Five Steps to Take If You’re Sued By a Creditor
The following is presented for informational purposes only and is not intended as legal advice. Please consult with a qualified attorney for assistance with your unique situation.
If you receive a letter that you’re being sued by a creditor, it can be terrifying. You may think you’re about to lose everything since you can’t afford to pay off your debt. Or you may be thinking about your wages being garnished for years to come and how that will affect your current lifestyle. You may also be thinking about all the added court costs, attorney fees, and other costs associated with the lawsuit.
Before panic truly sets in, take a deep breath and pull yourself together. There are some things you can do to keep this bad situation from getting worse.
1. Don’t ignore the letters
Sometimes people can’t quite bring themselves to face bad news, and so hesitate to open or respond to important letters. If you start receiving letters from a creditor, respond to them as soon as possible – ideally, before you’re served with a lawsuit. If you’ve already been served, don’t ignore it. The lawsuit will go forward with or without you appearing in court and if you’re not there to defend yourself, the judgment will very likely go against you. Once this happens, your options become extremely limited because the court has already determined that you owe the full debt and any fees.
2. Don’t blindly accept liability
Even if you do owe the debt in question, be cautious before admitting liability. Collectors will often add fees and escalated interest charges that can make it difficult to know what you really owe. If you admit you’re liable from the start, you’re admitting full responsibility and may have a difficult time settling for a lower amount in court.
Instead, you may be better off not accepting liability and gathering more information. Issue a response stating that you are not aware of the debt and ask for a copy of your full account statement. You will need this for your records in court and they will need it to sue for the entire balance. If they can’t provide it, or you find that there are discrepancies, they may be more willing to settle.
Also, research the statute of limitations on this kind of debt in your state. If this date has passed, there’s a very good chance you’ll be able to successfully challenge the validity of the lawsuit.
3. Try to settle
A lawsuit costs the creditor time and money. Because of this, they may be more interested in settling instead of going to court. If they can prove you owe the full debt and if the statute of limitations hasn’t expired, discuss a settlement offer with them before going to court. Provide proof of your income and offer a settlement that you feel is fair to both parties. There’s a good chance they may accept it.
4. Keep diligent notes
Keep notes of when and how you received your suit papers, gather copies of all the documentation you currently have on the account, and request a copy of your account statement. The more organized you are, the better prepared you’ll be to respond. Also, gather copies of your most recent paystub and your latest tax return. These can be used in court to show you can’t afford to pay off the debt.
5. Talk to a lawyer
Even if you don’t hire one, it’s a good idea to at least have a consultation with a lawyer that specializes in collection lawsuits. Gather all the knowledge you can about how long you have to file a response and how a judgment can impact you. It’s important to know your options.
Once you’ve taken all of these steps, and if the creditor does not agree to a settlement, be sure you show up for your appointed court date to dispute your case before a judge and show proof of your income. If you don’t show up, the case will be decided in favor of the creditor and you will have lost any negotiating power. But if you show up to defend yourself, the judge will most likely seek to find a compromise that both parties can live with. It may not be ideal, but there’s a good chance it will at least be better than the worst case scenario.
If you’ve begun to fall behind on your debts and you’re worried about the potential consequences, take an hour to speak with a trained credit counselor. They can help you assess your situation and discover resources to help you overcome your current challenges. Don’t fall further behind – the sooner you act, the more options you’ll have!
Article updated June 2020