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.
|Alabama||3 years||Title 6 Ch.2 Sec. 37|
|Arizona||6 years||HB 24121|
|California||4 years||Code of Civil Procedure S.337|
|Colorado||6 years||Colorado Revised Statutes Title 13 S.80-103.5|
|Connecticut||6 years||Chapter 926 Sec. 52-576|
|Washington, D.C.||3 years||12-301|
|Delaware||3 years||Title 10, Sec. 8106|
|Illinois||5 years||Code of Civil Procedure 5/13-205|
|Indiana||6 years||Title 34 Art.11, 2-9|
|Iowa||5 years||Ch. 614.1.4|
|Kentucky||5 or 15 years||413.120 and 413.090|
|Louisiana||3 years||Civil Code Sec. 2 Art. 3494|
|Maryland||3 years||Section 5-101|
|Massachusetts||6 years||General Laws Part III Title V Ch. 260-2|
|Michigan||6 years||Ch. 600.5807.8|
|Minnesota||6 years||Civil Procedure Ch.541.05|
|Missouri||5 years||Ch. 516-120|
|New Hampshire||3 years||382-A:3-118 (g)|
|New Jersey||6 years||2A:14-1|
|New Mexico||4 years||37-1-4|
|New York||6 years||Civil Practice Law & Rules, 2-213|
|North Carolina||3 years||Civil Procedure 1-52.1|
|North Dakota||6 years||28-01-16|
|Ohio||6 years||Courts – Common Pleas, Ch. 2305.07|
|Oregon||6 years||Oregon Revised Statutes, Civil Procedure Ch. 12.080|
|Pennsylvania||4 years||Judicial Procedure 42 Pa. C.S. 5525(a)|
|Rhode Island||10 years||9/1/2013|
|South Carolina||3 years||Code of Laws Title 15 Ch. 3 Sec.530|
|South Dakota||6 years||15-2-13|
|Tennessee||6 years||Title 28 3-109|
|Texas||4 years||Civil Practice and Remedies Code, S.16.004|
|Washington||6 years||Revised Code of Washington 4.16.040|
|West Virginia||10 years||55-2-6|
State Garnishments, Levies and Vehicles
|Alaska||$456-7161||$3,900||$1,820 or $2,860|
|Arkansas||75%||$1,200||$800 or $1250|
|Nebraska||85%||$2,500 wildcard||$2,500 wildcard|
|Tennessee||75%||$4,000 wildcard||$4,000 wildcard|
|Utah||75%||$2,500 or $3,500||None|