How to handle Credit Card Legal Notice?

Summary

Credit cards have become a convenient and useful medium in today’s time, but when it is not used properly, they can also cause trouble. Many times, people are not able to pay the credit card (Credit Card Legal Notice) on time, and gradually, the outstanding amount increases. If these dues are not paid for a long time, then the bank or credit card company sends a Legal Notice.

This notice is a warning, which states that if the payment is not made soon, then the company can take legal action. In this situation, instead of panicking, it is important to take steps wisely. First of all read the notice carefully and if necessary, consult a qualified lawyer. Contact the bank and try for settlement, EMI or any other solution.

Always reply to the notice in writing and keep all the documents safe. If the recovery agent behaves rudely, then a complaint can also be made against him. By responding to the legal notice on time, you can avoid court action and also improve your credit history.

Introduction

In today’s era, credit cards have become an important part of our lives. From shopping to online bill payment, credit card is needed everywhere. But sometimes it also happens that we use the credit card but are unable to pay its bill on time. Gradually, the outstanding amount of the credit card increases, and a day comes when the bank or credit card company sends us a Legal Notice.

If you have ever received such a notice, or there is a possibility of it coming, then there is no need to panic at all. This article is to help you. Many people panic in this situation, get scared, and take wrong steps without any advice or information. Whereas the reality is that getting a Legal Notice is not the end of anyone’s life, but a warning that now the matter should be taken seriously and steps should be taken towards the solution.

In this article, we will explain to you in simple language what a Credit Card Legal Notice is, when and why it is sent, and what steps you should take upon receiving it. We will also tell you what things should be kept in mind at such times, what mistakes should be avoided, and how you can understand your rights and make the right decision.

Remember – information is power. If you have the right information, you can handle any legal notice well without fear. So if you or someone you know is in any kind of credit card related legal trouble, then this article will prove to be very helpful for them.

What is a Credit Card Legal Notice?

Whenever you make a purchase using a credit card and do not pay it on time, interest and late fees get accrued on it. If you have not paid the due amount for a long time, the bank or credit card company reminds you several times to make the payment through phone calls, messages, and emails.

But when you still do not pay the money, the company finally sends you a Legal Notice. This notice is a written document that states how much amount you have not paid, and if you do not pay as soon as possible, the company can take legal action against you – such as filing a case in court or sending a recovery agent.

Why is the Credit Card Legal Notice sent?

When a person does not pay his credit card bill for a long time, the bank or the credit card company suffers a loss. Initially, the company reminds you of the payment several times through phone, message, or email. But even then, if you do not pay the money, the company assumes that you are not making the payment intentionally.

In such a situation, the company sends a Legal Notice to recover its outstanding money. The purpose of this notice is –

• To give you a final warning that the loan you have taken has now increased a lot and you should pay immediately.

• According to the law of India, any institution sends a written notice to anyone before filing a case against him in the court so that he gets a chance to explain.

• Many times the bank wants you to find a solution through talks, so by sending a notice, it invites you for talks.

• To put pressure on you so that you take the matter seriously and make the payment as soon as possible.

How to handle a legal notice of a credit card?

If you have received a legal notice from a bank or credit card company, the first thing is do not panic. This notice is not a direct court order against you but a warning that if you do not find a solution soon, the company can take the next legal step.

Here are some easy and important steps that you should take if you receive such a notice:

1. Read the notice carefully

First of all, read the entire notice carefully. See:

• Which bank/company has sent it
• How much amount is stated to be outstanding
• How many days have been given for payment
• Has any legal action been threatened

2. Do not ignore the notice

Many people ignore the notice due to fear or negligence. This is the biggest mistake. Ignoring the notice can take the matter directly to the court.

3. Consult a lawyer

If you do not understand the language of the notice or you are afraid of what will happen next, then immediately consult an experienced lawyer (Legal Expert). The lawyer will tell you how to respond and what your legal rights are.

4. Negotiate with the company

If you cannot make the full payment right now, then contact the bank/company and talk about a settlement or payment in installments (EMI Plan). Many times, the company also wants to avoid the case, so it is ready to negotiate.

What is a Credit Card Settlement?

