Last updated on
Posted by: Rob Cohen
You’ve fallen behind on your bills and now you’ve received notice that your credit card company is suing you. This usually happens in the form of a letter accompanied by a formal complaint.
What do you do now?
The first step is to read the complaint carefully.
The complaint will have crucial information about what the lawsuit is about and when and where to file your answer. The answer is your response to the allegations made by the credit card company.
Don’t ignore letters from the credit card company!
You’ll have a narrow window of time in which to file a credible answer. If you choose not to file an answer, you don’t file it in time, or your answer is insufficient, the court will enter default judgment against you. That means the credit card company has the force of law behind them and can get court orders for wage garnishment, bank account levies, and property liens in order to collect.
What do I need to include in my answer?
Most credit card lawsuits end in default judgment because consumers ignore the suit or file an insufficient or late answer. Your first concern is filing your answer in time. The length of time you have to file depends on state law.
State Law Examples
For example, in New York you have 20 days to answer the complaint if you received it by hand and 30 days if you received it by any other method. In Texas, the window is even smaller. You have to answer complaints in Texas within 14 days unless you were served by publication, in which case you have to answer within 42 days.
If the party instigating the lawsuit can’t find your address, they can legally serve notice by publishing it in a newspaper that is generally circulated. That’s “service by publication.”
Content of the Answer
Many consumers write answers that describe the reasons they haven’t paid or ask the court to set up a payment plan. That doesn’t do you any good.
The court doesn’t care why you haven’t paid. Its role is to determine whether or not you owe the credit card company money. In fact, if your answer is just a list of reasons you can’t pay, the court will consider it an admission that you do, in fact, owe the debt and they’ll grant judgment for the credit card company.
The complaint will contain a list of statements made by the credit card company. In your answer, you’ll need to address everything written in the complaint. For the parts that are completely true, write that you admit the statement. For the parts that are not completely true, write that you deny the statement. You may deny that you owe the amount listed in the complaint or that you owe it to the person or company listed, for example. You can also write that you don’t know whether the statement is true or not.
If you think every statement is false, you can just write one line saying you deny everything in the complaint. Don’t deny things that you know are true; it never pays to lie to the court. Don’t give excuses for why you haven’t paid; as mentioned above, the court may read that as an admission of guilt.
Affirmative Defenses in the Answer
In your answer, you’ll also have to raise certain defenses or you’ll lose the right to use them later on. With an affirmative defense, you’re arguing that the credit card company’s allegations are true but they should lose the suit anyway. Those defenses include:
1. Statute of limitations: Creditors only have a certain amount of time in which to sue you. Check your state’s statute of limitations for debt-related lawsuits.
2. Improper service: Creditors must serve you with a copy of the complaint. Some states limit how you may be served or by whom. Look into your state’s service requirements.
3. Failure of creditor to prove they own the debt: Creditors have to have real proof that you owe the debt and they have to provide that proof to you and to the court.
4. Debt discharged in bankruptcy: If you’ve filed for bankruptcy and received a discharge, credit card companies can’t sue for the discharged debt.
5. Identity fraud: If you didn’t rack up the charges, you don’t have to pay for them.
6. Suing the wrong consumer: Is it actually your name and your account on the complaint? Mix-ups can happen but you don’t have to suffer for it.
7. Failure to give credit for payment: Have you already paid the bill? You don’t have to pay it twice.
8. Unfair debt collection: This is a counterclaim; if you were harassed or threatened, you may be able to claim damages from the debt collector.
If you don’t file an answer or your answer doesn’t have the required content, you lose the right to argue your case or get notice of future hearings about it. You can compose an answer yourself, but consider hiring an attorney to examine the complaint and help you fight your case.
Small mistakes can turn into big problems in a lawsuit, and an attorney will be familiar with the process and rules of your local court. Remember that if you answer the complaint and lose the case, you may have to pay your creditor’s attorney fees and court fees.
How can I win my credit card lawsuit?
Credit card companies expect to win by default. Over 90% of credit card lawsuits end in default judgment. Default judgment happens when you don’t file an answer, your answer is insufficient, or if you don’t show up to a hearing.
Because credit card companies assume that they’ll win by default, they often don’t put together the paperwork to actually prove their case at trial. That gives you the chance to defend yourself.
Once you file an answer, your first task is figuring out whether the plaintiff really has the evidence necessary to sue you. Collection agencies, for example, often don’t have real evidence that you actually owe a debt. The same goes for companies that have gone through mergers or other reorganizations.
