1. Home
2. Bankruptcy Articles
3. Credit Card Lawsuits and Bankruptcy

FAQ'S

Monday, November 3rd, 2008

by Theodore Sliwinski, Esq.

Credit Card Lawsuits and Bankruptcy

1. How can I deal with a credit card lawsuit if one if filed against me?

Credit card lawsuits to collect past due credit card accounts are filed almost everyday in New Jersey. Credit card lawsuits are the same as any other lawsuit when it comes to bankruptcy. If you file for bankruptcy, whether it is a chapter 7 or 13, then it will stop the credit card lawsuit. There is a section of the bankruptcy code called the automatic stay. The automatic stay is the reason why most people file for bankruptcy because it stops lawsuits, credit card collectors, foreclosures, repossessions, wage garnishments, and of course, it stops credit card lawsuits.

There are some instances where the automatic stay doesn’t always apply such as in child support collections, criminal proceedings, and in certain cases where someone has recently or previously filed a bankruptcy or bankruptcies. The main concept of the automatic stay is that it provides debtors a time out from their debt, a break in the action, and some breathing room to reorganize their life.

Credit card debt is considered unsecured debt. This simply means that there is no personal property that secures the repayment of the underlying debt. Consequently, this means that if you are eligible to file for a bankruptcy, then you can “wipe out” the credit card debt. In a chapter 7 case, you can totally eliminate your credit card debt. If you file for a chapter 13 case then you can force the credit card companies to accept whatever you can afford to pay them even if it is only pennies on the dollar. Either way, filing for a bankruptcy puts you back in control of your life, and you will not be “rolled over” by the mega-credit card companies.

Now even though most credit card debt is unsecured, there are some credit card lawsuits which will allege that the credit cards are secured. When you originally received the credit card, you most likely signed the credit card agreement that also outlined the terms of the card. This is important because some appliance store credit cards, electronics store credit cards, as well as furniture and department store cards may claim they have a security interest in the property you bought with their credit card. Let the New Jersey Bankruptcy Center review your credit card lawsuit and credit card agreement at a free consultation to determine the nature of interest the credit card company is claiming. It may not be what they claim it is, but it is extremely important in a bankruptcy to know if a claim is secured or unsecured.

2. Does a bankruptcy filing stop a credit card lawsuit?

A bankruptcy certainly stops a credit card lawsuit(s). However,  filing for a bankruptcy may not be the best option for some people. It may end up that defending the credit card lawsuit is a better option. Even if they charged the money on the credit cards and owe what is being claimed in the credit card lawsuit, there may be other defenses to the suit which can be raised. Maybe the lawsuit is filed in the improper forum, maybe the statute of limitations to collect has passed, or they might be asking for something that they’re not entitled to such as attorney fees or certain costs. There is a six year statute of limitations to file for a credit card lawsuit. If there is a meritorious defense then it may be worth pursuing in a court of law. Most people don’t bother contesting any credit card lawsuits. For whatever reason, many people fear lawsuits and the legal system because they don’t fully understand it. Moreover, many people erroneously believe that defending the lawsuit may be too costly. In many cases, if a debtor simply defends against a credit card lawsuit then this will soften up the creditor, and  it may force it to accept much less to settle the case. For the credit card companies it is a pure number game when it comes to credit card lawsuits. The reason for this is because these debts are usually sold off or transferred to a 2nd or 3rd party by the time you are ultimately sued.

Credit card lawsuits are filed in great numbers. It is very similar to a shotgun approach in that one attorney or law firm may file hundreds at a time. They are usually creditor lawsuit mills. Since most people never respond these kinds of credit card lawsuits, the plaintiff will often obtain a judgment, and then try to collect at the time you expect it least. Once a creditor obtains a judgment, they may try to garnish your wages, levy your bank account, or file a lien against your home.

It is important for a debtor to contest and fight back against a credit card lawsuit. When a debtor fights back he usually receives a better outcome for the case. It is not always cost effective for a credit card company to engage is time consuming litigation to collect upon a debt. Credit card companies have to do a cost benefit analysis because even if they do decide to continue to fight, they know you can still file for bankruptcy and potentially waste all their efforts.

If you have been sued by a credit card company, or if you have received a credit card lawsuit from an assignee of a credit card company, then don’t just ignore it and throw it away. The New Jersey Bankruptcy Center can help you file for bankruptcy to stop the lawsuit, help you to defend against the lawsuit, or negotiate with the plaintiff to dismiss the lawsuit and reach a settlement. Although every case is different, you always have many options to deal with a credit card lawsuit, and I welcome the opportunity to discuss with you all of your legal options.