What Can Credit Card Companies Do to Collect Debt?

Credit card companies have a tiered set of collection tools, and which ones they can use against you depends entirely on whether they have taken you to court yet. Before a judgment, what credit card companies can do to collect debt is limited to contacting you, reporting late payments to the credit bureaus, selling the account to a debt buyer, and filing a lawsuit. After a judgment, they can forcibly take money from your paycheck, freeze and drain your bank account, and attach a lien to real estate you own. Federal law caps wage garnishment for credit card debt at 25% of your disposable earnings, and certain income sources like Social Security are off-limits entirely.

Phone Calls, Letters, and Credit Reporting

When you first fall behind, the card issuer’s own collections department handles the account. You get letters, emails, and calls, usually paired with offers of a payment plan or hardship program. At this stage the company would rather settle on terms than spend money chasing you.

One point worth knowing: the Fair Debt Collection Practices Act, the main federal law restricting collector behavior, generally does not apply to the original creditor collecting its own debt. The FDCPA’s protections kick in when a third-party collector gets involved.¹ State consumer protection laws and general prohibitions against unfair or deceptive practices still apply to the bank, but the federal rules on call timing, validation notices, and harassment are aimed at outside collectors.

Alongside the calls, the creditor reports your payment history to Equifax, Experian, and TransUnion. A missed payment typically shows up once it’s 30 days past due, with additional negative marks at 60 and 90 days. Around the 180-day mark, the creditor usually charges the account off, meaning it’s written off as a loss on the company’s books. You still owe the money. The charge-off itself is one of the most damaging marks a credit report can carry, and most negative information stays on your report for seven years from the date you first became delinquent.² As long as what’s reported is accurate, the creditor has every right to report it.³

Selling the Debt to a Collector

If the original creditor decides collecting isn’t worth the effort, it will often sell the account to a debt buyer or hand it to a collection agency. The sale price is typically a small fraction of the balance owed. Once the sale closes, the new owner steps into the creditor’s shoes and can pursue you for the full amount, including interest that keeps piling up. Your card agreement almost certainly contains a clause allowing this transfer.

The handoff matters because the new collector is now a third-party debt collector under federal law, which triggers the full protections of the FDCPA.⁴

What a Collector Must Prove and What It Cannot Do

When a third-party collector first contacts you, federal law requires a written validation notice within five days. It must include the name of the creditor, the amount owed, and a statement explaining your right to dispute. You have 30 days from receiving that notice to dispute the debt in writing. If you do, the collector must stop all collection activity until it sends you verification or a copy of a court judgment.⁵

This is where many debt buyers run into trouble. If an account has been sold multiple times, the current holder may not have the original signed agreement or complete account records. Disputing forces them to prove the debt is real and that they own it.

The FDCPA also restricts how collectors communicate. They cannot call before 8 a.m. or after 9 p.m. local time, use threatening or abusive language, or call repeatedly with the intent to harass.¹ Violations give you the right to sue the collector for damages.

The Statute of Limitations

Every state sets a deadline for filing a lawsuit over unpaid credit card debt. These statutes of limitations range from three to ten years, with most states falling in the three-to-six-year range. The clock generally starts from the date of your last payment.

Once that window closes, the debt is “time-barred.” A collector who sues or threatens to sue on a time-barred debt violates the FDCPA, and it’s a strict liability violation, meaning the collector is on the hook even if it genuinely didn’t know the deadline had passed.⁶

Here’s the trap: making even a small payment or acknowledging the debt in writing can restart the statute of limitations in many states.⁷ Some collectors will push for a token payment precisely to reset the clock. If you’re contacted about an old debt, find out whether the statute has run before you agree to anything.

Two boundaries on this protection. Even after the statute expires, a collector can still call and send letters asking you to pay. The law only bars lawsuits and threats of them. And if a collector does file suit on an expired debt, you have to show up in court and raise the statute of limitations as a defense. The court won’t apply it automatically, and failing to respond could still result in a judgment against you.⁷

The Lawsuit

When informal collection fails and the statute of limitations is still open, the creditor or debt buyer can file suit in civil court. You’ll receive a summons and complaint stating the amount claimed and the breach of your card agreement. Ignoring that paperwork is the single most common and most costly mistake. If you don’t respond by the deadline in the summons, the court enters a default judgment against you, meaning the creditor wins automatically without having to prove anything.⁸

If you do respond, the creditor bears the burden of proving three things: you are the person who owes the debt, the amount is accurate, and the entity suing you actually has the right to collect it.⁹ Debt buyers struggle most with that third element, because resold accounts often arrive with incomplete chains of ownership.

A judgment typically covers the principal balance, accumulated interest, collection costs, and attorney fees.⁸ That can add significantly to the original amount. More importantly, a judgment converts what was an unsecured debt into a court-enforceable obligation and unlocks collection tools the creditor couldn’t use before.

What Changes After a Judgment

A court judgment is the dividing line. Before one, a credit card company can call you, report to the bureaus, and file suit. After one, it can forcibly take your money. Three main tools become available.

