When debt collection agencies file a lawsuit, debtors can take steps to increase their chance of winning and avoiding paying the debt.
What Should a Debtor Do if a Debt Collection Agency Files a Lawsuit?
When debtors miss enough payments, a debt collection agency can file a lawsuit seeking a judgment against them. If the court enters a judgment against the debtors, the agency can use it to collect the debt. In the most extreme cases, it can seize debtors’ personal property to recover the amount owed.
The collection agency has to win its lawsuit before the court enters a judgment. When debtors receive notice of the case, they can take steps to increase their chances of winning. Debtors should:
- Respond to the lawsuit. If debtors ignore a debt collection lawsuit and fail to answer it, they automatically lose. Debtors should respond, without admitting liability, as soon as possible. They should file the response with the court and send a copy to the collection agency via certified mail.
- Challenge the collection agency’s right to sue. Collection agencies typically buy debt from other creditors in large quantities, paying much less than it is worth. Because they purchase debt in bulk, they don’t always get the proper documentation for each account. The debtor should challenge the collection agency’s right to sue and ask it to produce the original credit agreement with the debtor’s signature. The agency has the burden of proving its case and must show that the debtor owes money. If it cannot produce the original agreement, it cannot collect.
- Attempt to settle the debt. Court cases are expensive and time-consuming. Collection agencies may be willing to negotiate a settlement for a lower amount to avoid a trial.
- File for bankruptcy. If debtors are in overwhelming financial trouble, they can file for bankruptcy. Once they file, the court enters an automatic stay that prohibits creditors from continuing collection efforts. While bankruptcy provides immediate relief from debt collectors, it does have a long-term negative impact. Debtors may have to sell some of their assets to pay outstanding debts. Further, a bankruptcy can remain on a debtor’s credit history for up to ten years.
While all of these steps can help debtors win the lawsuit, their best option is to hire a lawyer. A debt collection lawyer deals with collection lawsuits regularly. A lawyer is in the best position to advise debtors on the best steps for their unique situations.