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Can I be sued while in a debt settlement program?

Yes, it is possible to be sued while in a debt settlement program. Certainly, when resolving your debt through a debt settlement program, there is always a risk your creditors can pursue collection through legal attorneys.

There is no way to know why creditors choose to sue some of their customers and not others. For instance, creditors (especially large banks) rarely look at accounts on an individual basis. They use computer software to determine your likelihood of repaying based on information reporting to your credit. Additionally, some things to keep in mind that may help to mitigate being sued by your creditors are:

  • How many accounts am I past due on? The more accounts I owe the higher the chance one may sue me.
  • How is my debt proportioned? Do I owe all my credit cards and loans to one bank or is it spread out?
  • Is the creditor I owe most of my debt to local or small (credit unions)? Also, do they have more of a vested interest to sue me because they are a smaller bank (personal relationship)?
  • How often do creditors I owe have access to my assets?
  • Do I have a checking, savings, or investment accounts with the creditors I owe? Can they see my transactions?
  • Do I have equity in assets that banks can calculate based on what’s reporting to my credit report?

What happens if I am sued while in debt settlement?

Once an account goes to a legal attorney licensed to collect debt in your state, the first thing that will usually happen is you receive a pre-legal letter validating the debt owed. To clarify, this is the attorney advising you that the debt has been placed in their office and they could pursue a judgment.

At that time you are not being sued, and the account can still be resolved for a portion of what’s owed. Depending on the aggressiveness of the attorney and a valid hardship, results can vary from reasonable settlement percentages (50%) all the way to paying 100% of the debt plus attorney’s fees. But, this is all before going to court or being served to appear in court.

If an attorney decides to move forward with pursuing a judgment the next thing you will receive are legal documents (Lit Docs) with a scheduled court date (you must be served these documents, review laws on being served in your state). If arrangements are not made with the attorney’s office before the scheduled court date, an individual may represent themselves or be represented and fight the account in court.

Outcomes vary when accounts go in front of a judge. Based on experience, judges can be very lenient if you show up to court and give a valid reason why you can only pay a portion of the debt or make arrangements on the balance that fit your current budget. However, at any time before going to court you can try to make arrangements to resolve a balance.

You may consider reviewing all of your options in the case when you are sued via debt settlement by taking a Chapter 7 Means Test Calculator to estimate qualification or Chapter 13 Calculator to estimate your monthly payment plan. These calculators also allow you to compare all of the different relief options.

Arrangement that are usually available are:

  • Debt Settlement – Paying a portion of what’s owed in a lump sum or over payments. We wrote an extensive article on debt settlement to provide you insights how it works and the pros and cons of this solution.
  • Stipulation Judgment Settlement – Pay a portion of what’s owed, but if the agreement is not met the attorney automatically retains judgment without having to go to court. Although, you lose the ability to fight the account in court.
  • Payments towards the balance – Pay the full balance over time with payments that fit your budget and the attorney agrees with.
  • Stipulation Judgment payments towards the balance – Pay the full balance over time with payments that fit your budget and the attorney agrees with. If the agreement is not met, the attorney automatically retains judgment without having to go to court. You lose the ability to fight the account in court.

A stipulation arrangement is an arrangement that basically means if you don’t meet the required terms (pay the arrangement on time), the attorney automatically retains judgment without having to go to court. Often, these arrangements can include attorneys fees, so trying to settle the account is always best, but lump funds are often needed.

If you’re not able to settle and are forced to set up payments on the balance, you can always go back and make an offer to settle at a later date, hopefully still saving money in the end.

What happens if a judgment has been granted against me?

There are four main ways that an attorney can attempt to collect from your once they get a judgment against you:

  • Wage garnishment of a paycheck
  • Levy/garnishment of a bank account
  • Lien on property or assets – Home mortgage
  • Continue normal collection practices

However, you can still try to settle if a judgment has been retained but you haven’t been garnished or levied yet. Usually, there’s a grace period before an attorney will start executing judgment because they need notify an employer or bank, and that can take time.

