How to Settle Credit Card Debt When a Lawsuit Has Been Filed

Summary: Are you being sued for credit card debt? Wondering if you can settle and make the lawsuit go away? Learn what you should do when you're being sued but still want to settle your debts.

You may feel overwhelmed and scared when you are served with a lawsuit, especially if it's for unpaid debts. If you are facing challenges with your unpaid debts, it's important to know that you are not alone. You have options. Even if you have been sued, you still may be able to resolve the issue. Plus, most creditors and debt collectors will work with you to resolve your debt issue in a way that makes sense for you financially. Keep reading to learn more.

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What happens to unpaid debts when a lawsuit is filed

When you can no longer make payments on your credit card, the creditor will attempt to collect on the balance. It will probably send you an email, text, or letter. You'll also receive phone calls from the creditor as soon as you start missing payments. Once you are more than three months past due, the creditor may hire a debt collector or law firm to collect the debt. It also can sell the debt to a national debt collector.

After you miss several months of payments, the odds are that the creditor will sell the debt to a debt collections agency. Your account will say it was charged off, and it will damage your credit score. The debt collector who bought the debt will try to collect what you owe. If you do not respond to their collection efforts, a lawsuit could be filed against you. Unpaid debts will not go away, no matter your reason for not paying.

SoloSuit can help you respond to the lawsuit and settle the debt with the collector.

Debt collection lawsuits and the statute of limitations

Initial actions in a lawsuit

Debt collection lawsuits begin when the creditor/debt collector files the Summons and Complaint documents in court and serves you with a copy. The Summons is a legal document notifying you that you're being sued, and the Complaint outlines the specific allegations against you (i.e. the exact amount you owe). You have 14-30 days to respond to the Summons and Complaint, depending on which state you're being sued in.

The worst thing to do is to ignore the Summons and Complaint. Here's why.

Failure to respond to the lawsuit can result in a default judgment against you. If the court orders a default judgment, then the creditor/collector has the legal right to garnish your wages, put liens on your property, among other things.

SoloSuit can help you file an Answer in all 50 states.

State of limitations

There is only so much time that the creditor can file a lawsuit to collect debts. This is known as the statute of limitations, which differs in each state as well. The statute of limitations prevents collectors from suing people for super old debt.

If the collector tries to file suit against you after the statute of limitations has passed, then you can use it as an affirmative defense in the lawsuit. There are several other affirmative defenses you can list in your Answer that will strengthen your case.

SoloSuit can help you make the right affirmative defenses to help you win your case.

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Options for settling a credit card debt

The good news is that you have several options if you've been sued for a credit card debt, so never give up hope! Here are some routes you can take to improve your chances of settling the debt:

File the Answer
Send a Debt Lawsuit Settlement Letter
Offer a lump sum payment
Pay the debt in full (not ideal)

File the Answer

Like we mentioned before, the first and most important part of reaching a settlement in a debt lawsuit is filing your Answer.

Even if you've reached a settlement with the collector, you should still file an Answer with the court. Collectors can be sneaky and request a default judgment after reaching a payment agreement with you. If the court does not have your Answer on file, and you have no way to prove that a settlement was reached, the collector can always ask for a default. This is why it is so important to always, always file the Answer first.

You can draft your Answer with SoloSuit's help in minutes, for free!

Send a Debt Lawsuit Settlement Letter

You can resolve your debt after the suit is filed by usingSoloSettle.

After filing your Answer into the case, you should begin the process of negotiating a settlement. Most creditors/collectors want to reach a settlement, and they will often settle for less than the amount you actually owe.

You should wait about 20-30 days after you've filed your Answer to send the settlement letter, before the collector makes any other moves in court. This gives the collector enough time to know you've responded, and it shows you won't give up so easily.

You have the most leverage right after filing your Answer, because it proves that you plan to fight back and that you know what you're doing (at least to an extent). Most collectors would rather settle with a portion of the debt than continue in court, which takes up a lot of time and resources.

SoloSuit can help you draft a Debt Lawsuit Settlement Letter in minutes!

Offer a lump sum payment

It is better to offer a lump sum payment as a settlement than a payment plan. Here are a few reasons why.

A lump sum payment is offering to settle the debt with a one-time payment, whereas on a payment plan, you may end up paying more than a lump sum over a longer period of time. Generally, most collectors would rather take a lump sum payment anyways. This is because most collectors have purchased your debt for pennies on the dollar, so accepting a lump sum agreement will still help them profit, and they won't have to worry about you defaulting on your payment plan.

Check out this video of SoloSuit's CEO explaining how to negotiate a debt settlement:

Here are SoloSuit's basic tips and tricks for negotiating a debt settlement:

Tips and Tricks for settling a debt lawsuit

Effects of settling a debt

Please keep in mind that if you have a debt settlement plan, it will be noted on your credit report as the debt was settled for less than you owe. This makes it harder to get credit in the future. Also, if you are given debt relief, you could have to pay more income taxes; the IRS considers any forgiven debt to be income.

