Managing Debt

Can I Be Sued Even If I’m Trying to Pay Back a Debt?

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Every day, across America, hundreds of lawsuits are filed against consumers who owe debts they haven’t been able to pay. Consumers who learn they are being sued sometimes scramble to work out a payment arrangement in the hope of keeping the matter out of the courts. Does it work? Not always, as one of our readers recently found out:

Hi, I received papers in November of last year saying I was being taken to court by a debt collector. I contacted them and set and paid payments with them and thought that was the end of it. Until I received a default judgment in the mail for the same amount. I thought it was all settled can they do this?

“It is not uncommon to have a debt collector sue, and while accepting payments that they willingly set up with the consumer, continue with the action in court in order to insure later collections — if it becomes necessary,” says Michael Bovee, founder of the Consumer Recovery Network.

In other words, simply agreeing to make payments may not be enough to halt the lawsuit.

Documentation is often key in these situations. “If the payment arrangement was made during the lawsuit…the payment agreement should have contained language dismissing the suit with a provision that the creditor could re-open the suit and obtain a judgment if (the consumer) defaulted in the payment of the settlement,” commented consumer law attorney Adam Gerard.

Getting an agreement in writing is essential, agrees Cathy Moran, a northern California bankruptcy attorney. “Make sure your payment plan is reduced to writing, signed by both sides, and preferably incorporated in a stipulation filed with the court,” she says, adding:

“The agreement should address what happens with the lawsuit while you’re paying.  Alternative treatments could include:

  • Incorporating the payment plan into the judgment
  • Agreeing the lawsuit will be dismissed without prejudice while you are paying
  • Agreeing that the collector takes no further action in the lawsuit during payment plan.”

Before You Make Payments

Before you hit the panic button and start making payments on a debt you really can’t afford, you may want to get professional advice.

“I hate to see someone spend money buying off one creditor when the debt problem is far bigger than the creditor who sues first,” says Moran. “Too often, the settlement payments come at the expense of other things that are, in the big picture, more important, like taxes, support, health insurance, an emergency fund.” In those situations, filing for bankruptcy may be a better option. It can halt the lawsuit and give the consumer a fresh start.

Another option is to consult with an attorney who regularly defends consumers against collection lawsuits. The consumer may be able to raise a defense against the lawsuit and get the case dismissed. Another one of our readers, Paulette, says she was recently sued by a collection agency but “won the case… The judge found in my favor because they couldn’t even prove that they owned the debt,” she wrote on the blog.

When consumers go into the legal system by themselves, the deck is often stacked against them from the beginning. “Even when things appear straightforward to the average person, in a court or legal scenario, lacking a clear and full understanding creates an advantage for collectors,” says Bovee. After all, the attorneys representing creditors and collectors often deal with the courts on a regular basis, whereas most consumers rarely do. “People dealing with debt collectors in the courts can level the playing field by contacting a consumer law attorney with debt collection defense experience,” Bovee says. Here are seven ways to defend a debt collection lawsuit.

It’s also wise to check your credit reports and monitor your credit scores during this process. (You can get your credit reports for free once a year, and get two free credit scores updated monthly from Unpaid judgments can appear on consumers’ credit reports until the statutes of limitations expire – and that period is often 10 to 20 years in many states. If paid, however, judgments can only be reported for seven years. (This guide explains how long negative items can be reported.)

Next Steps

What about our reader who now faces a judgment? When a creditor gets a judgment, it opens up new avenues for them to collect. “When a creditor has obtained a judgment they may garnish wages and levy bank accounts,” Gerard warns. “It is very important that this issue be addressed promptly.”

Gerard suggests consulting with a consumer law attorney who can review whether the judgment was taken improperly. “Have the settlement agreement reviewed by a professional along with the proof of payment(s),” he says. “Once that is done you can seek to have a satisfaction of judgment filed.”

More on Managing Debt:

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  • heavyw8t

    Can you file for bankruptcy AFTER the court has handed down the judgment against you? Seems like that creditor could come to the bankruptcy as a trustee and have their judgment excluded from the bankruptcy once the payment is court ordered.

    • Gerri Detweiler

      Yes, that is certainly a possibility. Consumers often file for bankruptcy and discharge judgments, as long as the debts are dischargeable. A bankruptcy attorney can tell you whether that’s the situation with the debt you owe.

    • Cathy Moran

      The fact that a debt is embodied in a judgment doesn’t prevent its discharge in bankruptcy, if the nature of the debt and the circumstances surrounding the creation of the debt don’t fall in one of the non dischargeable categories.

      Non dischargeable debts include those incurred by fraud, embezzlement, or intention harm. The list is longer but those are the most common.

      Gerri’s right: a bankruptcy lawyer can tell you about your particular debt. But garden variety credit card debt can be discharged at any point.

  • heavyw8t

    @Kenneth I was in this place twice. I was notified that I was being sued for a debt. I contacted the parties and worked out a settlement plan with both of them. (Both had the same local trustee.) Though it never got to court because we worked out those plans, that constituted a default judgment against me. That may or may not be how this situation happened.

  • Gerri Detweiler

    The creditor or collector is not required to accept whatever you can afford to pay. In most cases that does mean they could sue you for the difference. However, whether they will are not depends on a number of factors that only they know, including whether they think you are likely to be able to pay in the future. If the amount is large, and there’s no way you’re going to be able to pay it back in a reasonable amount of time you may want to talk with a consumer bankruptcy attorney about your options.

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