It’s a Friday afternoon and you are making plans with your friends for the weekend. When all of a sudden you get a knock on the door, and you get handed an envelope. You open the envelope and realize you are being sued by an old lender or collection agency.
For example, you may start to panic, you are shaky, sweaty and your heart is pounding, you genuinely could not pay the remaining balance and now you are worried you are going to be forced to pay it. You have never been sued before, you have no idea where to go or what to do first.
While it may seem like you have no options, it is important to remember that you have several options available. The worst thing that you could do would be to ignore it. Do not panic. You have options. This article will guide you through how to settle lawsuits/judgments with the help of an attorney.
Finding a Reputable Attorney
Finding an attorney that is a great fit for you and your situation can sometimes be tricky. Attorneys are not always one size fits all, some have more experience than others, and there are some attorneys who do and do not specialize in certain areas. When looking for an attorney you want to find one that specializes in either bankruptcy or debt reduction/management. If you need help finding a lawyer the American Bar Association has a directory where you can find an attorney in your area. Many attorneys will give you free advice for your situation. The American Bar Association also has a section where you can find free or discounted legal services depending on your financial situation.
You have found an attorney, now what?
Debt collectors may be more inclined to agree to a settlement offer if they have reason to believe that you may file for bankruptcy. They want to recoup as much of their money as possible. Before your court date, or the date that you must file a response by you and your attorney will look over all the details of the debt and check for these 3 things:
- Has the statute of limitations passed? (you can contact your Consumer Protection Office and inquire about it.)
- Did the creditor file the case in the wrong court?
- The creditor cannot prove that you own the debt. (this is done by showing original statements and other paperwork).
Understand the Process
If you and your attorney have determined that the answer is ‘yes’ to any of the above, your attorney then will file a defense stating the information you have discovered during your research. For example: if the debt is past the statute of limitations, then you and your attorney will use that in your defense to have the case dismissed.
The next step in the process (if applicable), will be filing a counterclaim. If you have evidence that the debt collection agency or creditor violated your Fair Debt Collection Practices Act (FDCPA) rights. A violation of these rights would include harassment, threats of violence or jail time, or calling people that you know and telling them that you owe the collection agency money. If a judge finds that your claims are substantiated, then you may be awarded financial damages or have your case dismissed.
Another possibility to explore with your attorney would be to see if you are judgment proof. You may be considered judgment proof if your income is at or under the Federal Poverty Guidelines or if you receive certain types of income such as Social Security Benefits, Veteran Benefits, and Disability Benefits. These types of income are usually protected under federal law, and if those are your primary source of income and you get sued your lawyer may advise you to respond to the summons and let the court know that your income is protected from garnishments and judgments.
None of these options apply to me, am I stuck with the debt?
You’ve been working with your attorney and for whatever reason, you are worried that you are going to have to pay the full amount, or cannot pay the settled upon amount upfront or the creditor will not allow you to make monthly payments. You still have options. Depending on your income and assets you can either file Chapter 7 or Chapter 13 bankruptcy, if bankruptcy does not sound like the right option for you then you can explore debt settlement programs as well.
Chapter 7 Bankruptcy
Chapter 7 bankruptcy is also known as liquidation bankruptcy. Most unsecured debts are usually discharged within 90-120 days. You must meet certain income and asset requirements to qualify for this type of bankruptcy. Not sure if you would qualify for chapter 7 bankruptcy? Take our bankruptcy quiz to find out.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is when you do not qualify for chapter 7 bankruptcy, your debts are restructured and entered into a repayment plan. For 2-5 years you will make monthly payments to the bankruptcy trustee for a set amount until you fulfill the agreed amount. You can estimate your chapter 13 bankruptcy payments here.
Debt settlement is when you negotiate your debts with your creditors to pay less than you owe. Usually, you pay 40-50% of what you owe. You typically will work with a debt settlement company or your attorney to get an agreement in writing. If you choose to work with a debt settlement company you will make monthly payments to them for 12-48 months. If you are curious about what your monthly payment for debt settlement would look like you can check that out here.
Your attorney can help you decide which option would be best for you. Resolving it sooner than later can help eliminate or prevent any future lawsuits on current debts that you are past due on or that may be in collections. Chapter 7 can be the quickest and cheapest way to find relief from unsecured debt, but you do need to qualify. Chapter 13 and Debt Settlement are also great options if you are over the income or asset limits for either your state or federal guidelines.
When settling the debt with your attorney you may be able to create a payment arrangement, that can be in the form of monthly payments or one lump sum payment. Make sure you have the agreement in writing and that it outlines the terms of the repayment, such as any applicable dates and the amount to be repaid. By having this in writing, you will be protected from any future lawsuits regarding the same debt/account because you have a written agreement.
Being sued or harassed by creditors is no fun and one of the most stressful things some people go through in life, it may feel overwhelming, but if you take it one step at a time and follow the steps outlined here you will be okay. If you are facing a lawsuit or garnishment Contact Us, we can help you with a solution that works for you and your financial situation.