When a credit card company files a lawsuit against a debtor, the debtor must act quickly to stop the lawsuit. If the credit card company obtains a judgment against the debtor, they can place a lien on any property owned by the debtor, making it difficult to sell or transfer. It also significantly harms the debtor’s credit rating, making it difficult to obtain new credit.
If the credit card debt is invalid, such as in a case of identity theft where someone else uses the debtor’s identification information to open an unauthorized credit card, the debtor may be able to fight the lawsuit in court. Otherwise, fighting the lawsuit will only increase the amount owed because collection costs and attorney fees are usually added to the debt when the judgment is rendered.
If the credit card debt is invalid, such as in a case of identity theft where someone else uses the debtor’s identification information to open an unauthorized credit card, the debtor may be able to fight the lawsuit in court. Otherwise, fighting the lawsuit will only increase the amount owed because collection costs and attorney fees are usually added to the debt when the judgment is rendered.
In many cases, the only way to stop a credit card lawsuit is to file for bankruptcy. When a debtor files for bankruptcy, whether Chapter 7 or Chapter 13, an automatic stay goes into effect, requiring all creditors to cease collection efforts. This includes any credit card or other debt lawsuits that are currently pending. Such lawsuits cannot be resumed until the bankruptcy is lifted.
The ability to stop a credit card lawsuit is not the only advantage of filing for bankruptcy when dealing with credit card debt. The debt will most likely be completely discharged at the end of the bankruptcy process. What happens to the lawsuit and debt depends on the chapter of the bankruptcy code under which the debtor files.
If a debtor files for bankruptcy under Chapter 7, his or her assets (except those protected by exemptions) will be liquidated and the proceeds distributed among the debtor’s creditors. Credit cards are among the lowest priority debts because they are unsecured, and other creditors will be paid first. If any money remains after paying higher priority debts, such as taxes or delinquent child/spousal support payments, the credit card company may receive a portion of the proceeds. However, any remaining credit card debt will be discharged after that. The credit card company must drop the lawsuit and can no longer pursue the debtor.
If a debtor files for bankruptcy under Chapter 7, his or her assets (except those protected by exemptions) will be liquidated and the proceeds distributed among the debtor’s creditors. Credit cards are among the lowest priority debts because they are unsecured, and other creditors will be paid first. If any money remains after paying higher priority debts, such as taxes or delinquent child/spousal support payments, the credit card company may receive a portion of the proceeds. However, any remaining credit card debt will be discharged after that. The credit card company must drop the lawsuit and can no longer pursue the debtor.