What To Do if You’re Sued by Debt Collectors
- If you’re served papers by a debt collector, it’s essential that you file an answer by the deadline on the complaint, even if you plan to dispute the debt.
- After filing an answer, you can challenge the lawsuit in court or negotiate a settlement with the debt collector.
- Don’t give a debt collector your financial information until you’ve verified that you owe the debt and the debt collector can legally collect the money.
- Contact a credit counselor or debt collection attorney if you don’t know how to respond to a debt collection lawsuit.
If a debt collector sues you, don’t panic. The first step is to respond to the lawsuit, even if you don’t think you owe the debt. This guide will help you understand your rights as a debtor so you can decide how to proceed, but you may want to consult an attorney if your situation is complex. Here’s what to do if you’re sued by debt collectors.
What happens when a debt collector sues you
A debt collector can sue you if the collection agency’s attempts to collect the unpaid debt fail. While the exact timeline varies, the process generally goes as follows:
- Notification of debt in collections: The debt collection agency will contact you via phone or snail mail to notify you that you have debt in collections. This typically occurs long after your creditor’s first collection attempt, when a debt is around 120-180 days past due.
- Receive debt validation letter: Within five days of contacting you, the debt collector must send you a debt validation letter stating how much you owe, the name of the creditor and how to dispute the debt if you believe it’s not yours.
- If you don’t respond, the debt collector may take legal action: If you dispute, pay or settle the debt, or if you accept a payment plan from the debt collector, you can typically avoid a lawsuit. If you don’t respond to several collection attempts, however, the debt collector may sue you.
- Receive complaint and court summons: You’ll be served a complaint and court summons. Respond according to the instructions, which could mean filing an answer with the court by a specified deadline or attending a court date. You may also want to consult an attorney.
- Hearing or default judgment: If you respond to the lawsuit and go to court, the debt collector will need to prove that you owe the debt and they can legally collect it. You may qualify for free legal services from your local legal aid office. If you fail to respond to the lawsuit, the debt collector can get a court action or default judgment against you. This means they could garnish your wages or place a lien against your property. You may also lose your right to dispute the debt.
What to do if a debt collector sues you
Respond to the lawsuit
If a debt collector sues you, the first and most important step is to respond to the lawsuit, especially if you want to dispute or settle the debt. If you fail to respond by the deadline specified in the lawsuit, the debt collector may obtain a default judgment. More than 70% of debt collection cases result in a default judgment against the debtor, according to data from Pew Charitable Trusts.
A default judgment makes it harder to defend yourself in court. You may also end up paying more in fees, and the judgment will likely appear on your credit report. If you fail to comply with a court order, you could be arrested.
Being served papers for the wrong person is quite common. This can happen when two people have a similar name, or when there are multiple generations in one family with the same name (for example: Bill Smith Jr. and Bill Smith Sr.). In these instances, you must still file an answer to avoid a default judgment on your record.
Verify the debt
“It is crucial that you ensure that the debt is legitimate,” says Matt Schulz, chief consumer finance analyst at LendingTree. If you haven’t received one already, request a debt verification letter. Under the Fair Debt Collection Practices Act (FDCPA), the debt collector must provide the following information in writing:
- The name and mailing addresses of the debtor and debt collector
- The name of the creditor you owe money to and your account number
- An itemized statement of the amount owed
- Instructions and a deadline for disputing the debt
Once you have this information, check your records to make sure it is accurate. If you can’t recall the debt, make sure the debt collector is legitimate by verifying their license number with your state attorney’s general office and state regulator so you don’t fall prey to a scam.
Decide how to handle the lawsuit
There are a few ways you can proceed once you’ve been served court papers and have filed an answer. Consider getting help from a debt collection lawyer if you’re not sure which option is best for your situation.
Option one: Challenge the lawsuit
Best option if the debt collection lawsuit contains incorrect information, the statute of limitations has passed or you’ve already paid the debt.
