Guest Post

Credit Card Debt and Lawsuits: How You Can Protect Yourself

By Odysseas Papadimitriou, Founder of CardHub.com, a website that helps you find the best credit card deals and operates the nation’s largest social gift card exchange.

I think it’s a fair bet to say no one wants to get sued. Even for the most drama-starved reality TV enthusiasts, that would be going a little too far. Given this premise, it’s amazing how many people don’t truly know the best ways to minimize their chances of falling victim to a lawsuit. No, I’m not talking about learning how to doge process servers effectively. Rather, I’m speaking to the importance of statutes of limitations, specifically the statute of limitations for credit card debt.

The statute of limitations for debt is basically the length of time that you can be sued for money that you owe. Seems simple enough right? Sure, but garnering a truly practical understanding of debt’s statute of limitations is unfortunately a bit more complicated.

Interestingly, when the statute of limitations for debt concludes, you still aren’t out of the woods. At this time, your debt is referred to as “time-barred.” While this does not mean that debt collectors can’t sue you, it does mean they can’t win as long as you explicitly inform the court that your debt is older than the statute of limitations. If you do so, the suit will be dismissed; if you don’t, you might lose a lawsuit you had no business losing, hence why understanding the statute of limitations for credit card debt is so important.

Still, the lesson’s not over yet. In order to truly minimize your chances of losing a lawsuit, you must also be able to answer the following questions: When does the statute of limitations begin? How long is the statute of limitations? Is there a running clock? Should I be paying what I can, when I can?

The statute of limitations for written contracts like credit card agreements begins at the time of last payment and runs for a certain, state-specific period of time. However, as the clock starts whenever you paid last, it resets every time you make a payment as well. Thus, every time you make a payment, you re-age your debt.

So does this mean that you should simply avoid paying your debt and wait out the statute of limitations?

Not exactly. The statute of limitations for credit card debt ranges from 3-15 years, so if you plan on waiting out debt, you might be waiting for a good long while and you might get sued. The best course of action for anyone facing prodigious credit card debt is therefore to reach an affordable debt payment plan or a debt settlement with their creditors.

By establishing a payment plan, you would enter an agreement to pay your debt collector monthly installments in order to have your debt paid down in its entirety by a given date. While a payment plan will remove the threat of a lawsuit, violating its terms will bring that threat right back, so you must only agree to this form of debt management if you can make the required monthly payments comfortably.

Debt settlement, on the other hand, provides a quick resolution to debt woes as it involves making a lump-sum payment to creditors. While you’d likely only be required to pay a portion of what you owe in return for paying all at once, the amount is still likely to be considerable, thus making this plan inconceivable for many. However, if you can somehow manage to reach a settlement with your creditors, not only will you no longer need to worry about a lawsuit, but you will also prevent further credit score damage. The longer debt remains unresolved, the worse it is for your credit score. Once your debt is settled though, it will no longer be classified as “not paid” on your major credit reports.

Still, settlement does not impact the length of time negative information about debt stays on your credit reports. Neither does payment. Unlike the statute of limitations, this clock does not reset. Instead, in the case of credit card charge-offs, it runs for seven years after you first enter delinquency. Therefore, the presence of negative info on your credit reports should not factor into your decision on whether to pay or not.

The likelihood of a lawsuit and the impact your debt has on your credit score should however, and the bottom line is that you should not make small payments toward your debt unless they are part of an agreement with your creditors. Such payments increase your vulnerability to a lawsuit and will not significantly lower your debt unless you owe relatively little, in which case you most likely won’t get sued anyway. So if you’re unable to either reach a deal with debt collectors or make consistent payments that provide a line of sight to zero balance, simply wait out the statute of limitations. No matter what debt collectors say, this might be the best option available to you.

Comments (4)

  • This is pretty interesting stuff, and not often talked about. It’s surprising that a judge would not see that the debt is too old and tell the suing party to stop wasting the court’s time (and maybe even fine him for doing so).

    Reply
  • Personal Finance Buzz…

    Your story was featured in Personal Finance Buzz! Please visit and promote your article….

    Reply
  • Credit Card Debt and Lawsuits: How You Can Protect Yourself…

    It’s amazing how many people don’t truly know the best ways to minimize their chances of falling victim to a lawsuit….

    Reply
  • Yes, I think it is extremely important for the consumers should know about the Statute Of Limiations period in their respective states. This may help them to fight with the debt collectors efficiently. They can’t be bullied by the scare tactics of the debt collectors.
    Take the example of my best friend Giesha. She had a debt which was around 25 years old. She has completely forgotten about the debt. One day, she received a call from a collection agency when she was having dinner with her family. The collector just started shouting on her as soon as she received the call. They told that she owed $95,000 to them. Giesha was asked to pay off the debt within 7 days or she will be sued by the collection agency.
    Needless to say, my friend spent a sleepless night. She called me in the next morning and told me the matter. I didn’t have any knowledge either. We decided to go to States Attorney General Office. We went there are got to know about the SOL period. The SOL period has expired long time back. The Attorney General also told us that the collection agency can’t sue her anymore. What a relief!!! My friend told the collector about it and guess what happened? The collection calls stopped from the next day onwards.

    Reply

Write a comment