Your credit card company has filed a lawsuit against you and you have been served with a summons and complaint. What to do now? Should you file for bankruptcy?
Understand that credit card debt is a type of unsecured debt that if you can’t make payments, your credit card company cannot come after your personal or real property right away. To come after your assets (bank levies, wage garnishments, real property liens), they must first sue you and obtain a judgment, which is a court document stating a valid debt is owed and which gives the creditor the right to pursue assets of the debtor to satisfy it.

What is the Process When a Credit Card Company Sues You?

Why is my credit card company suing me? Because they want a judgment. As a little background, the credit card company first puts your account in collections. They assign the collection on your account to a collection company. You then receive multiple phone calls and receive collection letters in the mail. Phone calls and mail are the cheapest first line of attack for them. You may even receive letters from multiple collection agencies as the sell and assign your debt for collection. The credit card company likely charged off your account. A charge off does not mean you no longer owe the debt. A charge off allows the credit card company to report a loss on their balance sheets. At some point, usually about six months later, the collection company gets tired of making phone calls and decides to file a lawsuit. The statute of limitations on a collection action under California law is four years so they could wait longer.

The process begins with the filing of a complaint against you in the local California superior court. In Contra Costa County, the superior court is in Martinez. The court clerk will then issue a summons which the collection company has to personally serve on you. Once you are served with a copy of the complaint and the summons, you have 30 days to answer the lawsuit. An answer is your opportunity to admit to or deny the allegations set forth by the credit card company. The complaint usually alleges breach of contract and related causes of action and asks for an award of damages. Damages included the account balance plus interest plus attorney’s fees. In most cases, a general denial can be filed. You will have to pay a filing fee to file an answer. If you file an answer the case is deemed “at issue” and the court will monitor the progress of the case. Status conferences will be set and the collection company may propound discovery. Eventually the collection company will file a motion for summary judgment or the matter will go to trial.

Note that in most instances debtors usually do nothing when faced with a lawsuit. Answers are rarely filed to dispute even a valid debt. Credit card companies usually win the lawsuit by default.
Letting a credit company obtain default is important. If there is no response to the summons after 30 days then the credit card company can take a default. The court clerk will enter the default. Once the default is entered, the debtor can no longer file any responsive documents such as an answer. The default would have to be set aside at that point. Once default is entered, the credit card company will apply for a clerk’s judgment. The judgment confirms the amount owed and the name(s) of the judgment debtors.

Once a judgment is entered, the credit card company can take further collection actions to collect on its judgment. The judgment is good for 10 years in California and accrues interest at 10% per annum. The judgment creditor can obtain an abstract of judgment and record it in any county in California. The recording of an abstract of judgment creates a lien on real property. The judgment creditor can begin other enforcement procedures such as wage garnishments and bank levies but will take a few weeks for those procedures to begin.

What will bankruptcy do in a credit card lawsuit?

Bankruptcy puts an immediate stop to any collection proceedings, including lawsuits, through the power of the automatic stay. It does not matter where in the process the credit card company is. A bankruptcy can be filed before or after a judgment is entered. A bankruptcy can even be filed during a wage garnishment or a bank levy. Filing for bankruptcy will eliminate the personal liability associated with the judgment, which will clear your obligation to pay the debts. However, be aware that once a judgment attaches as a lien on your real property, it will be harder to get rid of. For this reason, it is not a good idea to wait too long to act once a collections proceeding has been initiated against you.

David A. Arietta recommends planning early and to not allow the creditor to obtain a judgment, if possible. Call David at (925) 472-8000 if you have received a summons and he can go over your options.