Calls, mailings or lawsuits from debt collectors: all things most people would prefer not to deal with. But they’re more common than you might realize. According to the Consumer Financial Protection Bureau, more than 70 million Americans have dealt with debt collectors, and around 25% felt threatened during their dealings with such agencies.
The type of language some collection agencies use can spark fear. When you’re served with a lawsuit and threats to your wages, bank accounts and other assets, the urge to ignore the issue and hope it miraculously goes away can be strong.
But understanding what happens when you get served papers for debt and what steps you can take to legally defend against a debt lawsuit can make a huge difference. First, make sure you understand your rights. Then, check out these seven things you can do when sued for a debt to find out how to win a debt collection lawsuit or protect your assets when possible.
1. Respond to the Lawsuit or Debt Claim
The number one mistake borrowers make when they are sued for a debt is failing to respond to the notice, which usually arrives in the form of a summons and complaint. If you owe the debt and can’t pay it, you may assume there’s not much you can do. If you fail to respond, however, the collection agency will get a default judgment against you. That opens up new avenues of collection for them, including wage garnishment or the ability to take money from your bank account, depending on state law. Worse, the collector may be able to add attorney’s fees, court costs or interest to the balance. In some cases, the balance can double or triple due to these additional costs.
Responding to a debt collection lawsuit, then, is a must.
Once the plaintiff (the collection agency or creditor) files a lawsuit, the matter is put before the court. That means you can’t simply respond via phone or letter to the plaintiff. You have to respond via legal briefs called an Answer. Some tips for doing so include:
- Don’t admit liability for the debt; force the creditor to prove the debt and your responsibility for it.
- File the Answer with the Clerk of Court.
- Ask for a stamped copy of the Answer from the Clerk of Court.
- Send the stamped copy certified mail to the plaintiff.
You must respond within the time period set by the lawsuit summons, which is typically 20 to 30 days from the date on the notice. Missing the deadline for a response can lead to the same consequences as ignoring the matter entirely, so act as soon as possible. According to the Consumer Financial Protection Bureau, once a judgment is entered, you may be unable to dispute the debt from that point on.
2. Challenge the Company’s Legal Right to Sue
One way to respond to a debt lawsuit is to challenge the plaintiff’s right to file the lawsuit. By the time a debt reaches this point, it has often been sold—sometimes more than once. The entity that owns the debt and is pursuing a lawsuit against you is legally required to show proof that they have a right to do so.
If you don’t respond, judges aren’t going to seek this information on their own and the court will consider your silence on the matter as an admission of responsibility for the debt. However, if you ask for documentation in writing or during a hearing, the judge is likely to back your request.
The plaintiff must provide:
- A credit agreement signed by you
- Documentation of the chain of custody of all paperwork—in short, proof that the paperwork is accurate and came from the original creditor
Plaintiffs that can’t provide this documentation may not have the standing to bring the lawsuit. Judges often dismiss debt lawsuits because of this.
3. Push Back on Burden of Proof
One thing that happens when you get served papers for debt is that the burden of proof rests heavily with the plaintiff. That means the person suing you has to prove:
- That you are responsible for the debt
- That they have the right to sue you
- That you owe a specific amount
Requiring proof of the amount you owe can be one way to defend against a debt collection lawsuit.
For example, if a collection agency is suing you for $4,000 related to a credit card account, you should ask for documentation that starts with the opening of your account and ends with the last activity on the account. The goal is to demand that they account for every dollar they say you owe by showing:
- The balance was increased when you made purchases
- The balance was increased via fees and charges that were a part of the original credit agreement signed by you. If you didn’t agree to fees, they don’t have standing to sue you for them
- The current balance is accurate and reflects all previous payments and adjustments
Because accounts often change hands multiple times before a lawsuit occurs, it’s not uncommon for this type of documentation to be impossible for creditors to drum up in a timely manner. That can result in a dismissal of the lawsuit or an agreement for a settlement at a much lower total.
4. Point to the Statute of Limitations
Statutes of limitations govern how long creditors have to bring a lawsuit regarding a debt. The rules vary by state and even situation, but typically the laws provide a range between four and six years in most cases. The beginning of that time period usually starts on the last day you were active on an account.
Activity is often defined as making a payment or drawing funds from an account. For example, the last time you used a credit card to make a purchase or made a payment on the balance of the card. You can review a guide to the statute of limitations on debt in each state to better understand the time line on your debt.
Because making a payment on an account can restart the clock for your debt, it’s a good idea to seek legal advice about your situation before you agree to make any payment on a debt. Some collection agencies get robust about efforts to collect even a small sum to extend the time line so they can file a suit later.
5. Hire Your Own Attorney
When you’re already faced with debt that you may not want to—or be able to—pay, incurring additional legal expenses often sounds like a bad idea. But consulting with an attorney helps you understand all your options in defending against a debt collection lawsuit. Many attorneys who offer this service also offer free consultations.
The benefits of a free consultation include:
- Knowing whether there areoptions you can pursue
- Understanding whether the benefits are worth the legal costs
- Hearing an unemotional third party discuss your situation, which puts it into helpful perspective
Plus, attorneys who believe the creditor has acted illegally may take your case without compensation from you. That’s because if the court determines the creditor acted outside of the law, it might order the plaintiff to pay all legal fees. That includes paying your lawyer.
6. File a Countersuit if the Creditor Overstepped Regulations
Debt collectors that violate the Fair Debt Collection Practices Act may be on the hook for more than your legal fees. Consult a lawyer about this step, but if the creditor has engaged in violations, you may be able to seek compensation for any related damages.
7. File a Petition of Bankruptcy
If you owe a debt and can’t pay it and you’re experiencing other financial distress, bankruptcy might be the right option. When you file a petition of bankruptcy, an automatic stay occurs. That means that all debt collection activity must cease and desist while the bankruptcy is handled.
Bankruptcy has large ramifications for your financial status and credit, but in some cases, it can be a first step toward a clean slate and rebuilding your credit. It’s not always the right response to every debt-related lawsuit, but if you think filing for Chapter 7 or Chapter 13 bankruptcy might be right for you, talk to a lawyer as soon as possible. If you wait until just before the date of any hearing related to a lawsuit, your attorney may have to file an emergency bankruptcy petition, which can be more expensive.
Whatever decisions you make about defending against a debt collection lawsuit, remember that your financial history continues to develop your entire life. You can keep an eye on your credit score and understand how this legal activity impacts it by getting your free score on Credit.com.