Sued by Debt Collectors? Here’s What to Do — And What to Avoid
When you are months past due on debt, your creditor may assign or sell the debt to a third-party debt collection agency, which will attempt to collect it. In extreme cases of nonrepayment, you may find yourself sued by the debt collector.
If you’re confused about the call and aren’t sure how to respond, follow the guidelines outlined below. Whether the lawsuit is legitimate or a scam, here’s what you need to know if you’re being sued by a debt collector.
In this guide:
What to do if a debt collector sues you
Here’s a list of actions to take:
Verify the timeline of events
If you’re being sued by a debt collector, you should understand what the process generally looks like – though the exact timeline varies from person to person. If your experience doesn’t match at all what’s below, you’ll want to verify the debt and the legitimacy of the debt collector to avoid a debt collection scam.
- You receive a phone call or letter in the mail from the debt collector notifying you of the debt collection. This typically occurs when a debt is 180 days past due.
- 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 think you owe the debt in question, you can ask the debt collector for a verification letter. They must send this letter within 30 days of the validation notice.
- If your debt is legitimate, you must respond to the debt collector and create a plan for paying off the debt. This could mean paying in full, setting up a payment plan or negotiating the debt.
- If you don’t repay or settle the debt, the debt collector can sue you. At this point, you will receive a notice from the court regarding your appearance date.
- If you fail to show up for your court date, the court will likely rule in favor of the debt collector.
- If this happens, a default judgment or court order will be placed against you. This means you could have your wages garnished or a lien placed against your property. A default judgment typically occurs 20 days after service of a lawsuit.
If you have verified the legitimacy of the debt in collections, the most important thing you can do now is respond to the debt collection lawsuit. Over the past decade, about 70% of such lawsuits end in a default judgement for plaintiffs (creditors) because defendants (borrowers) fail to respond, according to research by The Pew Charitable Trusts.
Although it can be scary to first receive notice of a lawsuit, ignoring it and hoping the debt collector won’t call again can get you in trouble.
Debt collectors aren’t going to drop a lawsuit just because you ignore it. Instead, if you miss the deadlines to appear in court, it will be significantly harder for a debt collection defense attorney to help you.
Challenge the lawsuit
Debt collectors are often third-party agencies hired by the original creditor after you default. You can challenge the lawsuit if you think the debt is illegitimate.
|Reasons why people challenge debt collection lawsuits|
|The wrong person is being sued.||Getting served papers for the wrong person is actually 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.).|
|You already paid the debt.||Sometimes, debt collection agencies are sold information with incorrect payment records, which means you could be facing a lawsuit for a debt you already paid.|
|The debt amount is incorrect.||It’s possible that even if you owe the debt in question, the amount is incorrect.|
|The statute of limitations has passed.||The statute of limitations is the amount of time that a debt collector can legally collect a debt from you. It can be anywhere from three to 20 years. The time frame depends on the state in which you’re being sued and the type of debt you owe.|
If you’re being sued by a debt collector and you disagree with any or all of the information in the debt collection lawsuit, you will want to file a response to the lawsuit in court. You will then have the opportunity to contest what’s in the lawsuit or ask the court to dismiss it altogether.
If you’re disputing the lawsuit, bring documentation such as the validation letter to show:
- Who the creditor is
- Whether the debt has been paid
- Whether the amount on the debt is accurate
- Whether the debt is past the statute of limitations
Bring evidence of violated collection rules (if applicable)
If your rights have been violated by a debt collector, you should bring evidence to court. Check the Fair Debt Collection Practices Act (FDCPA), Fair Credit Reporting Act and Truth in Lending Act for specific violations. Under the FDCPA, for example, debt collectors may not:
- Contact you outside the hours of 8 a.m. to 9 p.m.
- Engage in harassment, which could include anything from using profanity to threatening harm.
- Partake in unfair practices like threatening to take your property when they don’t have the legal right to or depositing a postdated check early.
- Contact you once you’re already represented by an attorney.
- Make fraudulent claims, such as misrepresenting who they are or how much you owe.
Decide whether to accept the judgment
There are several ways you can proceed when it comes time to decide whether or not to accept a debt collection lawsuit.
|If …||You should consider …|
|You decide to accept the judgment||Hiring an attorney|
|You decide to accept the judgment but don’t want to go to court||Negotiating an out-of-court settlement|
|You have limited wages and assets||Checking to see if you’re “judgment proof,” meaning your wages can’t be garnished|
|Your debt is so significant it’s unmanageable||Filing for bankruptcy|
Hiring a lawyer
If you accepted a judgment and you’re wondering how to win a debt collection lawsuit, your best bet is consulting a debt collection attorney. Most consumer law attorneys will offer a free consultation in which they’ll discuss your options with you.
Consider consulting a licensed debt collection lawyer, as they specialize in debt defenses and will likely give you more detailed legal advice.
Even if you don’t believe you can afford to hire an attorney, you should ask around, as many debt collection lawyers will take your case for a low or contingent fee.
|Where to get low-cost legal assistance if you’re being sued by a debt collector|
Settling the debt
Someone whose debt is legitimate can try to negotiate a debt settlement in exchange for having the lawsuit dropped.
