If you fail to pay a credit card debt, the account will eventually be charged off. At that point, the credit card issuer has several options, including selling the debt to a debt buyer, or attempting to collect on the debt themselves.
Whether they hold onto it or sell it, the credit card issuer (or debt buyer) has the right to seek repayment of the debt. This might be done by sending you letters, or calling you, requesting that you pay, or making an offer to settle the debt for less.
However, creditors and debt buyers are also allowed to sue on a debt, and demand repayment. If you’re sued, and lose the lawsuit, you’re at risk of having money garnished from your bank account, or deducted from your paycheck, in the form of a wage garnishment. Needless to say, having your wages garnished, or your bank account levied, is a stressful event, both mentally and financially.
For these reasons, it is important to understand your legal options, when you are sued on a debt. Let’s review some of the most important things to keep in mind.
Please note that this is not legal advice, but rather, general suggestions. If you need legal advice for your specific case, we suggest consulting with an attorney.
Responding To The Lawsuit
Perhaps the most important thing you can do is respond to the complaint – the legal document filed with the court, initiating the lawsuit. The complaint document which states why you’re being sued, and what the debt collector is seeking in damages. If you fail to respond to a complaint, the attorneys for the creditor or debt buyer can move for a default judgment.
A default judgment means that since you did not respond to the lawsuit, the party which filed the lawsuit wins automatically. Thus, the creditor or debt buyer can now seek to garnish your wages, or freeze your bank account.
If you failed to respond to a lawsuit because you were not aware of it, you might have an argument for setting aside the default judgment. However, in most cases, if you were aware of the judgment, you won’t have an argument for setting it aside.
By law, you are allowed to represent yourself in court. However, in many cases, having an attorney assist you can make sense. We’ve reviewed that in more detail below.
Find Out If You Qualify For Free Legal Assistance
In many cities and states, free legal assistance is available to consumers who are being sued in connection with debts. In some places, like New York City, volunteer attorneys will advise you on your case, helping you respond to the lawsuit, and informing you of your legal options. Sometimes, you might even be provided with an attorney for free, who will appear in court on your behalf. In other places, such advice is available, but only if you are a person with a limited income.
Free legal assistance makes sense for a few reasons. First, it is free – which is never a bad thing! Additionally, many legal aid organizations offer extensive expertise in resolving credit issues, and so can offer very helpful advice.
Hire An Attorney
If you don’t qualify for free assistance, or it isn’t available in your area, hiring an attorney is always an option. There are many attorneys who help consumers respond to credit card lawsuits, and reach an effective resolution. There are important requirements credit card issuers, as well as debt buyers and debt collectors, must meet to successfully sue on a debt.
When debt buyers or collectors are involved, some of these attorneys might also find out if your rights were violated under the Fair Debt Collection Practices Act (FDCPA), a federal law which regulates the actions of debt collectors. If you were subjected to FDCPA violations, an attorney might be able to point out these violations to the debt collector, to counter the lawsuit against you.
Where can you find an effective debt defense attorney? Avvo is a great place to search for local attorneys. The National Association of Consumer Advocates might also suggest attorneys who can assist with your case.
Your attorney will probably focus on doing a few things. First, he or she will want to respond to the lawsuit against you, to make sure that a default judgment is not entered.
Your attorney will also research if there are any defenses to the debt. Perhaps the debt was purchased by a debt buyer, who does not have proper proof that he or she owns the debt. Maybe the contract you signed with the original creditor was flawed.
Secondly, they’ll probably enter into negotiations with the creditor or debt collector/buyer, to see if a settlement is possible. If a debt belongs to you (and especially if you’re sued by a creditor), there is a good chance you’ll have to settle the debt, hopefully for a lesser amount. We’ve discussed debt settlement in more detail below.
How much might an attorney cost? While prices vary depending on the market you’re in, you should assume that having an attorney handle your case will cost at least $500. If this is not an amount you feel you can afford, or you don’t think it is a fair price, you still have other options.
Representing Yourself: Answering The Lawsuit
If you choose to represent yourself, the first thing you must do is answer the lawsuit. Remember, without doing so, you might have a default judgment entered against you. How you respond depends in large part on the rules of the courts where you live.
