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What happens when you're sued for a credit card debt

Show up for your court date; if you don't, you'll lose your case

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question for the CreditCards.com expert

Dear Opening Credits,
I am being sued in civil court over a credit card debt. I haven't worked in over two years and just started getting Social Security Disability this month. What do I need when I go to court, and what can they do to me since I can't afford to pay it? Thank you. -- John 

Answer for the CreditCards.com expert Dear John,
This is exactly what I warn people about. If you don't pay your bills, the lender can sue you for the debt. It won't happen every time, but it's always a possibility.

And it's happening to you, which is a very scary feeling. Now what should you do? Well, first make it a priority to go to court on the date that is printed on the summons. If you can't make it, contact them immediately to change the date. This is very important, because if you fail to show up, you will lose the case by default. That means you won't have the opportunity to present your defense and explain that you are drawing Social Security Disability (SSD) instead of a salary. A default judgment will be filed, and the notice will appear on your credit report. The judgment creditor -- the entity that sued you and won -- can take whatever method the court allows to collect.

So go. And when you do, you can either bring legal counsel or you may appear on your own. Mind though, that if you hire a lawyer, he or she will expect to be paid -- so if you don't have the spare cash (and it sounds like you don't), that won't be an option so you'll have to represent yourself.

Unfortunately, even if a lawyer is by your side, there is still a strong chance that the other side will win. After all, you borrowed the money and didn't pay it back. Unemployment may be the reason, but it probably won't absolve you from responsibility in a court.

So what can happen if you lose? Depending on the state you're sued in, the judgment creditor may be able to levy (take) any nonexempt assets to pay at least a portion of the judgment award. SSD can't be garnished by an unsecured creditor, but you may own items and have cash that they can claim. Therefore, now would be an excellent time to take stock of how much you have in the bank and what items you own. Some common examples of exempt property include your primary residence, furniture, clothes and tools that are necessary for work. The rest may be nonexempt and up for grabs. Additionally, the judgment creditor may be permitted to put a lien on real property -- such as your car and home. When you go to sell them, their portion of the proceeds will be sent to them.

If you have nothing the judgment creditor can relieve you of, winning the lawsuit won't do them any good. The worst thing that will happen to you is the credit damage, which, because of your delinquent debt, you most certainly are experiencing anyway. Oh, and you will also see the original balance escalate, as court costs, attorneys' fees and post-judgment interest will be applied.

So that's the lowdown on what can happen during and after a lawsuit. Unless you'll be back at work or will accumulate significant cash or valuables soon, the actual affect will likely be minimal. The emotional impact, however, can be major. Being sued is awful and not something anyone wants to have happen.

See related: How wage garnishment works -- and how to avoid itWhat types of garnishment are proteted from wage garnishment?, What benefits are exempt from garnishment?, New rule protects exempted funds from garnishment

Erica Sandberg is a nationally renowned personal finance authority. She’s host of several financial web shows, and a frequent guest for media outlets such as Fox, Forbes, Nightly Business Report and NPR. Erica previously was affiliated with Consumer Credit Counseling Service and was KRON-TV’s on-air credit expert. Her book, "Expecting Money: The Essential Financial Plan for New and Growing Families," was published in 2008 by Kaplan Press.

Send your question to Erica.

Published: January 25, 2012



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