Can credit card companies sue?

credit card companies sue clientsYes, if you default on credit card debt, card issuers can sue you for the entire outstanding balance plus interest, penalties, court costs and other fees. While a credit card company can take you to court for money owed, there is a lengthy process and many steps involved before that can happen.

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The economic recession and global monetary crisis have negatively affected the lives of many American consumers who resorted to short-term, unsecured credit cards to help make ends meet. As interest rates, credit balances and payments increased, more and more consumers fell behind with their obligations.

Are there many people who have defaulted on credit card debt?

Yes, but the good news is that defaults on credit card accounts have been steadily dropping during the third quarter of 2011 after reaching record highs in 2010, according to Forbes Magazine.

In 2004, Standard & Poor’s, in collaboration with the Experian credit organization, created the new Consumer Credit Default Index.

The New York Times reported in May of 2010, that the default index had reached an all time high of 9.14%. While timely payments of other debts, such as mortgages and auto loans, had been steadily improving, credit card debt remained an issue for cash strapped consumers.

According to Forbes, default rates among the major credit card companies are still very high today, with Citibank reporting a default rate of 6.92%, followed by Bank of America at 6.79%.

Companies with the lowest default rates include American Express at 2.7% and Discover at 3.6%. These numbers represent the percentage of accounts that were written off completely and do not include the millions of accounts that are delinquent, 30 or more days behind.

Each American has an average of 3.5 credit cards! As many struggle managing more and more debt, credit card issuers have begun taking effective action in order to stem the losses from defaulted accounts.

What have credit card companies done about this?

Card issuers closed many high-risk accounts altogether. Millions of other cardholders suddenly found themselves with lower credit limits and higher interest rates and fees.

Credit card companies also tightened their credit standards and qualification guidelines, lending only to those who were likely to make payments on time and not default in this difficult economy.

Last, but not least, credit card companies have begun to aggressively pursue defaulters, hiring law firms to file credit card judgments and liens against delinquent borrowers, who in some cases have ended up in jail because of their debts!

I can go to jail?

Yes! People end up in jail either because they ignore the warnings of credit card collection agencies and attorneys or because they may be unaware that a lawsuit has been filed against them.

Collection lawsuits usually require borrowers to appear in court to answer the complaints that have been made against them. If you miss a court date or aren’t aware you’ve been ordered to appear, a judge can issue a warrant for your arrest!

Debtor’s prisons were eliminated a century ago, and while few borrowers end up in jail because of credit card debt, it is a very real threat!

What else can happen to me if I default?

Credit card lawsuits are filed as a last resort and for only one reason, to force the borrower (plaintiff) to pay his outstanding balance.

Prior to that final step, most credit companies will give borrowers plenty of time and a number of flexible options to help bring an account current or pay it off entirely. Most of these options include closing the account and agreeing to a reduced payment schedule.

Banks may also be willing to reduce interest rates or waive certain charges and fees. In many cases, once borrowers are caught up, the banks may be willing to re-open their accounts.

Prior to filing a lawsuit, many companies have been willing to accept a partial payment as payment in full. While this may seem like a gift, it is not! When a card company reduces your balance, it can have consequences when you file your next tax return. Amounts forgiven in this fashion are considered income, and are fully taxable according to the IRS!

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