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 Credit.com 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 every 14 days from Credit.com.) 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.)
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:
- The Credit.com Debt Management Learning Center
- 5 Tips for Consolidating Credit Card Debt
- Top 10 Debt Collection Rights