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You’ve Been Served with a Collection Lawsuit? What to Do Now?

June 22, 2012

Lawsuit papers are NOT like all the rest of the collection letters that have likely been piling up for months. There are usually real consequences to a lawsuit.

If you get served with a lawsuit, it’s understandable if you believe that there is nothing you can or should do about it. But doing nothing is almost never a good idea.

Why Not?

  1. Doing nothing usually has bad consequences: Lawsuits are not cheap for the creditor or collection agency. Often it only pays the costs of filing that lawsuit because it has checked you out and it believes that it will get back what it paid and a whole lot more out of you because of that lawsuit. In fact, the creditor/collector is often directly targeting the way it expects to get paid by you—by garnishing your bank or credit union account or paycheck, by putting a lien on your home, or simply squeezing you to pay whatever way you can.

    The vast majority of lawsuits end up as “default judgments,” judgments in favor of the creditor because the consumer did not respond by the deadline. At the least, that allows the creditor to tack on a bunch of additional fees, making you legally liable for them as well. Often the judgment allows them to start separating you from your precious money, often in ways that most hurt you. A judgment gives the creditor serious advantages. Don’t allow that to happen. Find out the consequences right away after you’ve been served, because you have only a few days to learn and act on your options.

  2. Doing nothing results in much more than just an admission that you owe the debt: The “complaint” that is the main document of the lawsuit usually states that you owe a debt, have not paid it, and now owe the whole debt, plus related interest, attorney fees and the costs. In most situations, these allegations seem to be true so you assume you can’t fight back. The point to fighting back—or at least looking into whether or not you should—is that once the deadline to respond passes and a judgment is entered against you, that closes the door to some important rights:

    • Your right to raise possible defenses. Collection agencies are often either not careful about whether the debts they are pursuing are legally valid, or purposely pursue invalid or at least highly questionable debts. After all, if consumers seldom object and just allow judgments to be entered by default, you can see why the collectors sometimes don’t worry much about how solid their lawsuit really is. So it’s worth having an attorney review the complaint to see if the statute of limitations on the debt has expired, or if they are even suing the right person, or if you have some other defenses. Once a judgment is entered against you, it becomes either impossible or extremely difficult to raise any such defenses.

    • Your right to raise counterclaims. A counterclaim is your argument that the creditor did something wrong—usually either in the way the debt was created or in how it was collected—which has damaged you in the eyes of the law, and so the creditor owes you money. If you allow a default judgment against you, that could take away your ability to raise the counterclaim, or at least take away the leverage from that counterclaim just when you need it most.

    • Your right to dispute facts which go beyond you simply owing the debt. Some debts are more difficult to write off in bankruptcy once a judgment is entered on certain damaging facts. So you should have an attorney review the lawsuit before it becomes a judgment to avoid being at a disadvantage if you ever need to file bankruptcy.

  3. Doing nothing especially doesn’t make sense when you have an easy and wise alternative: Any lawsuit is a serious matter, one that you need to fully understand. You need legal advice about it, but often it’s hard to know where to turn for it. Unfortunately most consumers do not have a “family attorney” or “primary care attorney” in the way that most people have a family or primary care doctor. So by the time you get sued the problems have accumulated and probably lots of questions about your debts and finances have gone unanswered. Most likely you’re living with confusion and anxiety that is weighing heavily on your entire quality of life.

Most attorneys who work with consumers about debt issues provide a free initial consultation meeting. So, as soon as you get sued talk with at least one attorney to get advice about the papers that were served on you.