Credit Card Settlement is a process in which you negotiate with your creditor to forgive a part of the outstanding amount on your credit card by making a lump sum payment. It is an agreement that you make with your card issuer as a last resort when you see that your credit card debt is increasing.

This can happen due to many reasons, ranging from unnecessary spending to careless spending habits. When your debt increases, the interest on it also increases, which can make it difficult for you to repay the outstanding amount. If you do not see any way out of this, then you can recommend Credit Card Settlement.

What are the reasons for doing a Credit Card Settlement?

Below are some common reasons:

• If a person loses his job, stops a source of income, or suffers huge losses in business, then it may be difficult to repay the loan on time.

• There may be a shortage of money to repay the loan if the expenses suddenly increase due to a major illness or medical emergency.

• Many times, a person has the burden of more than one loan, which becomes difficult to repay on time.

• There may be problems in repaying the loan due to any natural disaster, accident, or any major crisis in the family.

• If the interest rate of the loan is very high and there is a problem in repaying the installment, then Credit Card Settlement is resorted to.

• Many times, a person is not able to manage his expenses and income properly after taking a loan, which causes problems in repaying.

What documents are required to do a Credit Card Settlement?

Let us know what documents are required for Credit Card Settlement:

1. ID Proof

• Aadhar Card
• PAN Card
• Passport
• Driving License
• Voter ID

2. Address Proof

• Aadhar Card (if it has the correct address)
• Electricity or Water Bill
• Copy of Bank Passbook or Bank Statement
• Rent Agreement (if you live on rent)

3. Income Proof (if required)

• Salary Slip (if you are employed)
• Bank Statement (last 6 months)
• Copy of Income Tax Return (ITR)
• Business Documents (if you are a businessman)

4. Credit Card Statement

You will have to provide the credit card statement to give the correct information about your outstanding balance. The bank can also generate this statement itself, but sometimes they ask you for a copy of it.

5. Settlement Request Letter

If you are approaching the bank for settlement on your own, you will have to give a written Settlement Request Letter in which you can explain:

• Why do you want a settlement?
• What is your financial situation?
• How much can you pay as a one-time payment?

6. Settlement Offer Letter given by the bank

When the bank agrees to the settlement, they give you a Settlement Offer Letter. Read it carefully and confirm the amount and terms mentioned in it.

What to do before doing a Credit Card Settlement?

Below are some steps that should be followed before a Credit Card Settlement:

• First of all, check your income, expenses, and all other debts properly. Know how much you can repay.

• Before a Credit Card Settlement, share your problem with the bank or lender. 

• Sometimes, they can offer you a better solution, such as reducing the EMI or increasing the loan term.

• Contact a financial advisor or expert. They can help you make the right decision and explain how Credit Card Settlement will affect your credit score.

• If you decide to do a Credit Card Settlement, read the terms and conditions given by the bank carefully. Make sure that you are not being charged any hidden fees.

• Doing a Credit Card Settlement can reduce your credit score. This can make it difficult to get a loan in the future. Make a decision keeping this in mind.

• Credit Card Settlement should be the last option. Before that, consider other options like refinancing, reducing EMIs, or asking family and friends for help.

How to apply for Credit Card Settlement?

If you are unable to pay your credit card dues and are troubled by heavy interest rates, Credit Card Settlement can be a possible solution. Under this process, the bank or credit card company can waive off part of your total outstanding amount and give you the option to make a lump sum payment (One-time Settlement). However, this can affect your CIBIL score, so adopt it only as a last option.

Step-by-step process to apply for Credit Card Settlement

• First of all, decide that you are not in a position to pay the entire credit card dues.

• Check your income and expenses and decide how much you can pay at the most.

• Talk to the customer care of your bank or credit card company and tell them about your current financial situation.

• Ask for a settlement offer from the bank and start the conversation.

• The bank will propose a settlement amount, which will be lower than your outstanding amount.

• If you don’t accept this amount, negotiate with the bank and attempt to lower the amount based on your capacity to pay.

• After the bank and you reach an agreement on a specific amount, ensure that you receive a written settlement letter.

• It should explicitly state the settlement terms, payment dates, and other conditions.

• After completing the settlement, pay the amount in full within the given time.

