One of the questions I frequently hear from people struggling with credit card debt is: “If I simply stop making payments on my credit cards, can the credit card company sue me?”

The short answer is yes. And in many cases, the company that eventually sues you may not even be the original credit card company.

I have represented thousands of people struggling with credit card debt over my 35-year legal career. One thing I have seen repeatedly is that people underestimate how aggressively credit card companies, collection agencies, and debt buyers pursue unpaid credit card balances.

Some people assume that if they stop making payments, the credit card company will eventually write off the debt and move on. Others believe that because they only owe a few hundred dollars, nobody is going to bother taking them to court.

Unfortunately, that is not always how it works.

In fact, I have personally seen clients sued in Michigan over credit card debts of just a few hundred dollars. These lawsuits are often filed by national debt collection law firms that handle enormous numbers of cases throughout Michigan.

Let’s take a closer look at what happens when you stop paying your credit cards and why ignoring the problem can eventually lead to a judgment, wage garnishment, or seizure of money in your bank account.

What Is a Credit Card Charge-Off?

When you stop making payments on a credit card, the account eventually becomes seriously delinquent.

After a period of nonpayment, the credit card company will generally classify the account as a “charge-off.” For accounting purposes, this means the creditor considers the account to be a loss and removes the debt from its accounts receivable as an asset.

A charge-off is generally reported to the credit reporting agencies and can have a significant negative impact on your credit score.

However, a charge-off does not mean that the debt has been forgiven, canceled, or eliminated.

This is an important distinction.

The credit card company still has the right to attempt to collect the debt. It can continue its own collection efforts, hire a collection agency, retain a collection attorney, or sell the account to a debt buyer.

In other words, just because the original credit card company has charged off your account does not mean you are out of the woods.

What Happens When a Credit Card Company Sells Your Debt?

Credit card companies frequently sell delinquent accounts to collection agencies and companies that specialize in purchasing bad debt.

These companies are commonly referred to as debt buyers.

Debt buyers purchase large portfolios of delinquent credit card accounts in blocks, often for a fraction of the total amount owed. The portfolios may contain hundreds or thousands of individual accounts.

For example, a debt buyer might purchase a portfolio of credit card accounts with several million dollars in outstanding balances for a substantially smaller amount.

The debt buyer then attempts to collect the full amount owed on those accounts, even though it may have paid only pennies on the dollar to acquire them.

If its collection efforts are unsuccessful, it may turn the account over to a collection law firm or file a lawsuit in its own name.

This is where things can become particularly problematic for consumers.

Can a Debt Buyer Sue Me in Michigan?

Absolutely.

Once a debt buyer purchases an account, it may file a lawsuit against you in the appropriate Michigan district court, provided it has the legal right to enforce the debt and can establish the necessary evidence.

I have personally seen clients sued by debt buyers for amounts as small as a few hundred dollars.

You might wonder why a collection company would spend the time and money suing somebody over such a relatively small amount of money.

The answer is volume.

Many of these companies and their attorneys operate on a business model that involves filing enormous numbers of collection lawsuits throughout Michigan and other states.

These are often national law firms that specialize in debt collection. They routinely file cases in local district courts throughout Michigan, including the courts serving Oakland, Macomb, Wayne, Genesee, and surrounding counties.

Because they handle so many cases, they have developed a system for filing lawsuits, obtaining default judgments when consumers fail to respond, and pursuing collection remedies afterward.

They do not necessarily need to recover thousands of dollars from every individual lawsuit to make their business model profitable.

Do not assume that a credit card company or debt buyer will not sue you simply because you owe a relatively small amount of money.

What Can Happen If a Debt Buyer Gets a Judgment Against Me?

This is where an unpaid credit card account can become much more serious.

If the creditor or debt buyer files a lawsuit and obtains a judgment against you, it becomes a judgment creditor. A judgment gives the creditor additional legal remedies that were not available before the lawsuit.

In Michigan, those remedies can include the following:

1. Garnishment of Your Wages

A judgment creditor can seek a periodic garnishment of your wages.

This means the creditor can obtain a court-issued garnishment directing your employer to withhold a portion of your paycheck and send it to the creditor.

Federal and state laws limit the amount that can be garnished. Generally, federal law limits ordinary consumer debt garnishments to the lesser of 25% of disposable earnings or the amount by which disposable earnings exceed 30 times the federal minimum wage, subject to applicable exceptions and other protections.

For someone living paycheck to paycheck, even a relatively small wage garnishment can create a significant financial hardship.

2. Garnishment of Your Bank Accounts

A judgment creditor can also seek a non-periodic garnishment against your bank or credit union account.

If the creditor obtains a garnishment and identifies an account in your name, the bank may be required to freeze funds in the account and turn over nonexempt money toward the judgment.

This can be particularly disruptive if your paycheck or Social Security benefits are deposited directly into your bank account.

There are important exemptions protecting certain types of income and property. However, you should not assume that a bank account is automatically protected simply because it contains money from a particular source. Properly asserting applicable exemptions can be critical.

3. Seizure of Personal Property

In certain circumstances, a judgment creditor can pursue execution against nonexempt personal property.

This can include property that may be seized and sold to satisfy a judgment, subject to applicable exemptions and legal procedures.

There are limits on what a creditor can take. Michigan and federal law protect certain property, and a creditor cannot simply take everything you own because you have an unpaid credit card bill.

Nevertheless, a judgment can give a creditor collection rights that you should take seriously.

4. Garnishment of Your Michigan Income Tax Refund

Many people are surprised to learn that a judgment creditor may also garnish their Michigan income tax refund.

If you are entitled to a Michigan income tax refund, a creditor with a judgment can pursue a garnishment of that refund through the appropriate procedures.

