suing you, why they say you owe, and how much they want, usually the original balance plus interest and fees accumulated since you stopped paying.
Response deadlines vary by jurisdiction but commonly run 20 to 30 days from the date of service. Missing that deadline is the most damaging mistake people make, because it opens the door to a default judgment.
How to Respond
Filing a written answer with the court is the single most important step you can take. The answer responds to each claim in the complaint by admitting it, denying it, or stating you lack enough information to answer. It’s also where you raise your defenses. The FTC notes that the collector bears the burden of proving you owe the debt, that the amount is right, and that they are the proper party to collect.3Federal Trade Commission. What To Do if a Debt Collector Sues You
Several defenses come up again and again:
- Expired statute of limitations. If the deadline to sue has passed, the case can be dismissed entirely.
- Lack of standing. Debt buyers must prove they own your specific account through a documented chain of assignments from the original creditor. Many cannot.
- Wrong amount. The balance may include fees or interest rates that weren’t in your agreement, or the creditor may have misapplied payments.
- Wrong defendant. With common names, mistaken identity happens.
- Breach by the creditor. If the issuer failed to meet its own contractual obligations, that can reduce or eliminate what you owe.
Even without a perfect defense, showing up and filing an answer changes the dynamic. Most credit card suits end in default judgments because the defendant never responds. When you do respond, the creditor has to spend time and money proving its case, which often makes it more willing to settle.
Settling After the Suit Is Filed
Being sued doesn’t end negotiation. Settlement is possible at every stage, from the day you receive the complaint through the day of trial. A guaranteed partial payment often looks better to the creditor than the cost and uncertainty of trial.
Lump-sum offers usually get the best terms. Creditors will discount more aggressively for money now than for a long payment plan. How steep a discount depends on the strength of their evidence, the age of the debt, and what you can realistically put on the table.
Two things trip people up. First, negotiating does not pause the lawsuit clock. If your response deadline is close, file the answer even while you’re talking. Second, never rely on a verbal agreement. Get the total settlement amount, the payment schedule, and a clear statement that the creditor will dismiss the suit and report the account as settled, all in writing and signed by both sides, before you send a dime.
If You Missed the Deadline
A default judgment is what the court enters when you don’t respond in time. It’s an automatic win for the creditor, entered without a trial and without any defense on the record. The creditor can then start using enforcement tools right away.3Federal Trade Commission. What To Do if a Debt Collector Sues You
A default judgment isn’t necessarily final. You can ask the court to set it aside through a motion to vacate. Courts generally consider three grounds:
- Improper service. If you were never actually served, or the papers went to the wrong address, the court lacked authority over you. There is typically no time limit on raising this.
- Fraud or misrepresentation. For example, if you called the plaintiff’s attorney, worked out an arrangement, were told not to worry about the court date, and then found a default entered anyway.
- Excusable neglect. If you had a legitimate reason for missing the deadline and also have a real defense to the underlying debt. Most courts require this motion within one year of the judgment.
Speed matters. The longer you wait after learning of the judgment, the harder it gets to reopen the case.
What the Creditor Can Do With a Judgment
When a creditor wins, whether by default or at trial, the court issues an enforceable order confirming the debt. That order unlocks several collection tools.
Wage Garnishment
The creditor can get a court order making your employer withhold part of each paycheck. Federal law caps the amount at the lesser of 25% of your disposable earnings for the week, or the amount by which your disposable weekly earnings exceed $217.50 (30 times the $7.25 federal minimum wage).4Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment If you earn $217.50 or less per week in disposable income, nothing can be garnished.5U.S. Department of Labor. Fact Sheet 30 – Wage Garnishment Protections of the Consumer Credit Protection Act
A few states go further. Texas, North Carolina, South Carolina, and Pennsylvania largely prohibit wage garnishment for consumer debts like credit cards, with some exceptions. Some states set lower garnishment caps than the federal limit. When state and federal limits conflict, the one that protects more of your paycheck applies.
Bank Account Levy
A bank levy freezes your account and takes funds toward the judgment. Social Security, SSI, VA benefits, and certain other federal payments are generally protected from private creditors.6Office of the Law Revision Counsel. 42 USC 407 – Assignment of Benefits Banks must automatically protect two months’ worth of federal benefits deposited directly.7Consumer Financial Protection Bureau. Can a Debt Collector Take My Federal Benefits Any funds beyond that cushion can be frozen or seized. And if you deposit benefit checks by hand instead of using direct deposit, the automatic protection doesn’t apply, and you would have to prove the source in court.
Property Liens
A judgment creditor can file a lien against your real estate, creating a legal claim on the property. You don’t lose the house right away, but the lien generally has to be paid off before you can sell or refinance. This is less common with credit card debt than with larger obligations, but it happens, especially when the judgment is sizable.
Attorney Fees and Court Costs
Many credit card agreements let the issuer recover attorney fees and court costs if it has to sue. Where that language exists, those costs get added to the judgment, sometimes adding several thousand dollars. Not every agreement includes the provision, and courts require the language to clearly authorize fee recovery. Under the general American Rule, attorney fees aren’t recoverable unless a contract, statute, or court rule allows them.
Post-Judgment Interest
The judgment amount is not fixed. Interest keeps accruing on the unpaid balance from the date of entry, at a rate set by state law, commonly between about 4% and 10% per year. Judgments themselves typically last 10 years, and most states let creditors renew them before they expire, effectively extending enforcement power indefinitely. A judgment can appear on your credit report for up to seven years or until the statute of limitations on the judgment runs out, whichever is longer.8Consumer Financial Protection Bureau. How Long Does Information Stay on My Credit Report
The Tax Bill on Forgiven Debt
If you settle for less than the full balance, or the creditor writes off what’s left, the IRS treats the forgiven amount as income. The creditor must file a Form 1099-C for canceled debt of $600 or more, and you’re expected to report it.9Internal Revenue Service. About Form 1099-C, Cancellation of Debt Settle a $12,000 debt for $5,000, and the remaining $7,000 counts as taxable income for that year.
There’s an important exception for insolvency, meaning your total debts exceed the fair market value of everything you own. If that describes your situation at the time the debt was canceled, you can exclude the forgiven amount from income up to the extent of your insolvency.10Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness To claim it, file Form 982 with your return, showing the calculation of how your liabilities exceeded your assets immediately before the discharge.11Internal Revenue Service. Instructions for Form 982 Many people settling credit card debt qualify for at least a partial exclusion without knowing it, so run the numbers before you file.