What You Should Expect When You’re Sued by Your Credit Card Issuer

A large number of people today rely on credit cards to make purchases and pay bills, thus racking up excessive debt which they cannot repay. Instead of having to wait until you are sued by the credit card issuer, declaring bankruptcy is one of the ways you can have the debt discharged. If you’re facing this kind of debt crisis in San Diego, CA, contact the San Diego Bankruptcy Attorney Group for guidance. 

Credit Card Debt in California

California is one of the states in America that has the highest number of unemployment after the recession in 2008. However, many changes have been witnessed since then with unemployment levels dropping from 12.2% to 5.5%. Reduction in unemployment has lowered foreclosures, but still, there is a challenge of debt management for most Californians. A large percentage of people find themselves in unmanageable debt and to control this; the state has introduced laws to protect its residents.

Many people in this state rely on credit cards to pay medical bills and to fund various luxuries. Due to this, they have ended up racking excessive debt, especially in San Diego, where the average of borrowing using a credit card is at $4,673 for every borrower. According to TransUnion, the average amount of money borrowed through credit cards for residents in California was $5,196 in 2005.

Statute of limitations was introduced to allow credit card companies to sue those people that are unable to repay a debt after a certain period for repayment. Other laws were also developed to tame lenders who allow borrowers to borrow excessively.

What is the Statute of Limitations?

In California, credit card companies are allowed to sue a borrower who fails to honor the contract, which states the debt repayment period, also known as the statute of limitations and the interest amount on the debt. When taking a debt, you must enter into an oral or written contract, stating the terms and conditions of the mortgage. The statute of limitations for credit card application agreements is four years, but when the contract is in written form. In cases where the deal is entered orally, the statute of limitations is two years.

When you breach the contract by missing the date of repayment, the time of your last purchase or payment, then the statute of limitations starts running. These days are very close, and you might not notice the difference, but any of these days can render your statute of limitations expired before being sued by your credit card issuer. It will be wise to consult a bankruptcy lawyer to guide you on the best action to take in your situation.

Some people do not know what to do with the statute of limitations. Companies also keep changing the time they allow you before filing a lawsuit. It is vital to consider having an experienced bankruptcy defense attorney by your side to give answers and devise ways of handling the whole situation. Some of the things the credit companies have the freedom to change include: extending the statute of limitations, providing additional time to pay, and reviving the statute of limitations. The statute of limitations can also start running but later stop due to particular circumstances.

What You Should Expect When You’re Sued by Your Credit Card Issuer

Ignoring calls from credit companies and debt recovery agencies doesn’t help solve your problems. If these people cannot have you repay your debts, the law allows them to sue you so that the court can force you to pay. Borrowers don’t fear being sued because debtor’s prisons no longer exist. However, don’t assume a court order when you are sued by your credit card company because that will be a contempt of court punishable by jail time.

A court order might request you to start making payments or appear in court. If you receive this order, ensure you do as instructed. The good thing is that no one will sue you immediately after the repayment period lapses; they will allow you a period of up to three years without filing a lawsuit. Others will do it just after six months of defaulting your debt repayment.

In the event you are notified of a lawsuit through summons and complaint, you will have a maximum of 30 days to respond. Failure to respond within this period, the card issuer will be granted a default judgment, which can lead to the garnishing of your wages or even bank accounts. Responding doesn’t guarantee anything, but one gets to argue their case, which impacts the final ruling.

The Process of Responding to a Lawsuit

It is always vital that before responding, you verify the debt you owe the credit card company. The reason being that some debt collecting companies might buy the debt from your debtor then inflate it or add penalties to make profits out of it. Therefore, despite knowing the amount you are being asked to pay, ask for records showing the amount of debt the collector wants you to pay and corroborate with what you have.

There is a standard procedure set up by the federal government on how you should request for debt verification. The application must be put in writing and sent through the official mail of the debt corrector. After the filing, you should expect an original copy of the agreement signed between you and Credit Card Company because it will contain the correct amount you are supposed to pay. In the event the debt collector cannot produce the contract, you can request the court to throw out the lawsuit.

