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Fighting for the Little Guy in Portland & Beyond

Getting Sued in a Collection Lawsuit is Your Clear Invitation to Look Closely at the Bankruptcy Option

The honest truth is that people don’t do something they think will be unpleasant unless and until they have to. That’s often true even if that something is by far the best thing for them to do. So, understandably people don’t see a bankruptcy attorney until they feel they have to, because thinking about filing bankruptcy is no fun, right?

Meeting with a bankruptcy attorney may be one of the best things you can do for yourself. That’s what many of our clients say after their first meeting with us. But human nature being what it is, sometimes a little incentive helps.

That’s why getting sued by a creditor or collection agency CAN be a good thing. Granted, most of the time getting sued is NOT a good thing. Bad consequences can flow from a lawsuit if you don’t do anything about it. But if getting sued gives you the incentive to see an attorney about those consequences, and as a result you find out about your options AND act to solve your problems long-term, THAT would be a good thing.

Your Short-Term Incentive to See an Attorney

When you get served (in person or by mail) with lawsuit papers, you have very limited time to act before you lose the lawsuit by default. At that time a judgment would be entered against you. You should do what you can to avoid that from happening. And you should definitely never let that happen to you without understanding very clearly what the consequences would be. To find out those uniquely personal consequences you need to meet with a competent attorney.

In some limited situations the attorney may advise you simply to do nothing in response to the lawsuit. But even then, and maybe especially then, it’s crucial that you understand why that is appropriate in your circumstances, what additional powers a judgment would give the creditor, and what you need to be on guard for if your circumstances were to change.

Most of the time, it will be in your best interest to do something in response to the lawsuit. Often the creditor is anxious to settle the matter because the judgment will take a long time to pay off through often erratic garnishments. So it may well be willing to discount the balance or enter into a reasonable payment plan. Whether you have an attorney handle the settlement or negotiate it yourself with guidance from an attorney, you will often have extra leverage because the creditor is aware of the risk that it will usually receive nothing if you file bankruptcy. A large percentage of collection lawsuits turn into judgments by default, so in the relatively few times that a creditor hears from a debtor’s attorney the creditor is generally willing to settle to avoid pushing the debtor into bankruptcy. The creditor knows that bankruptcy is an option that the attorney will have discussed with the debtor. The informed debtor is a much harder target than an uninformed one.

Your Long-Term Incentive to See an Attorney

Often settlement of the lawsuit is simply not a feasible option for you, no matter how reasonable the terms from the point of view of the creditor. In many situations, by the time you are sued, your financial situation is doing quite badly. The lawsuit may indeed be a strong signal to you that it’s time to take serious steps to deal with a broader set of financial problems. The lawsuit is just the tip of a much bigger financial iceberg.

Assuming that you are willing, your attorney will open up the discussion to look at your overall financial life. He or she will likely be able to lay out broader solutions for you, ones that would both deal with the immediate lawsuit and give you relief from your debts in general. Depending on all your circumstances, those solutions may include Chapter 7 “straight bankruptcy” and/or Chapter 13 “adjustment of debts.”

Whether you want to address just the immediate lawsuit or instead use a broader approach is totally up to you. An attorney will not make you do anything, and certainly will not make you file bankruptcy. He or she will do no more than make recommendations based on your circumstances, and based on the problems and goals you present.

Conclusion

Common sense says that a lawsuit by a creditor is a serious matter, something that you know you need guidance about from an experienced debtor-creditor attorney. In most (but not all) situations, such a lawsuit is an indication of broader financial problems. If so, the lawsuit may be a good incentive to think about ways to solve those broader problems once and for all. Since you really need to see an attorney whether you are dealing with just the immediate lawsuit or also a broader situation, contact one right away after you receive the lawsuit papers. Addressing any of this when you are up against the deadline to respond not only makes it unnecessarily tense for you, it can reduce your negotiating leverage with the creditor and make it harder to protect your assets.