In conclusion, certain states allow attorneys to use all of the above tactics, others may only allow one. Therefore, it’s important to review judgment laws in your state to know how an attorney can pursue collection once they have retained a judgment.

State by State Statute of Limitations

The Statute of Limitations is defined as the deadline for a lawsuit. Your creditor most likely know these statutes and take this into consideration when deciding when to sue for unpaid debt.

Alabama3 yearsTitle 6 Ch.2 Sec. 37
Alaska3 years9.10.053
Arizona6 yearsHB 24121
Arkansas5 years4-3-0118
California4 yearsCode of Civil Procedure S.337
Colorado6 yearsColorado Revised Statutes Title 13 S.80-103.5
Connecticut6 yearsChapter 926 Sec. 52-576
Washington, D.C.3 years12-301
Delaware3 yearsTitle 10, Sec. 8106
Florida5 years95.11
Georgia6 years9/3/2024
Hawaii6 years657-1
Idaho5 years5-216
Illinois5 yearsCode of Civil Procedure 5/13-205
Indiana6 yearsTitle 34 Art.11, 2-9
Iowa5 yearsCh. 614.1.4
Kansas3 years60-512
Kentucky5 or 15 years413.120 and 413.090
Louisiana3 yearsCivil Code Sec. 2 Art. 3494
Maine6 years14-205-752
Maryland3 yearsSection 5-101
Massachusetts6 yearsGeneral Laws Part III Title V Ch. 260-2
Michigan6 yearsCh. 600.5807.8
Minnesota6 yearsCivil Procedure Ch.541.05
Mississippi3 years15-1-29
Missouri5 yearsCh. 516-120
Montana8 years27-2-202
Nebraska4 years25-206
Nevada4 years11-190
New Hampshire3 years382-A:3-118 (g)
New Jersey6 years2A:14-1
New Mexico4 years37-1-4
New York6 yearsCivil Practice Law & Rules, 2-213
North Carolina3 yearsCivil Procedure 1-52.1
North Dakota6 years28-01-16
Ohio6 yearsCourts – Common Pleas, Ch. 2305.07
Oklahoma5 years12-95A(1)
Oregon6 yearsOregon Revised Statutes, Civil Procedure Ch. 12.080
Pennsylvania4 yearsJudicial Procedure 42 Pa. C.S. 5525(a)
Rhode Island10 years9/1/2013
South Carolina3 yearsCode of Laws Title 15 Ch. 3 Sec.530
South Dakota6 years15-2-13
Tennessee6 yearsTitle 28 3-109
Texas4 yearsCivil Practice and Remedies Code, S.16.004
Utah6 years78B-2-30910
Vermont6 years9A-3-118
Virginia3 years8.01-246
Washington6 yearsRevised Code of Washington 4.16.040
West Virginia10 years55-2-6
Wisconsin6 years893.43
Wyoming8 years1-3-0105

State Garnishments, Levies and Vehicles

StateWagesVehicleBank Account
Alaska$456-7161$3,900$1,820 or $2,860
Arkansas75%$1,200$800 or $1250
California75%$5,000 (2x)$0
Georgia75%$3,500 (2x)$600
Nebraska85%$2,500 wildcard$2,500 wildcard
New Hampshire75%$4,000$8,000
New Jersey90%$1,000$1,000
New Mexico75%$4,000$2,000
New York90%$4,000$25,008
North Carolina100%$1,500$500
North Dakota75%$1,200$7,500
Ohio75%$3,225$425 (2x)
Oregon75%$1,700 (2x)$400
Rhode Island75%$12,000None
South Carolina100%$5,000$5,000
South Dakota75%$6,0006k-Auto
Tennessee75%$4,000 wildcard$4,000 wildcard
Utah75%$2,500 or $3,500None
West Virginia75%$2,400$800+

Post Author: Adam

Adam is an industry expert in debt settlement, creditors, mortgage credits, and all things debt relief. He has many . years in the collections, debt settlement, and mortgage loan origination industries.

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