If your old debts have been turned over to a collection law firm and you’ve been avoiding their letters, calls and other attempts to collect your debt, don’t be surprised if the firm takes legal action with a lawsuit.
Editor’s note: This article picks up where our article, Collection law firms: Things could be about to get real, leaves off.
While it’s not the end of the world, and you probably still have time to resolve the debt before heading to court, it can be scary and overwhelming.
Here’s what happens when a debt collector sues you for payment and the necessary steps you’ll need to take to resolve the matter quickly and, hopefully, without going to court.
When does a debt collector sue?
If you have old, unpaid debt, whether it’s medical debt, utility bills or credit cards, it’s possible the debt collector that is handling your account could sue. Typically, this doesn’t happen until your debt has become delinquent, then gone into collections and been there for a few months. In other words, it takes some effort on your part to avoid dealing with the matter by the time a collector decides to sue.
“There are opportunities to keep from being sued for an unpaid debt,” said Michael Bovee, who has worked in debt resolution for more than 20 years and is the co-founder of Resolve. “You can get help prioritizing creditors by who is most likely to sue, and how to use available and predictable monthly cash flow to negotiate a settlement, or payment outcome, that keeps you out of court.”
By the time your debt goes to court, there’s likely a very good paper trail documenting the original creditor’s efforts to get your payment, along with the debt collector’s attempts to communicate with you. If you continue to avoid the matter or don’t respond in time to a collector’s suit against you, it’s very likely the creditor or collector will win and may be able to garnish your wages or go after any assets you may have.
How common is suing to collect debt?
It turns out debt lawsuits are pretty common, particularly among debt buyers who purchase delinquent debt from the original creditors.
Debt buyers are willing to risk investment capital to buy the legal rights to collect debts that have not been paid for many months,” Bovee said. “They use your phone and mailbox to try and collect at first, but some then send an overly large portion of the accounts they purchase to a network of collection law firms around the country with authorization to sue in order to collect.”
An intensive, years-long investigation by ProPublica published in 2016 found the following:
- Four million Americans had their wages garnished over consumer debts in 2013, and workers earning between $15,000 and $40,000 a year were the most likely to experience a garnishment.
- Black communities are hit much harder by debt collection lawsuits than white ones, even in places where black households and white households have similar incomes.
- One subprime lender with stores nationwide was seizing pay from active-duty soldiers when they fell behind on overpriced loans. (The company subsequently went out of business.)
- Some public and nonprofit hospitals use the courts to collect from patients who can’t pay their bills, even when those patients obviously qualify for financial assistance.
- Capital One sues its customers way more than any other bank and filed an enormous number of suits during the 2007–2009 recession.
ProPublica also found that where you live can have a big impact on whether a debt collector ends up suing. The cost of filing a suit “can cause a huge difference in the number of collection suits filed from state to state,” according to the report.
What happens when a collector sues?
It’s a pretty straightforward process. The debt collector (or the original creditor in some cases) files a complaint with the state civil court where you live, naming you as the defendant (along with your co-signer if you have one. Authorized users are not included in these cases.). The complaint will outline why you are being sued and the type or relief the collector or creditor are seeking. Most often, it’s money, plus any interest and possibly attorney’s fees and court costs.
The collector will then notify you of the suit through a court summons, which will include information about what is being sought through the suit and any pending hearing date. As we said earlier, if you don’t respond, the case will go to court anyway and the collector will very likely win a judgment against you. At that point, they’re able to take action against you, including garnishing your wages, putting liens on your real property and even taking money from your bank accounts.
“These collection law firms have it easy when the majority of people they sue do not respond,” Bovee said. “If you ignore the suit, or fail to show up for a hearing in court (as many do), you typically end up with a default judgment against you. But by responding to a lawsuit, and showing up to court, you can keep your options open, and buy time to come up with a strategy to resolve the issue.”
What to do when you receive a summons
The first thing to not do is panic or ignore the matter. There are two approaches to take here:
1. If you owe the debt
If you recognize the debt and know that you owe it, it can be worthwhile to contact the collection law firm and see if you can come to an agreement.
