The Most Important Things to Know If You Get Sued by a Creditor
June 30, 2014
Getting sued by a creditor starts a very fast-ticking time bomb. You should and you CAN prevent this bomb from going off.
A Lawsuit Should Catch Your Attention AND Spur You to Action
For certain economic reasons, most conventional creditors don’t sue you as quickly as they legally could. That means that if you are getting sued you are very likely in some significant financial trouble. Even if you feel like there is nothing you can do, there almost always is, and you owe it to yourself to treat it as a wake-up call. You will feel better if you are proactive and at the very least understand your options, instead of just avoid the situation out of understandable fear or embarrassment.
Most debts that people get behind on are at some point—often quite quickly—assigned by the original creditors to collection agencies. This can happen two ways. Either the creditor still owns the rights to the debt and the collection agency simply gets a percentage of what it collects, or the creditor sells all of its rights to the debt to a collection agency and then is legally no longer in the picture.
Either way, the collection agency then tries to get you to pay the debt. In most situations it is reluctant to sue you—at least at first—because a lawsuit costs it money that it doesn’t know if it will ever recoup from you. Instead—again at least at first—it will tend to aggressively contact you and try to make you pay whatever it can. Depending on the facts of the situation—including whether you have a job or real estate or other assets—the collection agency will then decide whether it’s worth suing you. If you ARE sued, there’s a good chance that the collection agency believes it can force payment from you by garnishing your paycheck or bank account, or by putting a lien on your home or by attaching other assets. Once you are sued, the collector has upped the ante and is signaling that it believes investing in a lawsuit is worthwhile to it.
This is a signal you need to pay attention to right away.
The Game Collectors Play
Collection agencies act out of their own self-interest. They don’t generally sue you without doing a cost-benefit analysis: they don’t invest the cost of a lawsuit without thinking that the odds are good that they’ll get a decent return on that investment—getting those costs repaid and the debt as well. After all, a collection agency that wastes too much of its money on lawsuits that don’t pay off won’t be in business long.
So if you’re sued, most likely the collector has its eyes on one or more potential ways it expects to force you to pay—such as a paycheck to garnish, or some real estate to put a lien on (to foreclose on or get paid when you sell or refinance). Even if you are not working now, your prior work history may make you a decent target. The collector has decided it would benefit from forcing you to pay the debt by court order and enforcement—through garnishment, forcing you to appear for a judgment debtor examination, placing a judgment lien on your real estate, and such.
In fact the collection agency is banking on you not taking the lawsuit seriously enough. The sad truth is that a large majority of the time people don’t respond to lawsuits so that judgments are entered against them by default. The collector is hoping to get a judgment against you, and then to use the force of law to start grabbing your income and your assets.
How to Beat Collectors at This Game
Don’t assume that there is nothing you can do. Don’t take the seemingly common sense but wrong approach that you owe them the money and so you have to take whatever they dish out. Find out what they can and can’t do to you, and how you can protect yourself. And do that before the time expires and the creditor or collection agency gets its judgment against you.
Don’t let your creditors take advantage of you and your lack of knowledge. Most consumer or bankruptcy attorneys will give you a free consultation with honest advice about your options. Learn what’s best for you in light of your own personal goals and hopes. You can and ought to have a proactive game plan.
Timing is Absolutely Crucial
When you find out you’ve been sued, there is very little time to respond. If you don’t in time, you lose the lawsuit “by default.”
The judgment that results is much more than simply an admission that you owe the debt. The formal complaint in most creditor lawsuits consist of a statement that you owe a debt, and now owe the full balance, plus the interest accrued so far and into the future, plus whatever attorney fees and other costs paid by the creditor/collector to sue you.
Letting a default judgment be entered against you makes you forever legally liable based on whatever allegations the creditor put into its complaint, even if inaccurate or not supported by your contract or by the law.
The complaint may include admissions that can be even more dangerous, for example, that you incurred the debt through fraud, potentially making the debt not dischargeable even in bankruptcy.
Reasons to Not Allow a Default Judgment
Quickly see an attorney as soon as you are sued because:
a) You should understand the consequences of the lawsuit, and your options for dealing with it. Know what your options are instead of assuming you have none.
b) You may have defenses so that you don’t legally owe the debt after all. Collection agencies routinely try to collect debts on which the statute of limitations has expired. They can sue the wrong person. They may include allegations which are not accurate or supported by law.
c) You may have a counterclaim—an argument that the creditor acted illegally in some way and actually owes you money for damages. At the least this could give you leverage to settle the debt under much better terms.
d) Once the time to respond expires and a judgment is entered, it is too late to deny the allegations in the complaint.
e) By having an attorney review the lawsuit and your overall debt picture, and discuss your options, you may end up solving deeper problems. Most consumers do not have an attorney who they talk with regularly. So problems accumulate. You don’t have a chance to ask questions when they arise. This often leads to lots of confusion and anxiety. Seeing an attorney about a pending lawsuit could lead to addressing how to improve your entire financial life.