Each state has different rules around when you must respond to a lawsuit, and how. In general, you’ll want to deny the allegations of the lawsuit. If there is a trial, the specific allegations can be heard by a jury and a decision reached.
However, when filing an answer, you’ll want to deny the allegations, and leave that for a jury to decide later. While working with an attorney or legal aid organization is preferrable, you can find guides and other useful information online, to ensure the best possible results.
Representing Yourself: Settling A Debt
There are a number of cases where you might have grounds to challenge a lawsuit of a debt. In some cases, a debt was sold from a creditor to a debt buyer, and the debt buyer cannot provide proof that they in fact own the debt. In other instances, a creditor might not have proof that the amount owed on a debt is in fact correct.
However, it is much more common for creditors or debt buyers to have proof that a debt is owed, and thus have good chances of winning in court. In these instances, you’ll want to consider settling a debt, rather than having a judgment entered against you.
Tips For Settling A Debt
When attempting to settle a debt you’ve been sued on, there are a number of best practices you should strive to follow. Doing so might allow you to pay less for a debt, and resolve debt collection issues in a smoother manner.
First, you should strive to always maintain a calm, professional demeanor. It is natural for you to feel stress and tension, when you’re being sued. However, getting angry and frustrated can also cause you to make poor decisions, and led to worse overall outcomes. If you are not confident in your ability to calmly and effectively negotiate, you should strongly consider hiring an attorney to represent you.
How Much To Settle A Debt For
When attempting to settle a debt, the first thing you must keep in mind is what stage of the process you are in. When you’ve simply recieved a letter in the mail, seeking payment of a debt, you can often settle for a smaller amount of money, let’s say 40% to 60% of the amount owed.
However, when you’ve already been sued, and are facing possible garnishment of your wages, or other legal consequences, then a debt collector has much more leverage over you. For this reason, they’ll probably seek a higher settlement amount, after a lawsuit has been filed. You should assume that debts in the lawsuit stage will settle for between 60% to 9% of the amount owed.
One tactic you might try, if you can afford it, is to settle the entire debt at once. Creditors and debt collectors often worry about reaching settlements with consumers, who then back out of making the required payments.
By paying the entire settlement amount upfront, you’ve reduced the risks for the creditor. This often means you might settle a debt for a lesser amount.
This doesn’t mean that you shouldn’t settle a debt in installments. If you’ve been sued on a debt, your risks of having a default judgment entered, and thus facing garnishment of your wages, or having your bank account frozen, is far greater. You should thus settle the debt, even if it involves paying a larger amount in total, due to paying in installments.
If you’re facing collections on multiple debts, you should inform a collector of this. In such a situation, it is reasonable to expect that you can only pay a limited amount towards any particular debt. While this won’t matter to every collector, some of them will certainly take it into account.
When settling a debt, a credit card issuer or debt collector will often request your payment information – after all, they need to know how you plan on paying the debt. We suggest you not share your bank account information, since this can lead to a collector raiding your account – that is, taking out more funds than legally permitted. Instead, try to pay using a debit card, credit card, or a personal check.
Bankruptcy
If you are dealing with a large volume of debt, bankruptcy might be a better option. Bankruptcy is filed in federal court.
During the bankruptcy process, the court will require a declaration of all your debt obligations (everything from mortgages to credit card debts to medical debts), as well as an enumeration of your assets (that is, bank accounts, stocks and so on).
Ultimately, the bankruptcy process will result in a plan to distribute your existing assets amongst various creditors, and wipe out balances on debts included in bankruptcy. We suggest only filing bankruptcy after consulting with an attorney. Generally speaking, bankruptcy is best handled by a skilled attorney. Again, you can visit Avvo or the National Association of Consumer Advocates, to find an attorney to assist.
The Last Word
Being sued on a debt is a highly stressful experience. With your financial future at stake, it is natural to feel stressed. However, by carefully understanding your options, and working with attorneys and other professionals where needed, you can effectively resolve a debt lawsuit, and move forward with your life.
