What to Do if You’ve Been Sued by A Creditor

Don’t deal with a lawsuit by disregarding it but rather by using it as a great incentive to take charge of your financial life.

If you are behind on paying your creditors and are sued by one of them, you’re likely in pretty tough financial shape. Usually collection agencies and creditors chase you with phone calls and collection notices for months before filing a lawsuit.

So if you’ve just been sued, you very likely don’t have the money to pay the debt being sued for. You likely figure there’s not much you can do about the lawsuit. You may also think that there’s nothing that you should do, because the court will just confirm what you already know, that you owe the debt. Because you think there’s nothing that you can or should do, you do nothing.

But Doing Nothing Will Likely Hurt You 

Lawsuits cost money for the creditor to process and file. So getting sued tells you that the creditor has decided that paying the costs of suing you is a good bet for it.  It thinks that the lawsuit will help get the debt paid. The creditor likely even has in mind specifically how it expects to get paid.  It may well be targeting your bank account, your paycheck, your home, or some other income or asset.   

The creditor is also betting that you won’t do anything about the lawsuit papers after receiving them. Or at least you won’t in time to prevent the lawsuit from turning into a judgment against you.  Most people don’t. They don’t for the same reasons that you’re tempted not to—thinking that they can’t do anything about it, and that the lawsuit isn’t going to hurt them anyway.

So the creditor is betting on you allowing them get a “default judgment,” a court determination in the creditor’s favor of the creditor which happens if you do not formally reply to the lawsuit on time.

But the judgment usually do hurt you, and do so quickly. A judgment often enables the creditor to start grabbing your money and your assets, through orders of the court, sometimes in ways you might not expect. That is reason enough to find out how a judgment can hurt you, and what you can do to protect yourself. 

A Judgment is More than Just an Admission that You Owe the Debt

A judgment also has longer-term consequences. A judgment gives the creditor serious advantages.  Once the deadline to respond passes and a judgment is entered, you’ve give up on some important rights:

a) Your right to raise possible defenses.  Creditors and collection agencies often simply don’t care whether the debts they are pursuing are legally valid. Since in the vast majority of the time consumers don’t respond to lawsuits and judgments are largely rubberstamped by the courts, there’s not much incentive for the creditors to make sure that they have the right to sue you. You need to have an attorney review the lawsuit to find out if you have any defenses, such as whether the statute of limitations on the debt has expired.  After the judgment is entered against you, it is impossible or at least extremely difficult to raise any such defenses.

b) Your right to raise counterclaims.  A counterclaim is your argument that the creditor acted wrongly in the way the debt was created or collected. Counterclaims show how you have been legally damaged, entitling you to compensation. But a default judgment against you either waives your right to bring a counterclaim or takes away the counterclaim’s leverage when it would do you the most good.

c) Your right to dispute facts.  The debt could become more difficult to write off in bankruptcy after a judgment is entered, if certain facts are alleged in the lawsuit and then considered admitted by your lack of a response.  This could put you at a serious disadvantage if you ever need to file bankruptcy.

Don’t Do Nothing When You Have a Sensible Alternative

Since getting sued is serious, so you need to know its likely consequences, and your options. By the time you get sued, most likely you have other debt problems and need to get advice about how best to deal with your whole financial picture. Most attorneys who deal with debt problems will give you a free initial consultation about your lawsuit and about your broader situation.

So, if you get sued, don’t wait but instead look through attorney websites, set up a free consultation with at least one of them well before your deadline to respond to the lawsuit. Then you can make some informed decisions about getting beyond this lawsuit, and to an infinitely better financial life.


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