If you verify the amount of debt, the next thing is to request a settlement. Going to the trial will be costly and protracted, so it’s better to opt for a solution outside court since it will help avoid litigation costs in case the judgment isn’t in your favor. In case you are informed of a pending lawsuit, contact the debt collector, and come up with an agreement for repayment. You might choose to pay the whole amount or repay in installments. Either way, make sure that you don’t breach the new deal since the company will have no reason not to use you.

Responding using a debt settlement company where you feel you can’t negotiate can be helpful. The challenge, however, is that there is no guarantee for a positive outcome plus the companies charge a hefty fee, which means they might increase your financial crisis.

The next thing, aside from requesting a settlement, is paying the full amount you owe. If you choose to settle the amount in full, make sure you pay everything because if a portion of the money is not repaid for sometimes, you might be required to pay taxes. For those who decide to clear the whole debt to avoid a derogatory mark, this won’t make a difference because the score will be there for the previous years that you haven’t been paying your debt.

The debt management plan is another option for responding to a lawsuit. Because of the debt crisis being experienced in California, debt counseling is becoming very popular. You can consult a credit counselor. These people often run credit counseling agencies which require you to make monthly payments to them so that they can pay the debt collector. Credit card and debt collecting companies prefer working with credit counseling agencies and can drop the lawsuit because you will be making payment in installments, which was the sole objective of the suit.

Fighting the lawsuit is also a way out, but the challenge is that the fees for the lawyer are often remarkably high. If you have a small debt, opt for a settlement rather than fighting the lawsuit since the cost the suit might be almost equal to your mortgage.

Should You File Bankruptcy for Credit Card Debt?

Most people resort to declaring bankruptcy as a last resort, but this is a decision that has both pros and cons. The right action to take is to talk to a lawyer with experience in this field so that they can elaborate on the process and cons that are likely to arise. The challenge is that when you file for bankruptcy, this record will appear on your credit record for ten years. It is an indicator that a settlement is far much better than declaring bankruptcy because the recovery time is shorter.

Since the recession, California had experienced many cases of people declaring bankruptcy. In 2010 alone, 251,396 persons filed for bankruptcy. However, this number reduced significantly in 2015 to 80,391. When people lose jobs, payment of mortgages and other loans becomes very challenging. Due to that, many defaulting their debts, which forces them to file for bankruptcy.

What Are The Benefits of Declaring Bankruptcy for Credit Card Debt?

When someone decides to file bankruptcy, they will get protection from the automatic stay. The automatic stay stops any collection attempts such that the credit Card Company cannot file a lawsuit, foreclosure, garnish your wages, or repossess your property for the period of bankruptcy. Declaring bankruptcy means you are given a specified duration without the interference of the debt collector to put your finances in order. Chapter 7 and Chapter 13 bankruptcy allows various debt consumers to declare bankruptcy.

Chapter 7 and Chapter 13 Bankruptcy  

The main difference between these episodes is that in Chapter 7 bankruptcy, the debtor is free to remove or wipe out all dischargeable unsecured debts. On the other hand, Chapter 13 will permit payments to be made on the dischargeable unsecured debts.

According to Chapter 7, unsecured, dischargeable debts have no collateral, and most credit card debts and medical bills fall under this category. Specific tax debts and child support fall under priority or nondischargeable priority debts.

How to Get Rid of Credit Card Debt by Declaring Bankruptcy

Paying a debt while still taking care of your utilities and rent can be very challenging. When you declare bankruptcy under Chapter 7, your bankruptcy trustee takes over your nonexempt assets. They put up these assets for sale, and the money they get is used to pay for your unsecured assets. However, it is possible to protect all your properties under California’s bankruptcy exemptions.

For those who file for bankruptcy through Chapter 13 bankruptcy, you come up with a plan that incorporates your income plus expenses. After declaring or filing bankruptcy using any of these chapters, your unsecured debts become dischargeable, which means they are wiped out.

