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Updated on Thursday, July 16, 2020
- Before taking action, ensure the validity of the debt complaint against you by reviewing the debt validation letter.
- Learn your rights and report any violations by the debt collector.
- Respond to the lawsuit; failing to do so may result in the debt collector winning the case, which can have severe financial consequences.
Typically, in a debt collection case a creditor will sell unpaid debt to a debt collector. The debt collector will then try to get you to repay the owed amount. If their collection attempts fail, the debt collector may choose to sue you to get you to pay.
Debt collection cases often involve unpaid balances of less than $10,000 and include credit card balances, auto loans, medical bills and other consumer debt. If you have unpaid debt and are being sued by a debt collector, there can be harsh financial consequences such as wage garnishment, if you ignore the lawsuit or lose in court.
Here’s what you should know about debt collection lawsuits, your rights and options if you can repay the debt.
What to do if a debt collector sues you
1. Gather details on the lawsuit
If you’re sued by a debt collector, the best thing to do is to gather as much information as you can, such as:
- Who is suing you
- What debt balance they are suing you for
- The deadline you have to respond
- Confirm debt collector has a debt validation letter which will determine the validity of the complaint
At this point, you don’t want to share too much or act too quickly without understanding the scope of the lawsuit.
When a debt collector proceeds with litigation against you, they must properly “serve” you with a summons. A summons is an official notice of the lawsuit which will arrive in paper and will be delivered by the process servers. Your summons papers will include information about who is suing you and a deadline for when you must respond by. Until you have the formal complaint in hand, you don’t have to go to court and no judgment has been entered against you.
Is the lawsuit legitimate?
If you receive a phone call or an email stating that you’re being sued, there’s a chance it could be a scam. You can verify the debt collector’s legitimacy by researching them online. For example, you can double-check their contact information online and read articles or consumer reviews that may or may not confirm their legitimacy.
Being pressured to immediately repay a debt, especially through an unusual method like a money order, are a red sign of a scam or that your rights are being violated. All information should be in writing and you should be given a certain amount of time to respond. If you feel as though you are being pressured, request a debt validation letter or proof of the lawsuit before proceeding with anything else.
2. Review your rights under the Fair Debt Collection Practices Act (FDCPA)
To eliminate abusive, deceptive and unfair debt collection practices, the Fair Debt Collection Practices Act (FDCPA) provides guidelines for debt collectors to follow and is enforced by the Federal Trade Commission (FTC).
Under the FDCPA, credit card debt, medical bills, student loans, mortgages and other household debts are covered. It’s important to note, business debt or other debt owed to another business isn’t covered under this law.
Prohibited practices include:
- Harassment or abusive practices: Debt collectors may not harass, oppress or abuse any borrower. Some examples of this may include threatening a borrower with violence or other criminal conduct, using obscene or profane language, or making repeated contact via phone to annoy you.
- False or misleading representation: Debt collectors may not use any false, deceptive or misleading information when collecting any debts. Some examples of this may include misrepresenting the total amount of debt you owe, lying about being an attorney or that they are communicating with one, or falsely claiming you’ll be arrested, or other legal action will be taken against you if it’s not true.
- Engage in unfair practices: Debt collectors may not use unfair practices when collecting or attempting to collect a debt. Some examples of this may include attempting to collect additional fees, interest or other charges that are not stated in your original contract, depositing a post-dated check before the deposit date, or taking or threatening to take the property if the debt collector cannot legally do so.
What to do if your rights were violated
If you discover a debt collector is violating your rights, you can report the violation to your state attorney general’s office, the FTC or the Consumer Financial Protection Bureau (CFPB). Keep in mind, every state may have a different set of laws for debt collectors, so your attorney general’s office can help you verify if they are violating the law.
Also, you can take your debt collector to federal court within a year of the violation. If you can prove your damages such as lost wages due to the violation, you may receive up to $1,000 plus attorney and court fee reimbursement.
3. Determine whether the debt collector has the right to sue
To defend yourself against the complaint you must use an affirmative defense that has to be proven. Depending on your situation and the state you live in, you may have several affirmative defenses you can use. Some common defenses include:
- Statute of limitations: The statute of limitations is the amount of time a party has to bring a legal claim against you. Once this time has expired, they can no longer make a claim. If it has been many years since your last payment, this might be a valid defense. Keep in mind, the statute of limitations can vary by state.
- Accord and specification: If you have already paid off the debt to their original debt collector’s stratification, you can use this as a defense.
- Inadequate evidence: This defense applies to complaints that don’t have enough evidence to support the case. For example, only the party who owns the debt can sue you. Therefore, the debt buyer might fail to provide evidence that they own your debt.
- The plaintiff lacks standing: Debt buyers must have the right to sue you. Again, if they don’t actually own your debt, they don’t have a case.
Many different affirmative defenses may apply to your case. With this in mind, it’s wise to consult with your attorney to determine which defense applies to your case.
4. Contact a debt collection attorney, if needed
If you have verified the legitimacy of the lawsuit, you can either decide to represent yourself or hire an attorney. If you decide to represent yourself in the case, you must follow the same rules an attorney follows; not understanding the rules will not be excused by the court.
Although most consumers don’t seek legal representation when being sued, it might behoove you to do so; consumers with legal representation in a debt claim are more likely to win their case outright or reach a mutually agreed settlement with the plaintiff.
