Learn How You Can Avoid a Credit Card Debt Lawsuit

Sure, it might be difficult to think rationally when you’re deep in credit card debt, but that’s exactly what you must do if you’re going to avoid a lawsuit. While you may think that a debt collector’s threat to sue is merely talk, a ploy to get you to pay, it isn’t. In fact, the courts are one of the most common avenues debt collectors take to recoup significant amounts of money owed to them. So, despite the confusion and stress that comes with late notices and debt collectors showing up at your door and on the other end of the phone, you must approach debt strategically. Despite the anxiety borne from wondering where you’ll get the money to pay off your creditors, you must not lose sight of the statute of limitations for debt. If you do, you very well might find yourself on the wrong side of a civil court judgment.

The Statute of Limitations for Debt

The statute of limitations for debt, simply enough, is the amount of time debt is relevant under the law. Before it expires, you can be successfully sued for unpaid debt. After it expires, you can still be sued, but as long as you make it clear that your debt is older than the statute of limitations (i.e. time-barred) the case will be dismissed.

Therefore, if a debt collector threatens a lawsuit against you when your debt is time-barred, you really have nothing to worry about. In fact, debt collectors are not legally allowed to threaten a lawsuit if they do not actually intend to sue, which means you might have grounds to report someone threatening a suit without grounds to actually bring it.

Still, the practical application of debt’s statute of limitations is somewhat complicated. First of all, the statute for written contracts, such as credit card agreements, varies depending on the state. So the first step in applying it to your particular situation is finding out the length of time your state considers debt to be legally relevant. Next, you must assess how old your debt is. To do this, simply determine the last time you made a payment toward your debt because debt’s statute of limitations begins at the time of last payment. Unfortunately, this also means that each time you make a payment, your debt re-ages and the statute of limitations begins anew.

To Pay or Not to Pay?

Thus, you are left with a dilemma: pay and lengthen the time your debt is relevant under the law, risking a lawsuit or keep the money in your pocket and hope that you won’t get sued before the state-mandated time limit runs out.

Considering that the statute of limitations for debt may be anywhere from 3-15 years, depending on the state, this is sure a tough choice. However, hopefully it’s one you won’t have to make. Without a doubt, the best course of action available to you is reaching some sort of payment agreement with your creditor. Doing so will both eliminate the chance of a lawsuit and provide a concrete plan for becoming debt-free, thereby lowering the stress and worry brought about by your indebtedness.

Debt Management vs. Debt Settlement

The two most common types of agreements you can reach with creditors are debt management and debt settlement.

Debt management involves establishing a payment plan where you make a certain monthly payment for a set number of months until your debt is paid down completely. If you choose this route, it’s important that the payments you agree to make are comfortably affordable because if you break the terms of a payment plan, a significant penalty APR will be introduced and you’ll likely be sued.

Debt settlement, on the other hand, is when whoever owns your debt (credit card companies often sell old debt to debt collection agencies) agrees to forgive a portion of it, in return for you paying down the rest, in full, immediately. This option allows you to become debt-free relatively quickly, but it’s also often financially difficult to manage. After all, most indebted consumers don’t have large sums of money just lying around.

Still, it’s worth a call to your credit card company or whatever debt collection agency has assumed your debt to gauge your options. These companies want to collect their money, preferably with the least hassle possible, so they should be willing to work with you if you express a commitment and desire to pay what you owe. Just make sure that you don’t sign anything that either waives your right to stop debt collectors from suing or resets the statute of limitations clock unless it’s part of a final agreement.

Interestingly, unless you can prove you’re insolvent, you have to pay taxes on forgiven debt. You must therefore factor this cost into your thought process before entering into a debt settlement agreement. The IRS considers forgiven debt income because it was borrowed and not paid back. So be on the lookout for a 1099 form after reaching a debt settlement agreement and pay the taxes you owe, no matter how sour a taste it might leave in your mouth. Paying taxes on forgiven debt is much better than having to pay the full amount forgiven. Besides, you do not want to transition from debt problems right into tax difficulties.

Final Thoughts

The path you choose in becoming debt-free is ultimately up to you. As long as you understand how the statute of limitations for debt works and the options you therefore have at your disposal, you’re in good shape. You must simply not allow the stress and confusion of credit card debt to confuse you or the hounding by debt collectors to intimidate you.

You must also avoid getting time frames confused. Consumers often think that the amount of time negative information about credit card debt stays on their credit reports also resets each time they make a payment. This is not true, as such information typically remains on your major reports for a period of seven years beginning 180 days after you first became delinquent. As opposed to the statute of limitations for debt, nothing resets this time frame.

In the end, as long as you know your rights, stand your ground and approach your situation strategically, you’ll have the best possible chance of avoiding a lawsuit and getting back to the black relatively unscathed.

This article comes from Odysseas Papadimitriou, Founder of CardHub.com, a website that helps people find credit card deals and discounted gift cards.

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