What To Do if You’re Sued by Debt Collectors

Finding out you’re being sued by a debt collector is enough to make anyone’s heart skip a beat. But can debt collectors sue you? The answer here, unfortunately, is yes. However, resist the urge to make any rash decisions. Instead, pause, take a breath and we’ll walk you through what happens next.

What happens when a debt collector sues you

If you’re being sued by a debt collector (also known as a collection agency), you should understand what the process generally looks like, though the exact timeline varies from person to person. Be sure to verify the debt and the legitimacy of the debt collector to avoid a debt consolidation scam.

1. You receive a phone call or letter in the mail from the debt collector notifying you of the debt in collections. This typically occurs when a debt is 180 days past due.
2. 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.
3. 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.
4. You must respond to the debt collector and create a plan for paying off the debt. If your debt is legitimate, this could mean paying in full, setting up a payment plan or negotiating the debt.
5. If you don’t repay or settle the debt, the debt collector can sue you. At this point, you will receive a complaint, followed by a summons from the court.
6. After you receive the complaint, you need to respond by submitting either a “notice of appearance” or an “answer.” Be sure to follow the instructions included in the complaint and summons, paying special attention to deadlines. You may also want to consult with a lawyer.
7. If you ignore the debt collector or fail to appear in court, 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.

What to do if a debt collector sues you

Knowing what to do when you’re being sued by a debt collector might help you feel more at ease during this stressful situation. Here are some of your options:

Respond to the lawsuit

If you have verified the legitimacy of the debt in collections, the most important thing you can do is respond to the debt collection lawsuit. Over the past decade, about 70% of such lawsuits end in a default judgment for plaintiffs (creditors) because defendants (borrowers) fail to respond, according to research by The Pew Charitable Trusts.

Although it can be scary to 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.

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 respond to the lawsuit (usually by challenging it) to avoid a default judgment on your record.

Challenge the lawsuit

Debt collectors are often third-party agencies hired by the original creditor after you default on a debt. Sometimes, debt collection agencies are sold information with incorrect records; you can challenge the lawsuit if you think the debt is illegitimate or belongs to someone else.

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 can file a response to the lawsuit in court. You’ll then have the opportunity to contest what’s in the lawsuit or ask the court to dismiss it altogether.

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
• Search the American Bar Association’s directory of pro bono attorneys

Negotiate an out-of-court settlement

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. If you’re successful, the lawsuit will be dropped. 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.

Determine if you’re exempt

Depending on where you live, the amount you owe, how much you make and how much you own, you might be exempt or “judgment proof.” Consult a credit counselor, lawyer or other expert in your area to determine whether you fit these criteria.

File for bankruptcy

Another option, depending on your financial situation and the size of your debt, is to file for bankruptcy.

• Chapter 7 bankruptcy: If you file, all of your eligible 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.

Before taking such a drastic step, learn how bankruptcy affects your credit. Speaking with a counselor, financial advisor or other qualified professional will help you gain a better understanding of what bankruptcy is and how it can hinder your ability to borrow money in the future.

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 you make immediate payment over the phone.
• 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 by a process server).

Even if the debt is legitimate, it’s important to stay calm and review your options.

  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, it’ll compound your problem. If you fail to answer the lawsuit, the judge will 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 can 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 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, they 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.

Rather than using a debt settlement service, you may want to attempt to negotiate with the debt collector directly. Credit counseling with a certified professional may also be worth exploring, especially if you’re able to use a nonprofit organization.