A letter arrives from a law office threatening a lawsuit for payment on an old bill. It’s upsetting, but hardly rare.
You may get hit with a debt collection lawsuit if you have old, unpaid medical, credit card or other consumer debt. If you don’t respond in time or attend the court hearing, the creditor is likely to win — and may get the right to take part of your wages or bank account.
In this article:
What happens when you get sued for debt
Lawsuits are a common and efficient debt collection tactic. In New Jersey, for example, debt collection lawsuits accounted for 48% of civil judgments in 2011, according to a ProPublica report. One attorney at a debt collection firm filed 69,000 lawsuits in a single year, it found.
A debt collection lawsuit begins when a creditor files a complaint with a state civil court listing you as a defendant, along with your co-signer if you have one. The complaint will say why the creditor is suing you and what it wants. Typically, that’s the money you owe plus interest, and maybe attorney fees and court costs.
The creditor, collection agency or attorney representing it will then notify you of the lawsuit by “serving” you, which means delivering a copy of the complaint and a court summons. The summons has information about when and how you can file a formal response in court, and the date of your court hearing.
Debt collectors bet that most people won’t attend their hearing, leaving the judge to file a default judgment. With a default judgment the creditor may be able to:
- Garnish your wages.
- Place a lien against your property.
- Attempt to freeze part or all of the money in your bank account.
That’s why you need to respond to the complaint and summons. Here’s what to do.
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The creditor suing you is unlikely to be your original creditor. The debt may have been sold, perhaps several times over. It may be something you recognize, or it may be an old bill long forgotten — now a zombie debt — that a debt collector has revived.
Review your own records and any information you got in the mail, including the validation letter that the debt collectors must send. Determine:
- Who the creditor is, whether the amount is accurate and whether you actually owe the debt. Errors creep in as debt is sold and resold; names and amounts can be incorrect.
- Whether the debt is past the statute of limitations. Once that passes, the debt is considered “time-barred.” That means you can’t legally be sued — but collectors may still try it, in violation of your consumer rights. Your obligation to pay time-barred debt remains, however, and the unpaid debt will continue to hurt your credit.
Don’t delay. You generally have 20 to 30 days from when you get served to file a response.
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Respond to the lawsuit
“The worst thing anyone can do is ignore the lawsuit,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. That puts your wages, bank account or property at risk. Worse, you can also lose the ability to dispute that you owe the debt.
Organizing your defense and writing the response can be complicated, so you may want to consult an attorney. Often, attorneys will provide a free consultation, and if you win your case the debt collector likely will have to pay your legal fees. Many local legal aid offices offer low- or no-cost services. Military service members can get help from their local judge advocate general office.
An attorney can:
- Point out defenses you weren’t aware of.
- Help you write your formal response.
- Represent you in court, if necessary.
Guidance from an attorney can help you write a more complete response, which might make the creditor more likely to pursue a deal with you. If you go a step further and attend the hearing with an attorney, Rheingold says, the collector “likely won’t be able to verify the debt and it might get dismissed.”
Options for handling the hearing
Showing up for your hearing is crucial. This is when the judge will decide whether you have to pay, and it’s your chance to make your defense or work out a deal with the creditor.
How you handle it depends on whether you owe the debt.
If you owe the debt
You have a few options. Seek out the creditor before the hearing begins and see if you can agree to:
- Set up a payment plan where you make regular, affordable payments on the bill until you pay it off.
- Settle the debt for less than you originally owed. If you can strike a deal, be sure to get a written agreement that says the creditor will consider the debt fully settled and will report it to the credit bureaus as paid.
Credit counseling from a nonprofit credit counseling agency can help you comb through your finances to cover a payment plan or settlement. If you still can’t afford to pay the amount you owe, you may want to pursue a debt relief option, such as bankruptcy, for a fresh start.
if you incurred the debt, but think you shouldn’t have to pay
There are several instances in which you might have standing to refuse to pay a debt. You may be able to invoke these so-called affirmative defenses if, for example:
- What you bought was defective or never delivered.
- The debt contract was unenforceable or illegal, or you signed it based on falsehoods.
- You canceled the contract within the lawful time frame.
These are just a few of the possible affirmative defenses. If you think you might have such a defense, seek legal advice on the best way to proceed.
If you don’t owe the debt
When you’re sued for a debt you don’t owe or for an amount you dispute, two words can give you a strong defense: “Prove it.” At the hearing, you can ask the creditor to provide the original debt contract and to prove why you owe the amount specified. If it can’t, the judge may dismiss the case.
Adequate documentation is key, but also seek the help of a qualified legal professional to help you navigate this process.
By the time you face a debt lawsuit, your credit has likely taken a hit. Once the suit is behind you, you’ll want to work on restoring your scores and shoring up your finances, perhaps by building a budget.