California Bankruptcy Exemptions

The fear that most people have when filing for bankruptcy is losing the property. However, with the flexibility of California’s bankruptcy exemptions, there is no need for worry since you will pick what fits you the best. One can choose system one which protects your equity at home. It is referred to as the Homestead Exemption. The other one is Wildcard exemption, which exempts own miscellaneous property which picked by the debtor.

Every time a person declares bankruptcy, all your property turns into the bankruptcy estate. As mentioned previously, in Chapter 7, bankruptcy trustees analyze your assets to decide if there are any of your properties that do not fall under exempt property so that they can transfer to creditors. For Chapter 13 bankruptcy, your income and expenses are determined by the non-exempt properties you own.

The purpose of the exempt laws is to ensure those who declare bankruptcy are left with some of their assets at the end of the process. The non-exempt property is sold to repay the credit card company or debt collectors while the exempt is what you are left with at the end of the bankruptcy period.

Some people might think that federal bankruptcy exemptions apply in every state. It is not true because in California if someone has resided there for over two years, only California’s bankruptcy exemptions apply.

California Homestead Exemption

If you own a large number of liquid assets, it is wise to choose the homestead or the California bankruptcy exemption system 1. Married couples have the advantage of doubling the exemption by having the couple to declare bankruptcy jointly.

Wildcard Exemption

System 2 is for those people with little home equity. It is called wildcard because of its versatility that allows debtors to protect their different property up to a certain amount.

These two systems have both similarities and differences. However, the best option depends on your situation. The best answer to your question on the direction to take, consult a San Diego bankruptcy attorney. Those facing credit card debt, declaring bankruptcy under the two chapters using any of these systems will have their credit card debts forgiven since they are unsecured debts.

Can Credit Card Companies Challenge Bankruptcy?

Unsecured debts are paid using filers. The amount is minimal, and a credit card company will be making huge losses if their customers pay such little amount because the debt is unsecured. As a result, they may challenge the issue of debt being discharged so that you can pay them in full.

They often argue that the debt is a non-dischargeable action and that it was acquired through fraud, thus the need for exemption from being dischargeable. The credit card issuer can win the case by arguing that you accumulated debt on the card with no intention of repaying it. Again, one can say that you acquired the credit card fraudulently in the first place.

When Creditor is Challenged, How Can They Win the Case?

When you make an application, the credit card company keeps the original contract. They can use this information to show that you withheld crucial information during the time of application; thus, the card was acquired fraudulently. The other claim for winning the case is that you racked excessive debt with no intention of paying.

For instance, if a few days before declaring bankruptcy you spent a lot of money from the credit card then later filed for bankruptcy, circumstantial evidence will be used to prove you used the credit card without a plan of repaying the debt. Spending credit card money on luxury then declaring bankruptcy afterward will make it suspicious to the court on the card issuer can argue intention for not repaying. 

If you use the card when you are unemployed or exceed your limit then file for bankruptcy, it will be a piece of cake for the court to conclude that you had no plans for repaying the money. In the event the card issuers successfully challenge bankruptcy, they can opt to revoke dischargeability of the amount of debt that was pending before repayment or challenge certain charges in the credit card.

Ways of Preventing Creditor Challenge

The best way to keep such claims at bay against your bankruptcy declaration is to deny the credit card issuer an opportunity to challenge. You can do that by ensuring that there is a considerable time gap between the date you made large payments using a credit card and the date of declaring bankruptcy. Take at least three months after using the card to file for bankruptcy. Settling outside the court is also another way to prevent a challenge. If that is not possible and the credit card issuer proceeds to file a lawsuit, you can argue and produce financial evidence showing you intended to repay the debt.

Reach a San Diego Bankruptcy Lawyer Near Me

If you are wondering whether you should declare bankruptcy for credit card debt, then don’t make the decision alone. Reach us by phone at 619-488-6168 if you are in and around San Diego, for a free consultation. Our attorneys will do their best to ensure no lawsuit is filed against you.

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