No one is 'judgment proof'

If you were told not to be concerned with a debt collection lawsuit because you are “judgment proof”, think again. When a creditor succeeds in a debt collection lawsuit against you, they will obtain a legal judgment. If you are considered “judgment proof,” it simply means you do not make a sufficient amount of income for the creditor to garnish your wages. Nevertheless, the judgment will still be entered into the record and will appear on your credit report. Plus, if you eventually earn a higher income, the creditor can subsequently file a garnishment request.

Keep all of the above information in mind if you owe credit card debt and a collections lawsuit was filed against you. It is important to understand that you have multiple options and all is not lost. Creditors have an interest in working with you and you can often come to a reasonable agreement. The critical thing to remember is to not ignore the lawsuit.

What is SoloSuit?

SoloSuit makes it easy to respond to a debt collection lawsuit.

How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.

>>Read the FastCompany article: Debt Lawsuits Are Complicated: This Website Makes Them Simpler To Navigate

>>Read the NPR story on SoloSuit: A Student Solution To Give Utah Debtors A Fighting Chance

Negotiate settlement if you're being sued by credit card company

If you're being sued by a credit card company, it isn't too late to settle the debt.

We wanted to learn more about how to negotiate debt settlement, so we asked a debt lawyer to share some tips and tricks on how to settle with creditors and debt collectors. Here are some tips on debt settlement from an attorney:

Show Hardship and Other Debts: Demonstrate financial struggles and other obligations, like other debts or inability to garnish Social Security, to encourage settlement.
Avoid Lowball Offers: Propose realistic settlement amounts; too low offers are likely to be rejected.
Know Who To Call: When negotiating debt settlement, you will typically contact the debt law firm, not the creditor or debt collector suing. The attorney acts as a middleman between the two parties.
Be Prepared for Counteroffers: Expect negotiation and be ready to adjust your offer accordingly.
Provide Accurate Financial Information: Be truthful about your financial situation, as creditors often have detailed information about you.

To learn more about how to negotiate debt settlement, check out our interview with attorney, John Skiba, below:

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Frequently asked questions about settling a credit card debt lawsuit

Can I settle credit card debt after being sued?

Yes, you can settle credit card debt after being sued, and many lawsuits are resolved through settlement before reaching trial. Creditors and debt collectors generally prefer settlement over the cost of litigation. The most effective time to send a settlement offer is shortly after you file your written Answer with the court, which both protects you from a default judgment and signals you intend to defend the case.

Is it too late to settle once a lawsuit has been filed?

No, it is not too late to settle once a lawsuit has been filed. Settlement is possible at any stage of the case, including after the court has set a trial date, up until a final judgment is entered. Creditors often accept lower settlement amounts as the case progresses because litigation costs reduce their expected net recovery.

How do I file an Answer to a credit card debt lawsuit?

To file an Answer to a credit card debt lawsuit, draft a written response to each numbered allegation in the Complaint, list any affirmative defenses such as expired statute of limitations or improper service, and file the document with the court clerk before your state's deadline. Most states allow 14 to 30 days from the date of service. Serve a copy on the plaintiff's attorney.

When should I send a settlement offer after being sued?

Send a settlement offer about 20 to 30 days after filing your written Answer with the court. This timing demonstrates that you intend to defend the case while giving the plaintiff's attorney time to recognize the cost of continued litigation. Sending an offer before filing an Answer weakens your position because the plaintiff can still pursue a default judgment if negotiations stall.

Why do I have more leverage after filing an Answer?

Filing an Answer signals that you understand your rights and plan to contest the lawsuit, which forces the plaintiff to invest additional time and legal fees to pursue a judgment. Many debt collectors, especially debt buyers who paid pennies on the dollar for the account, prefer to accept a reduced settlement rather than continue litigation against a defendant who is actively fighting the case.

Who do I contact to settle — the creditor or their attorney?

After a lawsuit is filed, contact the plaintiff's attorney, not the creditor or debt collector directly. The attorney is the legal representative of record and is the party authorized to negotiate settlement terms. Communicating directly with the creditor at this stage is often ineffective and may delay negotiations, since any agreement still must be approved and documented by the attorney handling the case.

What percentage should I offer to settle a credit card debt lawsuit?

A reasonable opening offer to settle a credit card debt lawsuit is 30% to 40% of the total balance, with most cases settling between 40% and 60%. Lawsuits filed by debt buyers such as Portfolio Recovery Associates or Midland Funding often settle for 10% to 35%, while suits filed by original creditors typically settle for 50% to 75% of the balance owed.

Can the debt collector still get a default judgment if I am negotiating a settlement?

