Not knowing how to pay off debt is overwhelming enough — but what happens if you’re being sued for debt? Adding a lawsuit to the mix can add to feelings of helplessness, especially if you’re struggling to pay your bills and you’re not sure how to navigate the legal system.
So, what happens if a loan company sues you? While the process isn’t one to look forward to, you do have options. Here’s what you need to know about being sued for debt.
What happens when you’re sued for debt?
How the lawsuit plays out depends, in large part, on where the creditor (or debt collector) files the suit, according to Leslie Tayne, an attorney who specializes in consumer debt. She says, though, that the whole process can take anywhere from two months to more than two years.
“The amount of the debt will determine where the matter is filed and how it is filed,” says Tayne, adding that the rules of the state where the lawsuit is filed matter as well.
When you receive notice of legal action, Tayne suggests getting in contact with a knowledgeable lawyer who can help you navigate the process. This is one of the first things you should do, since waiting too long could result in even more trouble.
How a debtor is notified of a suit
When you’re being sued for debt, it’s generally because collection efforts have been unsuccessful and the creditor has decided that the matter is worth pursuing in court, according to Tayne. If this is the case, the creditor will have their attorney prepare the papers and file with the proper court authority.
You’ll be notified of the lawsuit, along with instructions about how to respond, one of three ways, says Tayne:
- In person
- Via mail
- With paperwork left at your home or business
As the debtor, you are the defendant in a lawsuit, while the creditor is the plaintiff.
How you should respond
You’ll be given instructions on how to respond to the suit. Depending on these instructions, you might not have to personally appear in court — especially if you live in a different state.
“Because the word ‘appear’ is on the document, people think they have to go to court,” says Tayne. “But I suggest talking to an attorney or calling the court.”
There might be other acceptable ways to respond by the deadlines given. Donald Petersen, an attorney who has defended scores of consumers in collections actions, points out that responding is vital if you don’t want to lose outright.
“The plaintiffs in the debt collection cases typically obtain default judgments against defendants in 85 to 90 percent of the cases because defendants fail to respond,” Petersen says. “When they do show, most of the consumer debtors attempt to represent themselves. This is a mistake.”
Like Tayne, Petersen recommends speaking with an attorney as soon as possible to ensure that you respond appropriately and on time, and so you can get help using the rules of evidence to defend yourself.
Potential outcomes of a debt collection trial
If you win, says Petersen, some states allow you to recoup your attorney fees. In cases where you can show that a creditor violated the Fair Debt Collection Practices Act (FDCPA), you might be able to receive even more.
If the suit is dropped and the debt discharged, you can dispute the information on your credit report, and it should be removed, Petersen points out. Keep checking your report to ensure that, at the very least, the public records portion is updated to show that you won the suit.
On the other hand, if you lose, the creditor receives a judgment against you, says Tayne. The creditor can then use this judgment to go through the process of garnishing your wages or even seizing some of your property to offset the debt.
If you think you’ve been treated unfairly, says Petersen, you can appeal the decision.
5 steps to take if you’re being sued for debt
When you’re being sued for debt, you need to be prepared to do what you can to protect yourself, especially if the debt collector has used illegal means to attempt to collect the debt or if you’re not sure the debt is even yours. Here’s what you should do.
1. Contact a lawyer
Your first step should be to contact an attorney specializing in consumer collections cases. Petersen points out that you should look for a consumer protection lawyer and not a bankruptcy attorney.
“Experienced debt collection defense attorneys seldom lose a case,” Petersen says. “It happens, but it’s rare, especially if the court enforces the rules of evidence.”
A good attorney can help you prepare your case, as well as provide you with direction when it comes to figuring out how to determine if a debt really is yours — or if the creditor has a right to sue you for it.
2. Figure out if the debt is enforceable
Next, with the help of your lawyer, figure out if the debt is enforceable. Check to see if the debt is within the statute of limitations. Tayne says to also make sure that the following information in the summons is correct:
- Amount listed as owed
- Identifying information, including your name and its spelling
- When the debt was acquired
“Compare the information in the summons to your own records,” says Tayne. “With debt collection companies, your data may have been sold and resold, so errors are possible and could be a saving grace.”
If the debt isn’t enforceable, you could have the suit decided in your favor.
3. Decide on your response
With the help of your attorney, decide on your response.
Petersen says that if you have documented cases in which the creditor or debt collector has violated the Telephone Consumer Protection Act (TCPA), you could actually argue that they owe you money.
“You have a potential cause of action for $500 to $1,500 per call, or an aggregate amount which may exceed the plaintiff’s claim,” says Petersen. Bringing this up with the creditor may encourage them to settle out of court instead.
It’s also possible to contact your creditor ahead of time and offer to settle the debt or come up with a payment plan. Tayne recommends making this contact with the help of an attorney, since you don’t want to give too much away.
“Do not tell the creditor everything about your situation, because you could make matters worse for yourself,” Tayne says. “You could waive some of your rights and defenses by signing documents and discussing details the creditor should not be told.”
4. Show up to court
Depending on the situation, your actual presence might not be required in court, says Tayne. However, you should have a representative there to manage affairs on your behalf. Discuss the proper way forward, including whether you have to be physically present, whether there’s a way to manage the whole process in writing, and other steps you can take.
If you do end up going to court, it’s important to prepare a thorough defense.
“Work to gather all the necessary information and documentation to support your case,” says Tayne. “You have to have a valid legal defense other than inability to pay to win.”
Tayne also says you could win on a procedural error made by the other side, but most defendants would need an attorney present to help them identify these errors and bring them to light.
5. Prepare for the judgment
Prepare yourself ahead of time for the possibility that you could lose. Consider that you might have to pay to get out of debt, and prepare your finances for that possibility. However, if you really can’t pay everything at once, you might be able to work out a payment plan, says Tayne.
Another option, Petersen points out, is to appeal the case. If you appeal, you might get some breathing room before you’re required to satisfy the debt. Additionally, Petersen says, you should also prepare to submit a list of assets that might be exempt from the judgment, reducing the income or property a creditor can go after to fulfill the debt.
“Sometimes, consumer bankruptcy is a viable solution,” says Petersen. “If the debts aren’t close to the time barred under the statute of limitations, consider bankruptcy if you need to protect more of your assets.”
Bottom line
If you’re being sued for debt, you do have some recourse. You might be able to head off a trip to court if you can work with your creditor to create a new payment plan or agree to a settlement.
Additionally, if you can prove the debt collector has made mistakes in documentation and they can’t produce a validation letter, you might be able to have the suit against you dismissed and the debt discharged.
However, your best bet when it gets this far, says Tayne, is to get an attorney to help you organize your response.
“The worst thing to do is ignore the lawsuit,” Tayne says. “It’s so much more complicated if you have a judgment against you before you decide to get help.”
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Author Details
Miranda Marquit Miranda Marquit has covered personal finance for more than a decade and is a nationally-recognized financial expert and journalist, appearing on CNBC, NPR, Forbes, Yahoo! Finance, FOX Business, and numerous other outlets.
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