You can offer to set up a payment plan or offer to settle the debt in a single payment for less than you originally owed. If you take this approach, it’s important to get your agreement in writing.
If your financial situation makes it impossible for you to pay the debt, you may be able to seek debt relief through bankruptcy. You’ll want to reach out to a bankruptcy attorney to review your situation and see what kind of bankruptcy may be best for you.
2. If the debt isn’t yours, is inaccurate or is too old to collect
Chances are, if you don’t recognize the debt at all, it could be a mistake. You’ll want to review your records and compare those with anything you may have received from the collection law firm substantiating their claim. Keep in mind: Even if the debt is yours, your original debt could have been purchased by debt buyers several times over, meaning the record keeping could be incorrect, so the amount could be different than your records.
By the time you receive a summons, your debt could also be too old to collect. Every state has a statute of limitations dictating how long debt collectors have to seek payment, so it’s important to check with your state attorney general’s office to find out what that limitation is and if your debt is “time-barred.”
The Federal Trade Commission advises the following in cases of suits involving time-barred debts:
“You still need to respond. Consider talking to an attorney. If you ignore a lawsuit, the collector could get a court judgment and garnishment against you. Tell the judge the debt is time-barred, and show a copy of the verification notice from the collector or any information that shows the date of your last payment.”
Once you’ve reviewed these things, you’ll know exactly who the original creditor was (if it is, in fact, your debt) and whether it is past your state’s statute of limitations.
In most states, you have 20 to 30 days from when you receive your summons to file a response, so don’t delay in getting your paperwork together.
“Many of us are going to feel uncomfortable talking with creditors and debt collectors in this situation,” Bovee said. “It is important to be prepared with all communications during a lawsuit. If you are not confident, or feeling up to the task, there are resources available to help.”
How to respond to a lawsuit
As we’ve said a couple of times now, it’s important to act and do so quickly. Avoiding a response will likely result in a court order against you.
“The National Association of Consumer Advocates is a great resource for skilled consumer law attorneys around the country,” Bovee said. “Many of their members have experience with debt collection defense. There are also attorney partners available to you through Resolve.”
An attorney will be able to review your case and find potential defenses you may not have known were possible. They also can help you write your formal response and even represent you in court if your case warrants that.
“Sometimes just talking with a debt defense attorney can help you understand the value of defending a lawsuit, or why a payment plan is the best path forward given your situation,” Bovee said. “Being sued is often a daunting experience, and you are likely experiencing something like this for the first time. Knowing what you are up against will make deciding your next step easier. You do not have to go it alone.”
Do you have to attend the hearing?
If you’ve hired an attorney, he or she may be able to represent you in court and you won’t have to attend the hearing, but showing up is critical. It’s your only chance to defend yourself and try to work out a deal with the collector or creditor. How you’ll proceed will, of course, depend on whether or not you legitimately owe the debt you’ve been sued for.
Possible defenses if you owe the debt
Even if you incurred the debt, there may be defenses in which you have standing to refuse to pay. Affirmative defenses allow you this refusal in cases such as buying a defective product, your contract or purchase agreement was illegal (or you signed under duress or were presented with false information) or you canceled the contract or agreement within a lawful timeframe.
“Some collection suits are filed without the ability to fully substantiate all claims made, or at least to the satisfaction of the court when pressed,” Bovee said. “An attorney of your own can prove invaluable in this regard. Some suits can settle for better than average savings based on the help you receive.”
Possible defenses if you don’t owe the debt
The burden of proof is on the plaintiff, so if you don’t owe the debt, you don’t have to prove that you don’t, but the collector or original creditor must prove that you do in order to win their case. If they can’t, your case likely will be dismissed.
How Resolve can help
If you’re dealing with debt and not sure what to do, we’re here to help. Become a Resolve member and we’ll contact your creditors to get you the best offers for your financial situation. Our debt experts will answer your questions and guide you along the way. And our platform offers powerful budgeting tools, credit score insights and more. Join today.