Wage Garnishment

The creditor gets a court order directing your employer to withhold part of each paycheck and send it to the creditor. Federal law limits the garnishment to the lesser of two amounts: 25% of your disposable earnings for that pay period, or the amount by which your weekly disposable earnings exceed 30 times the federal minimum wage, which is $7.25 per hour and puts the threshold at $217.50 per week.¹⁰ If your disposable income is below $217.50 a week, your wages cannot be garnished at all for credit card debt.¹¹ Some states set stricter limits, so the actual withholding depends on where you live.

Bank Account Levies

A bank levy lets the creditor reach directly into your checking or savings account. After obtaining a writ of execution, the creditor instructs your bank to freeze and turn over funds to satisfy the judgment. The bank typically freezes the money first and gives you a short window to claim exemptions before releasing it. Levies drain accounts fast, which is one of the reasons people who ignore a lawsuit can wake up to a financial crisis.

Judgment Liens on Real Estate

The creditor can record a lien against real estate you own. A lien doesn’t force an immediate sale, but it attaches to the title. If you sell or refinance, the lien has to be paid off first. In some states, recording the judgment with the county clerk creates the lien automatically. These liens can last for years and are renewable in many jurisdictions.

Income and Assets They Cannot Touch

Not everything you have is fair game. Federal law shields certain income sources from garnishment for consumer debts like credit cards, with or without a judgment.

Social Security and SSI benefits are protected from garnishment by private creditors. SSI is protected even from government debts and child support.
VA disability and pension payments cannot be seized by credit card companies.
Civil Service Retirement and Federal Employee Retirement System payments are similarly shielded.

When these benefits are direct-deposited and the account gets hit with a levy, the bank is required to automatically protect the last two months’ worth of deposited federal benefits. You don’t have to file a claim for this to apply.¹² If you receive benefits by paper check and deposit them manually, the bank is not required to apply the automatic protection, and you’d have to file an exemption claim yourself.¹³

Beyond federal benefits, most states have homestead exemptions that shield some or all of your home equity from judgment creditors. These range from no protection in a couple of states to unlimited protection in a handful of others, with the majority somewhere in between. Many states also exempt a minimum bank balance, personal items like clothing and furniture, and tools you need for work. If your income comes entirely from exempt sources and you have no assets a creditor could seize, you’re sometimes called “judgment proof.” A judgment exists on paper, but there’s nothing to collect.

Settling the Debt

At almost every stage of this process, you can try to negotiate. Credit card companies and debt buyers regularly accept less than the full balance to close an account, especially once it’s several months delinquent. The creditor’s math is simple: getting something now beats spending money on a lawsuit that might yield nothing, particularly if there’s a bankruptcy risk.

Lump-sum offers tend to produce the deepest discounts. The longer an account has been delinquent and the less confident the creditor is in collecting, the more negotiating room you have. If you reach a settlement, get every term in writing before sending money. An oral agreement that doesn’t get documented can leave you exposed if the remaining balance gets sold to another collector.

A settled account still shows up on your credit report as “settled for less than the full amount,” which is better than an open collection but worse than “paid in full.” And there’s a tax catch. When a creditor forgives $600 or more of debt, it’s required to file a Form 1099-C reporting the forgiven amount as income to you.¹⁴ If you owed $10,000 and settled for $4,000, the IRS treats the remaining $6,000 as taxable income. There’s an exception for insolvency: if your total debts exceeded the fair market value of everything you owned at the time the debt was cancelled, you can exclude the cancelled amount from your income, up to the amount by which you were insolvent.¹⁵

1
Cornell Law School. Fair Debt Collection Practices Act
2
Office of the Law Revision Counsel. 15 USC 1681c – Requirements Relating to Information Contained in Consumer Reports
3
Office of the Law Revision Counsel. 15 USC 1681s-2 – Responsibilities of Furnishers of Information to Consumer Reporting Agencies
4
Federal Trade Commission. Fair Debt Collection Practices Act Text
5
Office of the Law Revision Counsel. 15 USC 1692g – Validation of Debts
6
Consumer Financial Protection Bureau. Advisory Opinion Reg F Time-barred Debt
7
Consumer Financial Protection Bureau. Can Debt Collectors Collect a Debt Thats Several Years Old
8
Consumer Financial Protection Bureau. What Should I Do if Im Sued by a Debt Collector or Creditor
9
Federal Trade Commission. What To Do if a Debt Collector Sues You
10
Office of the Law Revision Counsel. 15 USC 1673 – Restriction on Garnishment
11
U.S. Department of Labor. Fact Sheet 30 – Wage Garnishment Protections of the Consumer Credit Protection Act
12
Fiscal.Treasury.gov. Guidelines for Garnishment of Accounts Containing Federal Benefit Payments
13
Consumer Financial Protection Bureau. Can a Debt Collector Take My Federal Benefits Like Social Security or VA Payments
14
Internal Revenue Service. About Form 1099-C Cancellation of Debt
15
Internal Revenue Service. Publication 4681 – Canceled Debts Foreclosures Repossessions and Abandonments