Can You Be Sued for Credit Card Debt: Defenses, Exemptions, Settlement

Yes, you can be sued for credit card debt. The bank that issued your card, or a debt buyer that purchased your delinquent account, has the legal right to file a lawsuit for the unpaid balance, and a court that rules against you can order wage garnishment, freeze your bank account, or place a lien on your property. Most creditors don’t rush to court. A suit usually follows months of missed payments and failed collection attempts, and specific rules govern who can sue, how long they have to do it, and what you can raise in your defense.

When a Lawsuit Becomes Likely

Your account goes delinquent the day after a missed payment. For the first several months, expect calls, letters, and emails from the original creditor pushing you to catch up. If the balance sits unpaid for roughly 180 days, federal banking regulators direct the creditor to charge off the account, meaning the bank records the debt as a loss.¹ That accounting move does not erase what you owe. After a charge-off, the creditor may hand the account to a collection agency, sell it to a debt buyer, or file suit directly.

The plaintiff in a credit card case is often not the bank whose name was on your card. Debt buyers acquire delinquent accounts for a fraction of their face value and step into the original creditor’s shoes, gaining the right to collect the full amount and to sue for it. Who is actually suing you matters for how you defend the case.

Whether the Creditor Sued in Time

Every state sets a deadline for filing a debt lawsuit. For credit card balances, the window runs from three years in some states to ten in others, with most states falling between three and six. Which state’s law applies can depend on where you live, where the account was opened, or a choice-of-law clause tucked into your cardholder agreement. Some states start the clock on the date you first missed a payment; others count from the date of your most recent payment, even one made during collection.²

Once the period expires, the debt is time-barred. A debt collector is prohibited from suing or even threatening to sue over a time-barred debt.³ Filing anyway violates the Fair Debt Collection Practices Act.² Here’s the catch: if you’re sued on a time-barred debt and don’t appear to raise the defense, a court can still enter judgment against you. The court will not check the calendar for you.

Old debts deserve careful handling. Making even a partial payment, or acknowledging in writing that you owe the balance, can restart the statute of limitations and give the creditor a fresh window to sue.² Be wary of a collector who pressures you into a small good-faith payment on a dormant account.

What to Do When You’re Served

A debt lawsuit starts when someone hands you two documents: a summons and a complaint. The summons tells you a case has been filed. The complaint says who is suing you and how much they claim you owe. This is a civil matter, not criminal. You cannot be arrested or jailed for failing to pay credit card debt.⁴

You have a limited window, typically 20 to 30 days depending on your jurisdiction, to file a written response called an answer. Your answer addresses each claim in the complaint and raises your defenses. Miss that deadline and the creditor can ask the court for a default judgment, winning automatically because you never responded.⁵ Most people who lose debt lawsuits lose this way, not because the creditor had a strong case but because the defendant never showed up.

Defenses That Can Win the Case

Being sued is not the same as losing. Several defenses come up repeatedly in credit card cases:

Expired statute of limitations. If the deadline to sue has run, raising it in your answer can get the case dismissed, but only if you raise it.
Wrong defendant. Records get scrambled, especially after accounts are sold. If the debt isn’t yours, say so.
Incorrect amount. The plaintiff must prove the specific dollar figure, not just that you owe something. Inflated balances from miscalculated interest or unauthorized fees are common targets.
Broken chain of ownership. When a debt buyer sues, it has to trace the account back to the original creditor through documented assignments. Each sale thins the paper trail, and generic assignments that don’t name your specific account can defeat the buyer’s standing.
Lack of original documentation. The plaintiff bears the burden of proving you owe the debt and that the amount is right. Without the original credit agreement or account statements, that burden gets very hard to meet.

None of these help if you ignore the summons. They only work when you file a timely answer that puts them in front of the judge.

Using Discovery to Test the Creditor’s Case

Once you file an answer, the case enters discovery, the phase where both sides exchange information. This is your leverage. You can send written questions, called interrogatories, asking when the debt was charged off, who the collector bought the account from, and what interest rate produced the claimed balance. You can request documents: the original account agreement, statements, and the collector’s payment ledger.

Discovery hits debt buyers hardest. A company that bought your account in bulk may not have the signed agreement, complete account records, or clean proof it owns your specific debt. A request for admissions asking the plaintiff to confirm it has documents supporting the amount, if left unanswered for 30 days, is treated as admitted. At that point the plaintiff has effectively conceded it cannot prove its case.

What a Creditor Can Collect If It Wins

A judgment is a court order to pay. The amount typically covers the original balance plus accrued interest, court costs, and sometimes attorney’s fees. Enforcement tools include:

Wage garnishment. Federal law caps garnishment for consumer debt at the lesser of 25% of your disposable earnings or the amount your weekly pay exceeds $217.50, which is 30 times the $7.25 federal minimum wage. Some states set lower limits.⁶
Bank account levy. The creditor can freeze your account and seize funds to satisfy the judgment.
Property lien. A lien attaches to property you own, such as your home, and must be cleared before you can sell or refinance.

