It’s a scary prospect, sure — getting hit with a debt collection lawsuit. But if you’re served papers, don’t rush to despair. You can defend yourself. In fact, you should, even if you’re personally sure don’t owe — or, perhaps, particularly if you’re sure you don’t owe, since a failure to show up in court can result in a default judgment for debt collector and lead to wage garnishment or more.
To prepare you defense, make sure you’re familiar with your debt collection rights, remember it’s best to consult an attorney about legal matters and explore these options for what to do when you’re sued by a collection agency.
The number one mistake borrowers make when they are sued for a debt is failing to respond to the notice, which usually arrives in the form of a “summons and complaint.” If you owe the debt and can’t pay it, then you may assume there’s not much you can do. If you fail to respond, however, the collection agency will get a default judgment against you. That opens up new avenues of collection for them, including wage garnishment or the ability to take money from your bank account, depending on state law. Worse, the collector may be able to add attorney’s fees, court costs or interest to the balance. In some cases, the balance can double or triple due to these additional costs.
Responding to a debt collection lawsuit, then, is a must. “Even if you owe the plaintiff money, a two-sentence response denying liability to the lawsuit filed in court will likely lead to a negotiated settlement that will save you money,” said Ginsberg. “If you do respond and force them to work, they will either back down or offer a settlement on favorable terms.” He adds that it is not sufficient to simply send a letter to the plaintiff (the person bringing the lawsuit). “You must file your response to the lawsuit, called an ‘Answer,’ in the court where you were sued within the designated time to respond — usually 20 to 30 days after service — and you must send a file stamped copy of your answer to the plaintiff’s lawyer.” You can get a file stamped copy from the court where you filed the answer.
When you do respond, don’t merely state you can’t afford to pay the debt. “If you admit liability, then 90% of the fight is over and they are not forced to prove their case,” warns Billy Howard, attorney and head of the consumer protection division of Morgan & Morgan. He likens it to a criminal case where the defendant says, “I did it!”
2. Challenge the Lawsuit
“Challenge the plaintiff’s ability to bring the lawsuit by challenging their standing to sue in their own name,” suggests Ohio consumer lawyer, Troy Doucet. He explains that credit card debt is often bought for pennies on the dollar, by collection agencies, which then sue to collect. “The collection company needs to prove they have the right to collect, as evidenced by a transfer of the signed credit card agreement, in order to be in court and ask the court to win. The right to sue is called ‘standing’ and what the consumer should challenge.”
Howard agrees: “Ask the court to dismiss the case because they don’t have standing and lack the chain of custody of paperwork. A lot of judges look at the paperwork (collectors provide) and tell the plaintiff that they must be joking.”
3. Make Them Prove What You Owe
“We always demand to see the original signed agreement and a balance on the account from zero to the present,” Ginsberg said. More often than not, the debt collector’s documentation will be inadequate. Debts may have changed hands multiple times before the current collection agency purchased them.
Even original creditors may lack accurate documentation of the debts customers owed. If credit card issuers can’t provide accurate documentation, there’s a good possibility collection agencies won’t have it either.
4. Raise the Statute of Limitations as a Defense
In most states, creditors have a maximum of four to six years to sue to collect a debt. After that, the statute of limitations expires. That doesn’t always stop collectors from suing, however, because they are counting on borrowers failing to show up in court. If the statute of limitations has expired, and the borrower raises that as a defense, the collector will lose. Making a payment on an old debt may start the clock ticking all over again, though, so a debtor should get legal advice before making a payment on a very old debt. Here’s a guide to the statue of limitations on debt in each state.
5. Consider a Countersuit
If a debt collector has violated provisions of the Fair Debt Collection Practices Act, you may be able to sue them. Again, you’d want to consult a legal professional in this case.
“Once you attach their lawsuit as Exhibit A to your lawsuit against them the tide turns, and if you or your attorney knows what they are doing, the alleged debtors can get damages and attorney’s fees and costs,” Howard said. He’s referring to the fact that consumers who successfully sue for violations of the FDCPA are entitled to statutory damages of $1,000, plus punitive and economic damages, if awarded. In addition, the collection agency will be required to pay the attorney’s fees and costs. Here are some ways debt collectors may be breaking the law.
6. Bring in the Big Guns
Debtors often hesitate to contact an attorney when they are being sued over a debt they owe, perhaps due to embarrassment, or maybe they figure they can’t afford one. Attorneys who regularly take on these types of cases, however, will typically offer a free consultation. And they will often represent a consumer for free if they think the collector has broken the law. That’s because they will expect to collect their fees from the plaintiff. “Do not be afraid or intimidated to call or email a consumer protection or bankruptcy lawyer for a quick word of advice,” Ginsberg said.
Once the collection agency is notified that you are represented by an attorney, it may be much more amenable to settling the debt, rather than trying to duke it out in court. You can search here for a consumer attorney in your area.
7. File for Bankruptcy
While bankruptcy usually doesn’t make sense when you just owe a small amount of money, if you’re being sued over a large debt or if it is just one of many other debts you owe, it may make sense to file for bankruptcy. When you do, you will be protected by the “automatic stay,” which will halt collection efforts against you.
A tip: If you are thinking about bankruptcy, it’s best to talk with an attorney as soon as you are served with notice of the lawsuit, rather than waiting until the day you’re due in court.
While dealing with a debt collection lawsuit, it’s still important to keep an eye on your credit scores and to periodically check your credit reports. Though your credit has taken a hit, watching your credit can alert you to new potential problems that you can work to resolve before they become bigger problems. You’re entitled to your free annual credit report from each of the major credit reporting agencies, and you can monitor your credit scores for free on Credit.com.
Discover it® Secured Card – No Annual Fee
- No Annual Fee, cash back on every purchase, and helps you build your credit with responsible use.
- Your Secured Credit Card requires a refundable security deposit up to the amount we can approve of at least $200 which will establish your credit line. You will need to provide your bank information when submitting your security deposit.
- We will automatically begin reviewing your account starting at 8 months to see if we can transition you to an unsecured line of credit.
- Earn 2% cash back at gas stations and restaurants on up to $1,000 in combined purchases each quarter, automatically. Plus, earn unlimited 1% cash back on all other purchases – automatically.
- Get a dollar-for-dollar match of all the cash back you've earned at the end of your first year, automatically.
- Receive FREE Social Security number alerts-Discover will monitor thousands of risky websites when you sign up.
Card Details +
Struggling with a lot of credit card debt? Here are four strategies for paying it off.
This article was updated on May 1, 2017.