Did you know that it is less than likely that you will be sued by a debt collector in your lifetime? Less than 15% of Americans have been sued by a debt collector. Still, 15% of 331 million people is almost 50 million. And 70% of that 50 million end up losing because they don’t take the lawsuit seriously or don’t respond to it. What should you do when a debt collector files a lawsuit against you?
If a debt collector files a lawsuit against you then hopefully there has been a mistake made. What is more likely is that your financial illiteracy and irresponsibility have caught up with you. (Sorry – you are often the cause of your own suffering in life.)
When a Debt Collector Files a Lawsuit Against You (How to Get Sued)
Americans collectively owe over $16.5 trillion in personal debts. Or about $96,400 in debts per household. Meanwhile, the average American brings home about $1,000 weekly or about $52,000 annually. (And that is before taxes.)
So, if you don’t control your finances, you can easily fall into a debt quagmire. But even then, many Americans learn to live with debt. There are even federal laws that can help you get out of or stay in debt.
Depending on the state that you live in, there is a debt collection statute of limitations. It can last anywhere between 3 to 14 years, but the average is 5 to 6. What that means is that if the debt collector has not collected the debt within the statute of limitations, they have to leave you alone.
And can’t sue you either. But you still owe the debt.
The law is not designed to help you weasel out of debt. It is supposed to cut down on debt collector harassment, protect wrongly accused debtors, and give those with debts time to get their affairs in order.
There are two ways to start the debt collection clock ticking again; you either have to answer a debt collection inquiry or be sued by a debt collector. A debt collector could sue to get more time to collect their debt.
Or, you may just owe an egregiously large amount of money.
Here are seven immediate steps to take when a debt collector files a lawsuit against you.
Take It Seriously
When a debt collector sues you, they are trying to get a judge to agree with their actions and force you to pay a debt.
If a debt collector files a lawsuit against you, take it very seriously and don’t ignore it. Many people think a debt collector lawsuit is a joke and don’t respond. Ignoring it won’t make it go away.
Not showing up in court, or having an attorney represent you, could result in a default judgment against you. The court could grant the debt collector the right to garnish your salary, freeze your bank accounts, and even place liens against your assets and properties.
Depending on where you live, once a court rules against you, you won’t be able to dispute the debt or judgment again.
It will cost you a lot more in legal bills to deal with such an outcome.
Send a Legal Response
If you are served with a debt collector lawsuit, you must answer promptly.
You must send a written response. In it, don’t admit guilt. State that you challenge the lawsuit. It must be stamped by a courthouse clerk and then sent to the debt collector’s lawyer.
You may need to get your own legal representation as well.
Get an Attorney
When a debt collector files a lawsuit against you, get an attorney. They will understand debt-related laws in your state more than you and could help you resolve the issue.
A good attorney may even be able to settle or end the problem before it reaches a judge.
The Legal Services Corporation has a website where you can find a free lawyer or one who serves low-income clients near you. You can also use LawHelp.org. Some of the lawyers at LawHelp.org may also offer a free online consultation.
Or, you can find one to hire at the American Bar Association listing. Make sure that they have expertise in debt collection and consumer laws.
Challenge the Legitimacy of the Debt
When a debt collector files a lawsuit against you, you or your lawyer can demand that the debt collector physically prove their case.
Debts are sold and resold numerous times. You may get harassing calls from debt collectors for months or years by collectors who sold your debt to successive collectors.
Demand documentation proof and signatures verifying that the debt collector owns your debt and that you owe them. They have to verify how much you owe and that you specifically owe it.
If your debt was sold to a new collector numerous times, the current debt collector suing you may not have any paperwork proving that you owe the debt.
Prove Statute of Limitations
Find out the statute of limitations for debt collections in your state.
Your debt collector may not be legally able to collect the debt. They may even be launching a lawsuit to legally reset the clock on collections.
Consider Settlement
If there is any chance that you could lose, have your lawyer negotiate settlement talks.
A debt collector would rather get a face-saving reduced settlement from you than lose in court.
File Bankruptcy
This should be your absolute last option.
After filing for bankruptcy, you don’t have to pay personal debts. But filing for bankruptcy will tear your financial life apart. It will be on your credit report for a decade. And this decision will affect every financial decision going forward.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.