Yes, a debt collector can still request a default judgment if you have not filed a written Answer with the court, even if you are actively negotiating a settlement. Verbal or written settlement discussions outside the court file do not protect you. Always file your Answer before or during settlement negotiations so the court has a record that you are defending the case.

What is a Debt Lawsuit Settlement Letter?

A Debt Lawsuit Settlement Letter is a written offer sent to the plaintiff's attorney proposing to resolve a pending debt lawsuit for a reduced amount. The letter should reference the case number, state your specific lump-sum offer, request a written settlement agreement before payment, and ask the plaintiff to dismiss the lawsuit with prejudice once payment clears. Keep the tone factual and professional.

Should I offer a lump sum or a payment plan to settle a lawsuit?

A lump-sum payment is generally better than a payment plan when settling a credit card debt lawsuit. Creditors and debt buyers typically accept lower percentages for immediate cash, often resolving cases for 40% to 60% of the balance. Payment plans usually require paying 70% to 100% of the balance over time and carry the risk that a single missed payment can trigger the full original judgment.

What happens to my credit score if I settle a credit card debt lawsuit?

Settling a credit card debt lawsuit negatively affects your credit score because the account will be reported as "settled for less than full balance" rather than "paid in full." The credit impact typically ranges from 50 to 125 points depending on your starting score. The settled account remains on your credit report for 7 years from the original delinquency date, regardless of when the settlement is reached.

What does "judgment proof" mean and does it protect me?

Being "judgment proof" means you do not currently earn or own enough for a creditor to collect on a court judgment through wage garnishment or asset seizure. It does not prevent the creditor from obtaining the judgment itself. The judgment remains on your record and credit report, and the creditor can later attempt collection if your financial situation improves, often by renewing the judgment in court.

How to Answer a Summons for debt collection in all 50 states

Here's a list of guides on how to respond to a debt collection lawsuit in each state:

The Ultimate 50 State Guide

Debt collector guides

Are you being contacted by a debt collector? We're making guides on how to resolve debt with each one.

Arbitration

If the thought of going to court stresses you out, you're not alone. Many Americans who are sued for credit card debt utilize a Motion to Compel Arbitration to push their case out of court and into arbitration.

Below are some resources on how to use an arbitration clause to your advantage and win a debt lawsuit.

Bankruptcy

Bankruptcy is a great way to legally resolve debt, but it's usually best to consider it as a last resort. Here are some bankruptcy guides to help you decide which debt resolution option is best for you.

Check your case status

Don't have time to go to your local courthouse to check the status of your case? We've created state guides on how to check the status of your case throughout the US, complete with online search tools and court directories.

Credit

Debt has a big impact on your credit. Below is a list of guides on how to repair and improve your credit, even while managing major debt, along with other credit-related resources.

Debt collection FAQs

Find answers to some of our the most commonly-asked questions about debt collection below.

Debt collection documents and templates

If you're dealing with debt, these documents and templates will help you respond, protect your rights, negotiate, and resolve your debts.

Debt relief

We've created a specialized guide on how to find debt relief in all 50 states, complete with steps to take to find relief, state-specific resources, and more.

Debt settlement

Debt settlement is one of the most effective ways to resolve a debt and save money. We've created state guides on debt settlement. Find out how to settle in your state with a simple click and explore other debt settlement resources below.

Eviction

Facing an eviction? The following guides will help you navigate your situation with confidence.

Federal debt collection laws

Knowing your rights makes it easier to stand up for your rights. Below, we've compiled all our articles on federal debt collection laws that protect you from unfair practices.

Legal aid

Helping people find access to justice is at the heart of Solo's misison. If you're dealing with a legal debt issue, the following guides will help you through it.

Medical debt

Having a health challenge is stressful, but dealing with medical debt on top of it is overwhelming. Here are some resources on how to manage medical debt.

Personal finance

Learn how to manage your finances and overcome crushing debt. Check out our personal finance guides below.

State debt collection laws

Debt collection laws vary by state, so we have compiled a guide to each state's debt collection laws to make it easier for you to stand up for your rights—no matter where you live.

Statute of limitations on debt

Like all debt collection laws, the statute of limitations on debt varies by state. So, we wrote guides on each state's statutes and more.

Stop collection calls

Do you keep getting calls from an unknown number, only to realize that it's a debt collector on the other line? If you've been called by any of the following numbers, chances are you have collectors coming after you, and we'll tell you how to stop them.

Wage garnishment

Forgot to respond to your debt lawsuit? The judge may have ordered a default judgment against you, and with a default judgment, debt collectors can garnish your wages. Here are our guides on how to stop wage garnishment in your state, plus other wage garnishment resources.

The Debt Hotline

Hosted by Team Solo, The Debt Hotline breaks down debt and personal finance topics with help from attorneys, financial experts, and industry pros. We respond to real questions to help you navigate debt with knowledge and courage.