The average American has $51,900 worth of debt. That can include mortgages, car loans, credit cards, student loan debt, home equity loans, and more. When debts go unpaid for too long they get sent to collections. Once that happens, the borrower is at risk of being sued by the debt collector or original creditor.
The best time to deal with a debt in collections is before it ends up in court. Once debt collectors sue, you will have to contend with a lawsuit and possibly show up before a judge to settle the matter. But just because you’re getting sued doesn’t mean all is lost.
There are some things you can do to make the process go a little easier and possibly even reduce your debt obligation (or get it thrown out entirely). Here’s what to do when you get sued for a debt.
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1. Document the debt collection timeline and activities
The exact chain of events may differ from person to person, but legitimate debt collectors must follow an established timeline under the Fair Debt Collections Practices Act. Here’s what you can expect.
The debt collector will contact you via phone, letter or other means to notify you that your account is in collections and there is an attempt to collect. Within five days of first contact, the debt collector must send a letter containing the following information:
The amount due
The name of the debt collector and/or original creditor
Instructions for requesting more details or disputing the debt (unless this information was relayed in their initial outreach).
You have 30 days to request additional information and/or dispute the debt in a letter to the collector. The collector must cease all collections activity until they have verified the debt is legitimate or provided you the name and address of the original creditor so you can verify with them.
If the debt is legit, you can move forward by paying the debt (you may be able to negotiate with the debt collector) or not pay the debt. If you don’t settle the debt, the debt collector can sue you and you will receive a notice from the court with an appearance date.
If events haven’t followed this timeline, it’s possible that the debt is illegitimate or it’s a debt collection scam. Make sure to verify the events that occurred before you were sued. If the debt collector violated your rights, you should bring any evidence you have to court. If this happens to you, it’s important to know your options.
Under the Fair Debt Collection Practices Act, it is illegal for debt collectors to:
Threaten you with violence
Use obscene or vulgar language
Repeatedly harass you with phone calls
Lie or misrepresent how much you owe, or the consequences of nonpayment
Contact you outside of 8 a.m. and 9 p.m.
Contact you at the workplace if your employer doesn’t allow such communication.
Contact other parties about your debt beyond your attorney, consumer reporting agencies, the original creditor or the collector’s attorney.
2. Gather information on the debt
Before your court appearance, gather as much information about the debt as you can. If you didn’t request verification from the debt collector within 30 days of their initial outreach, you can still attempt to do so. The Consumer Financial Protection Bureau has sample letters here.
Look for details about the debt that prove its veracity (or lack thereof). Just because you don’t recognize the debt doesn’t mean it’s invalid, as things can fall through the cracks. On the flip side, just because they say you owe money doesn’t mean you actually do. Signs that the debt may not be legitimate (or the debt collector can’t prove it) include:
The debt collector can’t, or won’t, provide any verification of the debt during the debt collection process.
You don’t recognize the debt in question and it doesn’t appear on your credit report.
You paid the debt off or the amount is incorrect.
3. Don’t ignore the lawsuit
You will get served with court papers that inform you of the lawsuit, court appearance date, instructions for how to respond, and other relevant details. The worst thing you can do is ignore the lawsuit, even if you don’t think you owe the debt.
If you don’t respond or show up on your court date, you lose the ability to defend yourself. The court will likely enter a judgment against you for the full amount the suit says you owe, and may even award additional fees to pay the debt collector for other expenses.
Judgments give debt collectors more power to collect. They may be able to garnish your wages, place a lien on your property and even access the funds in your bank account. Reversing a judgment is difficult to do, so it’s better to prevent it from happening in the first place. Carefully read the paperwork for instructions on how to respond and make sure you comply (but watch out for scams).
“Do not ignore a notice from collectors that you are being sued. If taken to court, the judge may allow your property to be taken in exchange for the debt or the money to be withdrawn directly from your account,” said Andrew Winters, attorney and co-founder of law firm Cohen & Winters.
“Make sure you respond on time or it could result in an automatic win for the collectors,” he said.
Remember, responding to the lawsuit means that the debt collector must prove to the court that the debt is legitimately yours, which they may or may not be able to do.
4. Consult an attorney
There’s no law that says you have to hire an attorney to handle a lawsuit, but it might be in your best interest to consult one. Understanding your options and gathering the right information can be complicated, and an attorney can walk you through what you need to do. At the very least, you can get a free consultation to get started.
An experienced attorney can guide you through the process and help formulate the best plan for you. “If money is an issue, remember that most attorneys offer a free consultation, which I would advise taking advantage of so that you are at least familiar with your options,” said Winters.
5. Try to settle out of court
If the debt is legitimate, you can try to reach an agreement out of court with the debt collector. You could possibly negotiate a reduced lump sum payment or a payment plan to pay back the debt over time.
“It is possible to resolve debt outside of the courtroom. Generally, collectors don’t want to go to court just as much as you don’t,” said Winters. Many debt collectors would prefer to settle out of court than spend money sending a representative to the hearing. Use this as leverage for obtaining a discount on the debt if you are legally required to pay it.
If the debt collector agrees to drop the lawsuit in exchange for payment, get any agreement you have in writing and verify the lawsuit is dropped before you decline to show up in court.
6. Show up to your court date
Unless you were able to settle out of court, you must show up to your court date. Failure to show up could result in a court judgment made against you by default.
When you show up, bring all the documents you gathered. If you can prove that the debt is illegitimate (or the debt collector can’t prove that it’s legitimate), the debt may get thrown out entirely. Even if it doesn’t, showing up to court may help you plead your case and avoid some of the more severe consequences of a court judgment.
If you think the debt is illegitimate, incorrect or time-barred, gather the documents you need to prove it and be prepared to explain this to the judge. Supporting documents may include receipts, bank statements, invoices, letters between you and the debt collector and more.
You can challenge the lawsuit in court if you can demonstrate:
The debt doesn’t belong to you: It’s possible you’re getting sued for a debt that doesn’t belong to you. This can happen when you have a similar name as someone else, or there was a clerical error.
You already paid the debt: The debt collector may be using inaccurate payment records to collect on a debt you already settled.
The amount owed is incorrect: The debt collector could be suing you for more than you actually owe.
The statute of limitations has passed: Debts have statutes of limitations, and when that time runs out the debt becomes time-barred and you can’t be sued for it. Statutes of limitations vary depending on the type of debt and the state you’re in.
7. File for bankruptcy (as a last resort)
Depending on your finances and the amount of debt, you may want to declare bankruptcy. Filing chapter 7 bankruptcy means some or all of your property could be sold and proceeds are divided up to the creditors. Whereas if you file chapter 13 you could keep your belongings and arrange a debt payment plan over a period of time.
Filing bankruptcy should be a last resort — it’s a major financial event with severe consequences for your credit and qualifications for life insurance. Before you consider this route, talk to a debt attorney, financial adviser or another qualified professional.
No matter what you do to resolve your debt, the most important thing is to formulate a plan and respond according to instructions, said Winters. Staying organized, working out a plan with an attorney (if possible) and complying with court instructions will help you resolve the debt and move forward, he said.
Equifax provides tips on negotiating with debt collectors.
Bankruptcy has enormous consequences for your finances and credit. Here’s how to know when it’s the right or wrong choice for you.
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Image: Getty Images / H. Armstrong Roberts