I Just Got Sued by a Creditor . . . What Do I Do Now?

Getting a lawsuit filed against you by a creditor starts a very fast-ticking alarm clock. Don’t hit the snooze button on this one.

Here are the realities:

#1: Most conventional creditors don’t sue very quickly. So the fact you are being sued usually means you are in pretty serious financial trouble.

The vast, vast majority of debts that go into default don’t stay with the original creditors. They are assigned to collection agencies. Sometimes the creditor continues to own the rights to the debt, and the collection agencies just gets a percentage of what it collects. But much more often these days creditors sell all the rights to their non-performing debts to collection agencies, at a steep discount. The collection agency then pounds on you to pay the debt. It is often reluctant to sue you because doing so is relatively expensive, and requires putting out cash it may well never get back from you. Instead it will aggressively contact you and badger you into paying whatever it can get out of you for a period of time, and will then often turn around and sell the remaining debt to another collection agency, at an even steeper discount. Once a collector resorts to suing you, it’s admitting that getting money out of you by other means has not been working. That usually means that you truly can’t afford to pay the debt, and that it will only get money out of you if it is forcibly taken from you.

#2: Although you may feel powerless when you get served with a lawsuit, and are tempted to do nothing about it, that is almost never a good idea.

Collection agencies are not stupid. Your collector does not invest in the cost of a lawsuit unless it thinks it stands a good chance of getting a decent return on that investment—meaning your money in its pocket. A collection agency that makes too many wrong bets will soon be out of business. The ones that are in business know what they are doing. If you get sued, there’s a good chance the collector has its eyes on some specific target of yours that will get it paid—a paycheck to garnish, some real estate to put a lien on, or even a rich relative for you to beg from. The collector counts on your avoidance behavior so that it can get a judgment against you, and then to use the force of law to start grabbing your earnings and/or assets. Beat them at this game by finding out what they can and can’t do to you, and how you can protect yourself, preferably BEFORE they get their judgment,. Don’t let your creditors take advantage of you and your fear.  Most consumer or bankruptcy attorneys will give you a free consultation with honest advice about what’s best for you in your specific situation There’s no good reason not to find out your options and have a proactive game plan.

#3: Once you are served with a lawsuit, you have very little time to respond. If you don’t in time, you lose. The resulting default judgment is much more than simply an admission that you owe the debt.

Most collection lawsuits consist of a statement that you owe a debt, have not paid it according to its terms, and now owe the entire balance, plus ongoing interest, and the attorney fees and costs to bring the lawsuit. Most debtors’ reactions to this is, “yeah, I know I owe the money, so what’s the point of fighting it?” Here are some simple reasons you owe it to yourself to quickly see an attorney about the lawsuit, again preferably before the deadline expires and a judgment is entered against you.

a) You need to understand the consequences of the lawsuit, and your options for dealing with it. A lawsuit is a serious matter. You should not be flying blind about how it can affect you, and what you can do about it.

b) You may have defenses. Collection agencies routinely try to collect debts on which the statute of limitations has expired. They can sue the wrong person. It is worth having an attorney look over the paperwork for any such defenses.

c) You may have a counterclaim—an argument that the creditor did something wrong and owes you money for damages. These can be based on the creditor’s collection behavior, or the way the debt was entered into, and could result in a favorable settlement for you.

d) A lawsuit may include allegations beyond the usual ones about you owing the debt, which could restrict your options later. Once a judgment is entered, it is too late to deny the allegations upon which it is based.  The debt thus could become much more difficult to address in a future bankruptcy, for example.

e) Having an attorney review the lawsuit gives you the opportunity to think about it as part of your overall debt picture. Many consumers do not have an attorney who they can talk to on a regular basis. So problems accumulate and questions aren’t asked. That can lead to a tremendous amount of confusion and anxiety. Seeing an attorney about a pending lawsuit should lead to a discussion about how addressing it fits in with everything else going on in your financial life.