Judgments don’t go away quickly. Depending on the state, one can remain enforceable for 10 to 20 years, and creditors can often renew before expiration. A $3,000 balance can follow you for decades.

Income and Assets the Creditor Can’t Touch

Not everything you own is available to a judgment creditor. Social Security benefits, including retirement and disability payments, are protected by a federal statute that bars them from any levy, attachment, garnishment, or other legal process.⁷ Veterans’ benefits, Supplemental Security Income, federal retirement benefits, and federal disaster assistance carry similar protection.

These protections can weaken if you mix protected funds with other money in a single account, since tracing which dollars came from where becomes difficult. If you rely on Social Security or VA benefits, keeping those deposits in a separate account helps prevent a levy from sweeping protected money. Most states also exempt basic household goods, clothing, and a vehicle up to a certain value, though thresholds vary widely.

Settling Before or During the Case

You don’t have to reach trial. Many creditors and debt buyers will negotiate, sometimes for well below the full balance. Settlements often reduce the amount by 30% to 50%, and hardship cases can see reductions of 60%.

A settlement may be a lump-sum payment in exchange for dismissing the lawsuit, or a structured payment plan. Payment plans often come packaged as a stipulated judgment: a court order committing you to pay on a schedule, with the case dropped in return. The risk is real. Miss a payment under a stipulated judgment and the creditor can enter the judgment immediately and start using every enforcement tool above, without having to relitigate.

Get every term in writing before paying anything. Confirm the agreement states the lawsuit will be dismissed with prejudice, meaning it cannot be refiled.

The Tax Bill That Can Follow a Settlement

If a creditor forgives $600 or more of your debt, whether through a settlement or a decision to stop collecting, it must report the forgiven amount to the IRS on Form 1099-C.⁸ The IRS treats forgiven debt as taxable income. Settle a $10,000 balance for $4,000 and you could receive a 1099-C for the $6,000 difference.

Two exceptions can eliminate the tax. Debt discharged through bankruptcy is excluded from gross income.⁹ And if you’re insolvent when the debt is canceled, meaning your total debts exceed your total assets, you can exclude the forgiven amount up to the extent of your insolvency, reported on IRS Form 982.¹⁰ Many people who settle credit card debt are in fact insolvent when the settlement happens, so this exception applies more often than people expect.

Bankruptcy as a Stop Button

Filing bankruptcy triggers an automatic stay that immediately halts nearly all collection activity, including pending lawsuits, wage garnishments, and bank levies.¹¹ For someone facing a credit card lawsuit, that’s immediate relief.

Under Chapter 7, most credit card debt can be permanently eliminated. The discharge order typically issues 60 to 90 days after the initial meeting of creditors, and after that the creditor cannot take any legal or collection action for the discharged debt.¹² Narrow exceptions apply: credit card charges for luxury goods over $800 made within 90 days of filing, or cash advances over $1,100 taken within 70 days, are presumed nondischargeable. Ordinary charges are almost always wiped out. Bankruptcy carries its own costs, staying on your credit report for up to ten years, but for someone facing a judgment they cannot pay it may be the most practical option available.

Getting Help

If you can’t afford a lawyer, free legal aid may be available through Legal Services Corporation-funded organizations. You can find one through lsc.gov or LawHelp.org.¹³ Many courts run self-help centers that can walk you through filing an answer, even without giving legal advice.

Whatever else you do, file your answer before the deadline. The worst outcome isn’t losing on the merits. It’s losing by default because you never responded. Even a simple answer that denies the allegations and forces the creditor to prove its case leaves you in a fundamentally better position than silence.

1
FDIC. Revised Policy for Classifying Retail Credits
2
Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt That’s Several Years Old?
3
eCFR. 12 CFR 1006.26 – Time-Barred Debts
4
Federal Trade Commission. What To Do if a Debt Collector Sues You
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Consumer Financial Protection Bureau. What Should I Do if I’m Sued by a Debt Collector or Creditor?
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Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
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Office of the Law Revision Counsel. 42 USC 407 – Assignment of Benefits
8
Internal Revenue Service. Instructions for Forms 1099-A and 1099-C
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Office of the Law Revision Counsel. 26 USC 108 – Income From Discharge of Indebtedness
10
Internal Revenue Service. What if I Am Insolvent?
11
Office of the Law Revision Counsel. 11 USC 362 – Automatic Stay
12
United States Courts. Chapter 7 Bankruptcy Basics
13
Legal Services Corporation. I Need Legal Help