If you have unpaid credit card debt and you've been regularly missing payments, chances are you've been getting calls from the creditor issuing a stern reminder about your situation. But if you think credit card debt stops there, think again. One day the calls might stop, but the next day someone could be on your front stoop serving you court papers. That's right, a creditor can sue you. What's more is that in the event that you had to agree to an arbitration clause upon signing your credit card, you yourself may not be able to sue, or go to court, in the event of a dispute. Here's a look at both scenarios:
Scenario No. 1: Your Credit Card Company Takes You to Court
Yes, it's possible for a creditor to take you to civil court for the balance of the debt you owe. Additionally, if a judge rules in the creditor's favor, your property and paycheck could also be seized. However, just because papers have been served doesn't mean that there aren't alternatives.
So if you've been taken to court, here are three things to do:
Attempt to stop the lawsuit: Here's a newsflash - nobody likes going to court! So if you've been served papers, contact the creditor immediately to see if you can settle the matter outside of the courtroom.
Lawyer up: Not to get all Saul Goodman on you, but if the creditor is difficult to work with, legal representation may be your best option. Just be sure to get one that specializes in debt collection.
Follow proceedings: First, you need to respond to the summons. Then, it's important to follow the court proceedings. Remember, just because you've been sued by a credit company doesn't mean you've lost. Just be sure to follow all the steps along the way.
Scenario No. 2: You've Agreed to an Arbitration Clause
Many major credit card companies require you to agree to an arbitration clause before issuing you a card. Specifically, about half of all credit card balances, if disputed, must be resolved in arbitration - should you have signed one. This means that a third-party is called upon to resolve any debt issues between you and your creditor, whether it's in the form of an in-person hearing, an over-the-phone hearing or if a decision is reached by the arbitrator without a hearing.
If you're a sports fan, you've likely heard about athletes filing for arbitration with their respective teams in an attempt to seek more money. It's the same sort of arrangement with a credit card company - a third-party entity will be called upon to resolve any outstanding debt issues. Unlike in court, where evidence rules the process, arbitration is decided by an independent entity. How do you know if your credit card was issued with an arbitration clause? If you have a card from one of the big boys (i.e. Chase, Bank of America, Capital One, credit union-issued cards, etc.) you're good - they've dropped arbitration clauses. AmEx and Discover require it, but allow new cardholders to drop out. It's the likes of store cards, U.S. Bank and Wells Fargo that typically operate with arbitration clauses.
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