Some common defenses against a debt collection lawsuit include:
- You believe the debt collector has violated the FDCPA
- Your state’s statute of limitations for debt collection has expired
- You weren’t properly served or never received the summons and complaint
- The debt isn’t yours or the amount is incorrect
- You already paid part or all of the debt
- The collection agency doesn’t have the legal right to sue you
- You filed for bankruptcy and the debt was discharged
If you’re wondering how to get a debt lawsuit dismissed, your best bet may be to consult a debt collection attorney. Most consumer law attorneys will offer a free consultation to discuss your options, and there are low-cost legal assistance options available if you decide you need to hire an attorney.
- Get your questions answered via LawHelp.org
- Find local representation via the Legal Services Corporation (LSC)
- Search the American Bar Association’s directory of pro bono attorneys
Option two: Negotiate an out-of-court settlement
Best option if you know your debt is legitimate and want to try to negotiate a repayment plan with the debt collector rather than go to court.
If you know you owe the debt and have the ability to pay something — even if it isn’t the full amount — you might want to consider negotiating an out-of-court settlement. Don’t hesitate to ask for help if you need it. “If you’re comfortable with negotiating, you absolutely can do it yourself, but you don’t have to. For example, a nonprofit credit counselor can be an enormous help in guiding the negotiation process,” explains Schulz.
If you’re successful, the debt collection agency may agree to drop the lawsuit. You’ll still have to pay back your debt, but potentially at a reduced amount. An out-of-court settlement is cheaper and easier than going to court, so your debt collector may prefer this option, too. Just make sure the repayment plan is affordable and get the agreement in writing.
“It is important to remember that settling a debt for less than what you owe can be extremely damaging to your credit,” Schulz cautions.
You should be wary of working with a debt settlement or debt relief company. While these companies attempt to settle your debt for less than you owe, they may not be successful or may cost you more in fees and penalties than they achieve in savings. You should also watch out for debt collection scams — for example, don’t work with a company that asks for upfront fees or promises to wipe away your debts.
Option three: Determine if you’re exempt
Best option if you have limited wages and assets.
Depending on where you live, the amount you owe, how much you make and the assets you own, you might be exempt or “judgment proof.” In some states, income from government benefit programs or retirement income is exempt from collection. Consult a credit counselor, lawyer or other expert in your area to determine whether you fit these criteria. Bear in mind, being “judgment proof” isn’t permanent, and it doesn’t erase your debt.
Option four: File for bankruptcy
Best option if your debt is far beyond your means to pay and you’re at peace with the consequences that follow bankruptcy.
If the amount of the debt is overwhelming or you’re juggling debts from other creditors as well, one option is to file for bankruptcy. Filing for bankruptcy may provide an automatic stay that protects you from collection attempts, at least in the short term. Individuals typically file one of two types of bankruptcy, depending on their eligibility:
- Chapter 7 bankruptcy: If you file, a bankruptcy trustee will oversee the sale of your nonexempt assets and use the proceeds to repay your creditors. Your remaining eligible debts will be forgiven and the debt collector will not be able to collect from you.
- Chapter 13 bankruptcy: If you file, you’ll keep your assets and enter into a repayment plan based on your income. Once you make payments for three to five years, most of your remaining debts will be discharged, provided you meet certain requirements.
Before filing, learn how bankruptcy affects your credit. Bankruptcy can destroy your credit if you currently have a high FICO Score, but it may have a minimal impact if you already have bad credit. Speak with a counselor, financial advisor or other qualified professional to understand how bankruptcy will impact your finances.
What NOT to do if a debt collector sues you
Now that you know what options you have if you’re being sued by a debt collector, let’s take a look at what you shouldn’t do.
Don’t panic
It’s easier said than done, but if you’ve been notified that you’re being sued by a debt collector, don’t panic. Instead, use that energy to do some due diligence — you need to make sure that you aren’t the target of a debt collection scam. You might be the target of a scam if:
- The debt collector is overly aggressive and issues threats regarding police or immigration.
