For many Americans facing overwhelming amounts of debt, debt relief programs have been a saving grace — moving them from a place of financial uncertainty to financial stability. While debt relief programs have provided relief to thousands of families each year, there are often potential consequences that companies keep hidden until it’s too late. Whether you have enrolled in a debt settlement program, have begun filing for bankruptcy, or have begun another debt relief journey that stops you from having to pay your full debt amount, there is one major potential risk that you need to keep in mind: the risk of getting sued by a creditor.
Why Do You Get Sued By A Creditor?
Debt collectors often sue when it has not yet recovered funds from other collection activities.
The goal of all creditors is to be repaid in full and then some (with interest payments) when they loan out money. In most cases, when an individual begins seeking out debt relief, this only means one thing for the creditors: a potential monetary loss.
Many debt relief programs, like debt settlement and bankruptcy, end with the individual only having to pay back a portion of what they owe before having the rest forgiven. When this happens, creditors not only lose out on their projected interest income, they also have to eat the money they loaned out.
Obviously, this isn’t ideal for creditors. So, when someone files for debt relief, they do have one more option that can protect them from losing money: a lawsuit. Specifically, if you have begun the debt settlement process, the first thing you do is stop paying your creditors. After a certain amount of missed payments, the goal is that your creditor would be more willing to accept a smaller payment over no payment at all.
However, this could backfire. In some cases, a creditor will opt to file a lawsuit against the individual instead of engaging in negotiations. In many cases, if the debtor is taken to court, the judge will rule in favor of the creditor, unless there have been illegal or unethical practices on their part. Once the court rules in the creditor’s favor, you will be required by law to pay in full what you owed. While this isn’t a full breakdown of what the lawsuit process looks like, it is a quick overview of what it looks like to get sued by a creditor.
Shouldn’t a Debt Settlement Company Know Who Sues and Who Doesn’t Sue?
In a perfect world, a debt settlement company should be able to tell you which creditors will and won’t sue. But with the prevalence of money lenders and the number of variables at play in each case, there is no way any debt settlement company can be certain that a creditor either will or won’t sue.
While there is no way to guarantee that a creditor won’t sue, there are a few things you can look for to better determine the likelihood of a lawsuit. Here are just a few things to look for:
Creditor’s History
You should be able to look into the creditor’s legal history to find out if they have a penchant for suing debtors who utilize debt relief programs. If you see that the creditor has a history of suing whenever an account goes into default, you can probably bet that they will also sue you if your account goes into default. You may also be able to tell what debt limit they tend to sue for. For example, if they have many cases of filing a lawsuit against a creditor that owed over $5,000, but no lawsuits for anything less than that, you may be able to get away with debt settlement if you owe under the $5,000 amount.
Creditor’s Size
While this may be more of a guess, the size of the creditor may help you determine your likelihood of getting sued. For instance, if you borrowed from a tiny, local creditor, they may not have the excess funds available to cover court costs, meaning they are less likely to sue you. However, if you borrowed from a national chain, they may have the funds readily available to pursue any debtor who attempts to miss payments. Consider the creditor’s size before moving forward with debt settlement.
Your Accounts With The Creditor
Do you only have a single credit card or loan with the creditor? Or do you have multiple bank accounts where they can see more of your financial situation? If the creditor can easily see that you have available funds to make payments on your debt, but you aren’t, they may be more likely to sue you, knowing that you can at least make partial payments. Consider what financial information the creditor may have access to.
While this isn’t a comprehensive list of what to look for to determine whether or not a creditor might sue you, it is something you want to keep in mind before moving forward with something like debt settlement.
However, for some people, debt settlement becomes one of their only options — regardless of the risk of a lawsuit. If that is the case, and you begin attempting to settle debt with your creditors, there are ways you can prepare to respond should the creditor begin to file a lawsuit.
What To Do If You Get Sued By A Creditor:
If you are made aware that a lawsuit is being brought against you by your creditor, there are a few options that you have to consider. The first thing many individuals do is consider answering the debt collection lawsuit. While none of these options are necessarily perfect, they can help you get out of debt and back to a state of relative financial security.
1) Settling Your Debt
If a lawsuit is brought against you before you have attempted to settle your debt, this may be a good time to try. After you have missed a few payments, creditors tend to be far more likely to entertain the idea of accepting a lower payment amount to pay off the account. They tend to do this because a lower payment amount is better than no payment at all — which could potentially happen if you decide to file for bankruptcy instead. So if you are being sued, and you haven’t yet tried to settle your debt, consider reaching out to a debt settlement company to help facilitate negotiations. You may be able to save up to 50% of your current debt is.
2) Debt Consolidation
If you have multiple loans or lines of credit that you have been falling behind on payments for, you could consider getting a debt consolidation loan. With a debt consolidation loan, you can immediately pay off all of your other creditors, which could immediately stop any lawsuit against you. The downside is that you would then have one larger loan that could potentially have a higher interest rate attached to it. Consider trying to find a consolidation loan that allows you to group all of your debt into one manageable payment at a similar (or even lower) interest rate.
3) Bankruptcy
If you are unable to make monthly payments on your debt, and a creditor is filing a lawsuit against you, it may be best for you to file for bankruptcy. Bankruptcy can do many things for you. First, it can immediately stop any legal proceedings against you. That means the lawsuit will either be dropped or paused until your bankruptcy process is complete. Second, if you successfully complete your bankruptcy, your unsecured debts are typically discharged. This means you won’t have to make any more payments towards that debt. It is important to realize that creditors can still file a motion with the court to force you to pay them back, though this isn’t a common occurrence.
4) Doing Nothing
Finally, if you don’t have the funds to pay off your debt and you are sued, one option is to just do nothing. Unfortunately, this doesn’t stop you from being liable for the debt. In fact, there are some pretty steep consequences for doing nothing, but sometimes that is the only option you can choose. If you do nothing once a lawsuit has been filed and decided, there are a few different things your creditors can do. They can begin repossessing the items you bought with the money you borrowed. Your creditors may also have been granted the ability to garnish your wages. While you can’t necessarily be thrown in jail for not paying your debt (except for instances where you haven’t kept up with child support payments), there are many other consequences to consider if you decide to do nothing
How To Avoid Getting Sued By A Creditor
Ultimately, being sued for debt is never something easy. Whether you decide to settle your debt, file for bankruptcy, or do nothing at all, this can be a stressful process. Try to do everything you can to be fully educated on what is happening before making any decisions. And if you would like to talk about what options you have, feel free to contact Ascend and talk to one of our financial counselors for free.