Therefore, you might want to consult with a lawyer who specializes in debt defense. To find a reputable lawyer, try asking your friends and family for a referral. You can also visit The American Bar Association’s lawyer referral directory to find a lawyer in your area.
Usually, consumer law attorneys offer free consultations that can provide consumers with advice and their options for moving forward. Many consumer attorneys who represent debtors often find that the debt collection company doesn’t have the appropriate documentation to back up the lawsuit.
Even if you don’t think you can afford an attorney, try asking around to find one who might take on your case for a low fee or a contingent fee.
5. Respond to the lawsuit
When you’re given a summons, you will have a specific amount of time to respond to the case. For example, in the state of New York, if you were personally handed the summons, you have to respond to the complaint within 20 days. If the summons wasn’t directly handed to you, you have 30 days to respond.
After you have carefully read the complaint, you will want to complete the forms in your summons, which generally include:
- Answer and Affirmative Defense form
- Notice of Appearance
- Certificate of Service
In your Answer and Affirmative Defense form, you will have to provide a written response to the court either agreeing, disagreeing or informing them you have no knowledge of the case. If you hire a lawyer, they will help you respond to the complaint.
Once all forms are complete, you will sign and date and make two copies of each form, one for you and one for your attorney. You will then either hand deliver or mail the documents. If you decide to mail them, they must be in the mail three days before the deadline. Ask your local post office for tracking and delivery confirmation so you can confirm they were sent ahead of time.
Lastly, you’ll need to send your Certificate of Service form to the Plaintiff (debt collector) or Plaintiff’s attorney.
Failing to respond can lead to a default judgment
Because debtors rarely respond when they are being sued for a debt, many lawsuits end in a default judgment, according to the Pew Charitable Trusts. When a court rules a default judgment, consumers may have to pay accrued interest, court fees or experience other harmful consequences such as garnishment of wages or bank accounts, seizure of personal property, or even incarceration.
With this in mind, even if you don’t agree with the lawsuit, if it’s legitimate you must respond to avoid the chance of a default judgment.
6. Attend your hearing
After you file your answer agreeing or disagreeing with the case, the debt collector will either proceed with taking the case to trial or dropping the case completely. Sometimes debt collectors will drop the lawsuit once they complete a cost-benefit analysis to determine if the proceeding is worthwhile monetarily.
However, others may decide to move forward and go to trial. Most debt collector cases are handled in small claims court and follow a standard process:
- The debt collector presents evidence of the complaint.
- You have the opportunity to cross-examine witnesses they call to the stand.
- You then present your evidence sharing your affirmative defense.
- The plaintiff may cross-examine your witnesses.
- Lastly, both sides make their closing argument.
7. A judgment is made
Once the judge reviews each argument, they will make their final decision. If you win, by law you are no longer responsible for the debt. That doesn’t mean you’re free and clear of dealing with other collection activities, however. Sometimes, the debt is sold to another debt collection agency who is unaware of the judgment made in your favor. They may try to collect on the debt again but you may countersue if this happens because they have violated the law.
On the other hand, if you lose the judgment, the debt collection agency has the authority to immediately begin collection efforts. How they proceed will depend on your state. Judgments can remain active for 10 years with the opportunity for a 10-year extension. Any unpaid amounts will remain and accrue interest.
For example, even if there’s not enough equity in your home to pay off your debt, the debt collector can place a lien on your home. They may decide to eventually either force you to sell once your equity covers the debt, or demand a debt repayment when you sell or refinance.
When you can’t afford to repay the debt
If you lose your case and can’t afford to pay the judgment against you, you have several options to pursue:
Agree to a payment plan
A debt collector may request a repayment plan to be part of the agreement of judgment. A repayment plan means you and the collector agree that you will pay a set amount every month. This might be a part of your court order.
But, only agree to a repayment plan if you can actually make payments. Since the loan is part of the court order, any missed payments could violate the court.
Consolidate the debt
With debt consolidation, you can combine multiple debts by taking out a new loan. This solution can make your debt more manageable since you will only have one payment, interest rate and repayment term to worry about. You may also choose a longer repayment term in order to lower your monthly payments, though a longer term could translate to higher overall interest charges.
Debt consolidation is typically done with a debt consolidation loan, which is a personal loan. These loans are often unsecured, meaning they don’t require collateral. Lenders will rely more heavily on your credit and financial situation to determine loan eligibility and interest rates.
If you have damaged credit, you may find a secured loan is easier to qualify for and offers better interest rates. A secured loan uses your property, like a savings account, car or home, as collateral. Fail to repay the loan and you could lose the collateral. Common types of secured loans include secured personal loans and home equity loans.
File for bankruptcy
If your finances in dire straits, you might want to determine if filing bankruptcy is a viable option and if you’re eligible.
If you file Chapter 7 bankruptcy, you can discharge certain debts to give you a “fresh start” and eliminate the liability of discharged debts. Chapter 13 bankruptcy enables debtors the opportunity to develop a plan to repay all or part of their debts over three to five years. But, once you pay the agreed-upon amount, a debt collector cannot continue to pursue you.
Keep in mind, it’s wise to explore all other options before pursuing bankruptcy. Bankruptcy will severely damage your credit, impact your access to future credit and can be costly.
This blog does not provide legal advice. If you need legal advice, please contact an attorney directly.
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Fact Checked By: Pearly Huang
Reviewed By: Michael Galvis