You can request (through the court) that the creditor send you copies of your bills, copies of the assignment of debt to another party, and copies of the original contract. If they can’t show a copy of the original contract, they may not be entitled to interest charges — that can make a big difference in your final bill. A copy of the original contract is also generally necessary for the creditor to charge you for attorney fees.
Force your creditor to prove that you actually do owe them. Take a good look at the defenses you listed in your answer. Gather all the evidence you can to prove that you don’t owe the debt or that you owe less than the creditor is claiming.
What are my other options?
If you go to court, you’re looking at three potential outcomes. First, the court may decide in your favor. Second, the court may decide in favor of the creditor. That can happen either because you argued the full case and lost or because the creditor was granted a motion for summary judgment. “Summary judgment” means that no one is disputing the facts of the case and you’re guilty by law.
If the court decides in favor of the creditor, you may choose to appeal the decision. An appeal is expensive and time-consuming, so it won’t be worthwhile in every case. Third, the court may dismiss the case. Dismissal can happen for any number of reasons, but it doesn’t mean you’re out of the woods. Creditors will generally correct the reason for dismissal and then re-file the case.
That said, you don’t necessarily have to go through the hassle of a whole lawsuit. You may be able to settle out of court. Lawsuits are expensive and time-consuming. No one, including credit card companies, wants to go to court. Your creditor may be willing to accept less than the face value of your debt in order to avoid the cost and hassle of a full trial. You can negotiate a settlement alone or your attorney can help you.
You can also stop the lawsuit altogether by filing for bankruptcy. Bankruptcy is a serious decision and probably isn’t the right option if you only have a small amount of debt. When you file, the automatic stay protects you from collection actions, including lawsuits. Credit card debt is dischargeable in bankruptcy, so creditors will have to make their claims through the bankruptcy court.
In addition, most debtors can keep their property through state or federal bankruptcy exemptions.
Credit Card Lawsuit Case Law of Note
Let’s take a look at an actual lawsuit, Windsearch, Inc. v. Delafrange, to get a sense of how it works. Windsearch Inc., a debt collection firm, buys credit card debts and tries to collect on them. Windsearch claims it purchased debt and sued Mr. Delafrange in a city court. They lost because the lacked standing.
Again, they sued this time in the New York State Supreme Court. Mr. Delafrange in his answer claimed that he was the victim of identity theft, that Windsearch had insufficient evidence to prove it had actually been assigned the debt, and that the statute of limitations had run. At the Supreme Court trial level, Windsearch was granted summary judgment.
Mr. Delafrange appealed on the basis of the statute of limitations. The record shows the bank was incorporated in Delaware, meaning the suit was bound by Delaware’s three-year statute of limitations, not New York’s more liberal six-year statute. Because Windsearch didn’t sue until after three years, it had no right to have its case heard.
The lower Supreme Court decision was dismissed while reversing the judgment, and the Appellate Court granted Mr. Delafrange all the relief he requested. including costs. Windsearch, Inc. v. Delafrange, 90 A.D.3d 1223, 934 N.Y.S.2d 576 (2011).
Mr. Delafrange put forth a variety of potential defenses and ended up winning on the simplest points. You should always set out every defense available to you; credit card companies make mistakes and they’re hoping that you won’t check on their assumptions. Note that Mr. Delafrange won on appeal and he was pro-se, or defending himself. Hiring a lawyer from the start can help shorten the process and lower the overall price tag.
Bottom Line: An Attorney Can Help
State law on these issues varies considerably. In addition, the law is complicated no matter where you live. Hiring a lawyer is almost always the right choice. A lawyer can evaluate your unique situation and help you determine your best options.
Other, more complicated state-law defenses may also be available to you and you’ll need a lawyer to argue them. You may also want to appeal a decision against you, in which case you’ll almost definitely need a lawyer.
If you do decide to defend a credit card lawsuit on your own, pay close attention to deadlines and formal requirements. You don’t want to lose your chance to defend yourself because you’re a day late. You’ll have to file your answer in a specific period of time, but you also have to respond to discovery requests (for documents and other evidence) from the creditor within a specific time frame.
Remember to ask for discovery yourself, too. Credit card companies file lawsuits expecting an easy win, but you have the right to defend yourself.
Rob Cohen, the Managing Partner of Cohen & Cohen P.C., is a bankruptcy attorney that practices in Colorado and Wyoming. He serves as a Chapter 7 Bankruptcy Panel Trustee, and has to date administered over 8,000 Chapter 7 bankruptcy estates. Rob is a Certified Consumer Bankruptcy Specialist, and was nominated for Denver Business Journal’s 40 under 40 in both 2014 and 2016.