When you default on a debt, the creditor can take several actions to collect the debt. Some actions are governed by state law. Other actions may be governed by the contract terms, loan note, mortgage, or debt agreement. One common way creditors collect bad debts is to file a debt collection lawsuit.
What Is a Debt Collection Lawsuit?
A debt collection lawsuit is a legal action to collect a debt. Some creditors may sue for as little as $5,000. The creditor files a complaint with the court asking the court to enforce the terms of your agreement to repay a debt. The creditor may also ask for fees and costs of collection, such as interest, late payments, attorneys’ fees, costs of service, and court fees.
Responding to a Debt Collection Lawsuit
You have a specific number of days to file a response to the lawsuit with the court. You must also serve a copy of your response on the creditor and the creditor’s lawyer. By responding to the lawsuit, you force the creditor to prove you:
- Entered into a legally binding agreement with the creditor
- You defaulted on the agreement
- The credit has the legal right to sue you to collect the debt
You also force the creditor to prove the amount you owe to the creditor by responding to the lawsuit.
Fighting a debt collection lawsuit can be a complicated process. The consequences of losing the lawsuit can be costly. It is worth your time to consult a bankruptcy lawyer regarding the lawsuit.
However, if you decide to respond to the debt collection lawsuit without an attorney, the steps for responding to a debt collection lawsuit include:
Review the Summons and Complaint
Read the entire document served on you. Note who is filing the lawsuit. Is it the original creditors, or did another party purchase the debt? Note the deadly for filing an answer or other response to the lawsuit. The summons should state how many days you have to file a response. Depending on your state laws, you could have between 15 to 30 days to file an answer.
Prepare and File Your Answer to the Lawsuit
An answer is a response to the allegations of the lawsuit. You can admit or deny each of the allegations claimed in the lawsuit. You may also state that you do not have sufficient knowledge to respond to an allegation.
Never admit an allegation if you have any doubt of its validity. If you do not know precisely how much you owe the creditor, state that you lack information to admit or deny the allegation.
You can also demand that the creditor provide proof of the debt and the amount owed if the creditor did not attach evidence of the debt to the complaint.
After responding to each allegation, you can assert any affirmative defenses you want the court to consider. Affirmative defenses might include:
- You repaid the debt in full
- The statute of limitations (deadline) for filing the lawsuit expired
- The creditor failed to prove you owe the debt
- The debt belongs to another person
It is best to type your answer if possible. Then, file the answer with the court and serve a copy on the creditor and its attorney.
Appear in Court
You may need to appear in court to provide proof you paid the debt or other evidence of an affirmative defense. If you do not have proof of payment or a legal reason for not paying the debt, the judge will likely rule in favor of the creditor.
Fighting a debt collection lawsuit is much easier when an attorney handles the case. An attorney understands contract law and debt collection law. Your lawyer can review the original contract to determine if it is legally enforceable. A lawyer also explores other defenses.
What Happens if I Don’t Respond to a Debt Collection Lawsuit?
Failing to respond to the lawsuit by the deadline generally results in a default judgment. The court enters a personal judgment against you in the amount claimed by the creditor.
Depending on the laws in your state, the creditor may take several actions to collect the judgment debt. Collection efforts could include:
- Levies against your personal property
- Freezing and seizing your bank accounts
- Wage garnishment
If possible, you want to avoid a default judgment. Collection efforts could result in property and income loss.
Filing Bankruptcy Stops Debt Collection Lawsuits
Filing Chapter 7 or Chapter 13 stops debt collection efforts, including debt-collection lawsuits. Creditors cannot file new lawsuits or continue with a pending lawsuit without court permission.
When the debt is dischargeable in bankruptcy, the creditor cannot resume the debt collection lawsuit. The bankruptcy case discharges the debt, so you never need to worry about repaying the debt.
Chapter 7 discharges debts without any additional payment. Examples of debts discharged in Chapter 7 include:
- Most debt collection lawsuits
- Medical bills
- Some old income tax debts
- Credit card debt
- Personal loans
- Old rent and lease payments
- Payday loans
Most no-asset Chapter 7 cases are discharged and closed within four to six months after filing a bankruptcy petition.
If you do not meet the Chapter 7 income requirements or need to protect assets, you may file under Chapter 13. A Chapter 13 repayment plan can help you save your home, pay off your car loan, and get out of debt for pennies on the dollar.
Get Help with a Debt Collection Lawsuit
If you have questions about debt collection lawsuits, contact Ascend. We can help you locate a bankruptcy lawyer in your area who offers free bankruptcy consultations. Let’s work together to find the best solution to your debt problems.