- The debt collector demands that you make immediate payment over the phone.
- The debt collector refuses to verify your debt or their identity when you request more information.
- The debt collector requests that you pay using gift cards, money orders or money transfers.
- You receive a summons through email (real court summons are hand delivered to you, your attorney or another adult who resides with you by a process server).
Take the time to verify the debt and review your options before responding to the debt collector.
Don’t ignore the debt collection lawsuit
It may be tempting, but ignoring your debt collection lawsuit will not make it go away. In fact, doing so will only compound your problem. If you fail to answer the lawsuit, the judge may rule in favor of the debt collector by default, allowing the debt collector to:
- Collect the debt by garnishing your wages
- Place a lien on your property
- Freeze or garnish the funds in your bank account
Don’t accept liability
Any statements you make to a debt collector could be used against you in court. If you get a phone call regarding your lawsuit, don’t apologize or explain yourself (even if you know you owe the money). Instead, take notes and let the debt collector do the talking.
Don’t acknowledge that you owe the debt or offer to make a payment until you’ve verified that the debt collector has the legal right to collect. That includes ensuring the debt isn’t expired. “The debt could be old enough to have passed the statute of limitations for collections,” explains Schulz. “But if you’re unaware of that and you make a payment or agree in writing to make a payment, it could “restart the clock” on you, making that debt collectable again.”
Don’t give out your bank account information
Do not, under any circumstances, give out your bank account information. If you give the debt collector your bank account information, it might begin withdrawing money. Keep this information to yourself until you’ve responded to the lawsuit and made further arrangements.
Don’t immediately sign on with a debt settlement service
If you can help it, avoid hiring a debt settlement service. Debt settlement services are usually for-profit companies, and many of the things the company does you can do yourself for free. It’s also not guaranteed that the service will be successful in lowering your debt or that your creditor will agree to work with them at all.
Additionally, using a debt settlement service affects your credit in a negative way. When you use a debt settlement service, you stop paying your creditors and instead put those funds in an account. The debt settlement service then uses that account to negotiate with your creditor. In the meantime, however, your debt will continue to rack up interest and late payments will be added to your credit history.
Most importantly, working with a debt settlement company won’t protect you from debt collection lawsuits. Debt settlement may help you avoid a bankruptcy on your public record, but there’s a risk you’ll end up even deeper in debt and with a lower credit score. Before considering a debt settlement service, you may want to attempt to negotiate with the debt collector directly. A nonprofit credit counseling agency can help you understand your options and even negotiate with your creditors on your behalf.
Frequently asked questions
Lawsuits are an expensive hassle for everyone involved, including the company you owe money to. To avoid such hassle, your creditor might not sue you if you owe a small amount of money or if your state has strong laws that favor debtors’ rights. However, there are no hard and fast rules regarding the minimum amount you must owe before a debt collector will sue you. If you are seriously delinquent on a debt, you are at risk of being sued.
Yes, you can sue a debt collector for harassment. You can also stop a debt collector from calling you by notifying them in writing, even if you don’t want to sue. Keep in mind, this won’t erase your debt or prevent a debt collection lawsuit.
Under the Fair Debt Collections Practices Act (FDCPA), debt collectors may not call you before 8 a.m. or after 9 p.m., use obscene language, threaten you with harm or post information about your debt online. If a debt collector breaks these rules, you may be able to pursue a case.
Yes, you can be sued for old debt, as long as the debt isn’t time-barred. Under the FDCPA, a debt collector can’t bring a lawsuit against you if the statute of limitations on debt in your state has passed. However, the debt doesn’t disappear — in most states, the debt collector can still try to collect. It’s also important to note that making a partial payment may reset the statute of limitations, meaning the creditor can then sue for the remaining balance.
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