This means that even if a creditor cannot successfully garnish your wages or locate money in your bank account, it may still have another opportunity to collect money from you when you file your Michigan income tax return.

Can a Collection Company Add Interest and Attorney Fees?

Yes, in certain circumstances.

The amount you originally owed on your credit card is not necessarily the amount you will ultimately be required to pay if a lawsuit is filed.

Depending on the credit card agreement, applicable law, and the circumstances of the case, the creditor may be entitled to contractual interest, allowable attorney fees, and court costs.

Once a judgment is entered, interest can continue to accrue on the judgment until it is paid or otherwise satisfied.

Michigan law provides for interest on money judgments under MCL 600.6013. The applicable rate depends on factors including the date the lawsuit was filed and whether the judgment is based on a written instrument specifying an interest rate.

For many consumer debt lawsuits, the applicable statutory judgment interest rate is tied to Treasury rates and is adjusted periodically.

The important point is that obtaining a judgment does not necessarily stop the balance from growing.

A debt that started out as a relatively small credit card balance can become substantially larger after additional interest, court costs, and allowable attorney fees are added.

How Long Is a Judgment Good for in Michigan?

This is another important consideration.

Under Michigan law, most judgments entered in courts of record are enforceable for 10 years from the date of entry.

However, a creditor can take steps to renew a judgment before it expires. A properly renewed judgment can continue to be enforceable for additional periods.

Judgments entered in Michigan small claims proceedings are generally subject to a six-year period.

In other words, obtaining a judgment does not mean that the creditor has only a short period of time to collect the money.

A creditor may continue pursuing collection efforts for many years, including wage garnishments, bank garnishments, and other available remedies.

I have seen people who thought an old credit card debt was behind them suddenly discover that a collection company has obtained a judgment and is attempting to collect.

You should never assume that an old judgment has simply disappeared.

What If I Am Sued for a Credit Card Debt?

If you receive a summons and complaint from a collection company or debt buyer, do not ignore it.

You generally have 21 days to respond if you are served in Michigan, or 28 days if you are served outside Michigan, subject to the applicable court rules.

Ignoring the lawsuit can result in a default judgment.

There may be legitimate defenses to a collection lawsuit. For example, the debt buyer may have difficulty establishing ownership of the account, proving the amount owed, or establishing that it has the legal right to collect the debt.

There may also be statute of limitations issues.

Michigan generally has a six-year limitations period for actions involving breach of contract, subject to applicable statutory provisions and exceptions.

If you are sued, the particular facts and documents matter. You should have the lawsuit reviewed rather than simply assuming that the collection company has the right to obtain a judgment.

The Good News: Filing Bankruptcy Immediately Stops the Collection Lawsuit

If you are overwhelmed by credit card debt, there is an important protection available under federal bankruptcy law.

The filing of a bankruptcy petition immediately triggers the automatic stay under Section 362 of the United States Bankruptcy Code.

The automatic stay is a powerful federal court protection that generally stops creditors from continuing collection lawsuits and other collection activities against you.

This includes:

• Stopping pending credit card collection lawsuits.
• Stopping collection attorneys from continuing their state court proceedings.
• Stopping wage garnishments.
• Stopping bank account garnishments.
• Stopping most other collection efforts against you.

Bankruptcy is filed in federal bankruptcy court, not Michigan state court. The automatic stay is a federal injunction that generally prohibits creditors from continuing to pursue collection of debts that existed before the bankruptcy filing.

There are certain exceptions, and creditors can sometimes ask the bankruptcy court for permission to proceed. However, for ordinary credit card debt, the automatic stay provides immediate and substantial protection.

Even if a collection company has already obtained a judgment against you, filing bankruptcy can still stop further collection activity on that judgment.

In a typical Chapter 7 bankruptcy, qualifying credit card debt is discharged. This means you are no longer legally obligated to pay the discharged debt, and the creditor cannot resume collection efforts against you after discharge.

It is important to understand that bankruptcy can help even if a lawsuit has already been filed or a judgment has already been entered. You do not necessarily have to wait until your wages are garnished or your bank account is frozen before seeking bankruptcy protection.

Should I Wait Until a Credit Card Company Sues Me Before Filing Bankruptcy?

In my opinion, that is usually not a good strategy if you already know that you cannot afford to pay your debts.

I frequently speak with people who have stopped paying their credit cards, are receiving collection calls and letters, and are worried about the possibility of being sued.

Some have already been sued. Others have received notices from collection attorneys threatening legal action.

The problem with waiting is that you never know when a creditor or debt buyer will decide to file a lawsuit.

You may go several months without hearing anything, only to receive a summons and complaint in the mail. If you fail to respond, the creditor may obtain a default judgment and begin pursuing your wages or bank accounts.

If you are already considering bankruptcy, there may be little reason to wait for that to happen.

A Chapter 7 bankruptcy can eliminate qualifying unsecured credit card debt, stop collection lawsuits, and provide you with a fresh financial start.

Call My Office if You Are Being Sued Over Credit Card Debt

I am Walter Metzen, a Board-Certified Specialist in Consumer Bankruptcy. I have devoted my entire legal practice to bankruptcy for more than 35 years and have represented more than 25,000 people dealing with overwhelming debt.

I have extensive experience handling Chapter 7 and Chapter 13 bankruptcy cases throughout the Eastern District of Michigan.

If you are being sued by a credit card company, collection agency, or debt buyer, or are worried about having your wages or bank accounts garnished, I would be happy to discuss your options.

You do not have to wait until a creditor obtains a judgment or starts taking money out of your paycheck.

Call my office at 313-962-4656 to discuss whether bankruptcy can stop the collection action and eliminate your credit card debt.

Sometimes the best way to deal with overwhelming credit card debt is not to negotiate with another collection company. It is to use the protection provided by federal bankruptcy law and put the debt behind you once and for all.