When did you make the last payment on your credit card? Was it 3 months ago or 6 months ago? If you made the last payment almost 180 days ago, you are in trouble.
Your creditors might have assigned the account to a third-party debt collection agency. Debt collectors might send letters or call you to settle the debt. If you refuse to entertain their calls or respond to letters, they might even file a lawsuit against you.
What to do when a debt collector files a lawsuit against you
No one likes to get sued. However, if the unfortunate incident happens and the debt collection agency files a lawsuit against you, here are a few steps you can take.
Respond to the lawsuit
When you are served court papers, the first thing you need to do is read them thoroughly. It is essential to accept the court papers. Refusing to accept the court papers won’t do any good. It will give more power to debt collectors. If you don’t respond to the lawsuit or narrate your story to the judge with evidence, the court will issue a default judgment order against you. Three things may happen in this scenario.
- The court will garnish your wage
- The court will freeze your bank account
- The court will impose a lien on your property
Remember, a judgment is a court order. It is tough to contest or set it aside. Moreover, you have to pay attorney fees, collection fees, and other legal fees. Moreover, you won’t get the opportunity to dispute the debt. Even if the debt is not valid or the amount is incorrect, you can’t do anything.
When you respond to the lawsuit within the deadline, the debt collection agency has to do the following things:
- Prove that the debt is valid
- Prove that the amount is correct
- Prove that they have the right to file a lawsuit against you
This gives you some power since the debt collector has to give you some vital information. It may help you save on legal expenses and navigate ways to pay off debt.
Read the instructions on the court papers and check the deadline. Usually, the deadline is between 20 and 30 days. Submit the notice of appearance form within the deadline to avoid judgment and a wage garnishment order.
Hire an attorney
An attorney knows the state and federal debt collection laws. They know the legal jargon and the statute of limitations period. They can help you understand the court papers and draft a reply keeping your financial situation in mind. Most importantly, attorneys can also settle debt out of court.
The attorneys know debt settlement tricks. They know how to negotiate with collection agencies and arrange an affordable repayment plan. Attorneys analyze your financial situation to determine how much you can pay your creditors and the consequences.
Attorneys can arrange an affordable repayment plan or a lump sum payment. Whatever the solution, you must pay less than what you owe.
Yes, it is true that some attorneys are expensive. They charge high fees. But there are also a few attorneys who charge moderate fees or nominal fees. You can consult them.
Check your financial documents
Look at your financial records. Read the debt validation letters sent by the collection agency. Is the information correct? Is the debt too old?
If the SOL (statute of limitations) period is over, the debt is time-barred. Even if the debt collection agency has filed a lawsuit against you, they can’t do anything. All you need to prove is that the SOL clock has expired. Although a debt collection agency can ask you to make payments, they can’t sue you.
Please don’t acknowledge the debt. If you accept it or make a partial payment, the SOL clock will restart. In that case, the debt will no longer be considered invalid. Debt collectors can file a lawsuit against you again and you will be in trouble.
Report to the proper authorities
If you find debt collectors have broken the laws or have harassed you in any way, you can report to authorities. This includes the state attorney general’s office, the FTC, and the Consumer Financial Protection Bureau. etc. Report the issue in detail to initiate the investigation.
If you are confident that the debt collection agency has violated laws, you can file a lawsuit against them. You have the right to sue them within a year. If you win the case, you can ask the collection agency to pay for the emotional and financial damages you have endured due to them.
Conclusion
Debt collection laws are simple and yet complex. If a debt collector files a lawsuit against you, fight with all your might. Don’t surrender. Read the federal debt collection laws in detail. Know your legal rights so that you don’t fall victim to deceptive collection practices. Hire a debt collection attorney to be on the safe side. They can help you explore your options and make the best decision.
For deeper insights into effective personal finance management, explore our guide on Why Personal Finance Is Important.