• Get a No Due Certificate (NOC) or Final Settlement Letter from the bank after the payment.

• After the settlement, make sure the bank updates the “Settled” status in your CIBIL report.

• This can affect your credit score, so inculcate good financial management habits to improve it in the future.

What is the impact on the CIBIL score after a Credit Card Settlement?

A settlement can hurt your credit score. The impact can be seen in the following ways:

• After the settlement process, your credit report records that you have “settled” your debt. This entry remains in your credit history for 7 years and can be viewed negatively by lenders or other creditors, which can affect your chances of getting a loan in the future.

• Since a settlement means that you have not repaid the entire debt, when you try to get a new loan in the future, banks may reject your application or offer you loans at higher interest rates by looking at your credit score and report.

• After settlement, if you have a credit card or other credit line, your credit limit may be reduced as creditors think you may be a high-risk customer.

• If your credit score drops, it may be difficult for you to get a loan, credit card, or any other type of credit facility. This can also affect your financial stability, especially if you face a financial emergency in the future.

• When you settle with your bank, you are not paying off the entire debt, but a certain amount that is less than the principal amount. This is viewed negatively by the credit bureaus, as it shows that you have been unable to repay your debt. As a result, your credit score may drop.

What are the advantages (Pros) of doing Credit Card Settlement?

Let us know what are the benefits of doing Credit Card Settlement:

• If your credit card dues have become very high, and you are unable to repay them, then a settlement can give you great relief.

• When you do not pay your credit card continuously, the bank can send a legal notice to you and can also send a recovery agent.

• The interest on credit cards is very high, which can be up to 30-45% per annum. If you are not paying on time, the interest and late payment fees keep increasing continuously.

• While settlement will bring down your CIBIL score, provided you exercise financial responsibility after settlement and settle your other loans and bills punctually, you will improve your score over a period of time.

• In Credit Card Settlement, you pay a specific sum at one time, which settles your debt entirely. It may be helpful to the persons who desire to come out of debt by increasing a little money at a time.

• Mental tension grows through rising debt and bank calls. On settlement, you are free from this concern, and you may concentrate on better financial status again.

What are the disadvantages (Cons) of doing a Credit Card Settlement?

Let us know in detail what the disadvantages of doing a Credit Card Settlement are.

• The biggest disadvantage of Credit Card Settlement is that it spoils your CIBIL score. When you settle with the bank and pay a lesser amount instead of paying the entire dues, the bank reports it in “Settled” status. This status can remain in your credit report for up to 7 years, which may make it difficult to get a loan or a new credit card in the future.

• If you have done a Credit Card Settlement once, banks and other financial institutions may consider you a “high-risk customer”. This may cause problems in getting a home loan, personal loan or business loan, or the bank may give you a loan at a higher interest rate.

• In some cases, when you go to take a loan from another bank in the future, the bank may ask you to repay the entire previous settlement amount after looking at your credit history. That is, if you had settled by paying Rs 50,000 on an outstanding amount of Rs 1 lakh, then the new bank can demand the remaining Rs 50,000 from you.

• If you have settled a credit card with a bank, then the same bank can refuse to issue you a credit card again in the future. Some banks can even put you in their, which can make you ineligible for any of their credit products.

• Doing a credit card settlement can spoil your relationship with the bank. The bank sees it as if you have not fulfilled your financial responsibilities completely, due to which you may face problems in banking services in the future.

Conclusion

Nowadays, the use of credit cards has become very common. People do shopping with its help, pay bills and sometimes even use it in emergency. But when we are unable to pay the credit card on time, then gradually the outstanding amount increases and a time comes when the bank or the company sends us a legal notice.

Many people get scared after seeing such a notice or ignore it in panic, which is wrong. This notice is not a punishment, but it is a warning that now you should pay your dues or the company can take legal action. But the good thing is that in such cases, a solution can often be found through negotiation, settlement or installments.

So the first step is to read and understand the notice carefully. Then, one should take the right path by meeting a legal advisor (lawyer). If you cannot pay, then talk to the company and try to get the facility of time, discount, or EMI. Most companies want to find a solution before going to court because fighting a case is a waste of both time and money for them.

Frequently Asked Questions (FAQ’s)