“It’s a good option for consumers if they know they owe the debt, they agree with the amount and they can afford to pay something,” said Barry Coleman, vice president of counseling and education programs for the National Foundation for Credit Counseling (NFCC). “They might be able to work out some sort of settlement and not go to court.”
Coleman added that there’s incentive for the collection agency to do this, too, because the hassle and expense of court proceedings is also expensive for them.
Threatening to file for bankruptcy can also help if you decide to settle. This doesn’t mean you have to actually file bankruptcy, but qualifying for bankruptcy can give you leverage during a settlement negotiation.
Finding out if you’re exempt
Depending on the state and the amount you owe, people with limited wages and assets might be exempt from wage garnishment, meaning they’re “judgment proof.” Consult a credit counselor, lawyer or other expert in your area to figure out if you fit these criteria.
Filing for bankruptcy
Another option, depending on your financial situation and the size of your debt, is to file bankruptcy.
- Chapter 7 bankruptcy: If you file, all of your debts will be forgiven and the debt collector will not be able to collect from you.
- Chapter 13 bankruptcy: You might be able to negotiate a significantly lower amount to pay the debt collector, depending on your situation. Once you pay the agreed-upon amount, you can no longer be pursued by or sued by a debt collector.
Filing for bankruptcy is a major financial move with damaging effects. Speak with a counselor, financial advisor or other qualified professional before you seek out this option.
What NOT to do when being sued by a debt collector
Now, let’s examine what to avoid when dealing with this situation.
Don’t act impulsively
If a debt collector on the phone insists you must pay immediately, take a deep breath and count to 10. Don’t agree to anything or share too much information. Ask for a debt validation letter or proof of the lawsuit in writing before anything else.
Don’t be fazed by a debt collector who demands you make a payment today over the phone. Any legitimate deal should be available in several days once you’ve had time to verify that the debt collector is legitimate.
If you’d like to minimize your risk of a debt collection scam, you should wait to verify information before continuing any conversations. For example, you can hang up the phone and call back using contact information you find online or information you get from the local Secretary of State to ensure you’re speaking with a legitimate company.
Other warning signs of a scam include:
- Summons that arrive via email. These typically arrive in the mail.
- Emails from general domain accounts, such as @gmail.com, @yahoo.com, etc.
- Anything that seems unusual or unbelievable, such as a debt collector who says immigration or the police are coming for you.
- The debt collector is pressuring you to pay through an unconventional method, such as a prepaid credit card or money transfer.
Don’t ignore the debt collection lawsuit
Even though there are scams out there, it’s important to treat everything as legitimate from the outset. You will be able to figure out if a lawsuit is a scam once you do your due diligence.
If you ignore a debt collection lawsuit and the debt collector’s attorney shows up, the court will likely rule in favor of the debt collector by default. If the court orders a default judgment against you, the debt collector can:
- Collect the amount you owe by garnishing your wages;
- Place a lien against your property;
- Freeze the funds in your bank account; or
- Garnish the funds in your bank account.
Don’t accept liability
In general, avoid giving out too much information. A legitimate debt collector might ask for a few details to verify who you are, but you should be cautious about sharing more than a few personal details.
Don’t apologize or explain yourself, as you might make confessions that could be used against you in court. Plus, if you begin rambling or apologizing, you might end up talking about a different debt than the one they called about, and could potentially talk yourself into a worse situation.
Never give access to your bank accounts
Never, under any circumstances, give a debt collector access to your bank accounts.
Coleman said providing bank account information can be taken as authorization to withdraw funds.
“Once they have that information, they could certainly debit the account and take an amount that wasn’t agreed upon, which would have all sorts of consequences,” he said.
Beware debt settlement services
If you’ve decided to pay off your debt once and for all, you might come across debt settlement companies when researching how to pay off your debt in collections. Be cautious and avoid them if possible. They often leave consumers in a worse position than when they started out. Plus, debt settlement hurts your credit.
If you choose to work with a debt settlement firm, it’s crucial you understand what you’re getting into. Not all creditors will work with debt settlement companies, and you will have to pay the company a fee for managing the settlement.
A safer and potentially more affordable alternative to debt settlement is a debt management plan offered by a nonprofit organization. With this type of plan, you could work with a certified credit counselor who can help you repay your debt, as well as negotiate with creditors and debt collectors on your behalf to reduce or reverse fees and lower your monthly payments.
Being sued by a debt collector: FAQs
Can a debt collector sue you?
Yes, it’s possible to be sued by a debt collector, typically when you’re at least 180 days delinquent on your account. When this happens, it’s important to act carefully but proactively.
What happens if you’re sued by a debt collector?
The first step in this process is to set a date for your initial court appearance. If you don’t appear in court, you could suffer serious consequences, such as wage garnishment. To avoid such penalties, consider options like hiring a debt collection attorney, negotiating a settlement or even filing for bankruptcy.
Can you settle a debt after being served?
Going to court is costly for both you and your creditor, so negotiating an out-of-court settlement could be a win-win even after you’ve been served. Consider hiring a debt collection attorney with a track record of successful settlements. Qualifying (but not filing) for bankruptcy can also give you a slight advantage during debt settlement discussions because the creditor will want to recoup at least a portion of your outstanding debt.