What to Do If You’re Being Sued by a Debt Collector
You receive a phone call from an unknown number and answer it. Your stomach immediately turns. It’s a debt collector. Maybe they’re calling about a medical bill you’ve been putting off paying. Perhaps it’s regarding credit card debt you thought you paid back years ago. Or maybe you have no clue what debt they’re calling about and think it’s a scam.
If you’re confused about the call and aren’t sure how to respond, follow the guidelines outlined below. Whether the lawsuit is legitimate or a scam, here’s everything you need to know if you’re being sued by a debt collector.
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I’m being sued by a debt collector. What are my options?
Depending on your situation, there are many ways you can respond to a lawsuit from a debt collector. Figure out your optimal approach by following these steps.
The most important thing you can do is respond to the lawsuit.
“First and foremost, you will not want to ignore that collection lawsuit [and] decide you’re not going to respond or just put it away or tear it up,” said Barry Coleman, vice president of counseling and education programs for the National Foundation for Credit Counseling (NFCC). “You want to take that lawsuit seriously.”
People are often scared when they first receive notice of a lawsuit and think the best idea is to ignore it and hope they aren’t called again. But debt collectors aren’t going to drop a lawsuit just because you ignore it.
“I think people tend to freak out or conversely, they tend to hide and miss the deadlines, and come in when it’s much, much harder to help them,” said Erik Kardatzke, a consumer law attorney at Debt Defense Law in Coral Gables, Fla.
If you ignore a court action, the court can order a default judgment against you, meaning the debt collector can collect the amount you owe by garnishing your wages, placing a lien against your property, freezing the funds in your bank account or garnishing the funds in your bank account, according to the Consumer Financial Protection Bureau (CFPB).
“One of the things that frequently happens when someone ignores a lawsuit is that the debt collector or the debt collector’s attorney shows up in court, the consumer’s not there, and so the court, in that case, would issue or rule in favor of the debt collector by default,” Coleman said. “Unfortunately, that happens way too often because the consumer just doesn’t respond and may not show up for court.”
Kardatzke said a default judgment typically occurs 20 days after service of a lawsuit. “It’s not always automatic,” he said. “Most debt collectors won’t issue a default on the 21st day, but they have the right to apply for it at that point.”
Even though there are scams out there, Edgar I. Hall, an attorney at Washington Debt Law in Seattle, said to treat everything as legitimate from the outset. You will be able to figure out if a lawsuit is a scam once you do your due diligence.
“Treat any collection attempt as real and legitimate as a default, even if there is no case number,” he said. “In some states like Washington, pleadings can be unfiled when served and there will be no case number.”
Challenge the lawsuit
Debt collectors are often third-party agencies hired by the original company the debt is owed to. If you believe the debt the third-party debt collector is trying to get a hold of isn’t legitimate — meaning you already paid it, it doesn’t belong to you or the amount is incorrect, among other reasons — you can challenge the lawsuit.
Coleman said that if you disagree with any or all of the information in the lawsuit, you will want to file a response to the lawsuit in court. You will then have the opportunity to contest what’s in the lawsuit or ask the court to dismiss the lawsuit. “The consumer could also countersue the creditor or debt collector if they believe that their legal rights have been violated in any way,” Coleman said.
If you’re disputing the lawsuit, you will want to have any and all documentation with you that supports your dispute, Coleman added.
Hall said that people wishing to dispute a lawsuit should consider all counterclaims possible. You can check the Fair Debt Collection Practices Act (FDCPA) for specific violations, which include improperly serving the debtor, serving the wrong person with the same name and violating the statute of limitations. You can also check for Fair Credit Reporting Act (FCRA) violations and Truth in Lending Act (TILA) violations.
Some common reasons people challenge lawsuits include:
The wrong person is being sued. Coleman said that serving the wrong person actually happens quite often. “Sometimes, debt collectors’ information is bad information,” he said. “They somehow file a suit against someone who doesn’t even owe the debt.”
This can happen when two people have a similar name, or when there are multiple generations in one family with the same name (for example: Bill Smith Jr. and Bill Smith Sr.).
You already paid the debt. Coleman said to be on the lookout for a lawsuit regarding a debt you already paid. “Sometimes when debt gets sold to collection agencies, accurate payment records don’t always follow with the debt information,” he said. “If someone feels they’ve paid the debt, and then the debt’s been referred to a collection agency — and they’ve got proof the debt has been paid — they would certainly want to challenge that lawsuit.”
The debt’s statute of limitations has expired. The statute of limitations is the amount of time that a debt collector can legally collect a debt from you. The time frame depends on the state in which you’re being sued and can be anywhere from three to 20 years. In addition, the statute of limitations depends on the kind of debt you have. Medical debt, mortgage debt, state tax debt, credit card debt, auto loan debt, and private student loan debt all have different statutes of limitation by state.
If you believe your debt might be outside of the statute of limitations, you can request a debt verification letter from the debt collector asking about it. The collector must answer truthfully. While a debt collector can attempt to collect payment from a time-barred debt, they cannot sue you, freeze your assets or garnish your wages to do it.
If you deem that your lawsuit is unlawful for any of the reasons above, you can file a claim with the Federal Trade Commission.
Decide whether to accept the judgment
If you decide to accept the lawsuit, there are several options for how you can proceed.
First and foremost, Coleman said consumers accepting a judgment should consider consulting a lawyer. “Oftentimes, consumer law attorneys will offer free consultation, and they might give some advice or tell the consumer what their options might be in an initial consultation,” he said. He added that consumer law attorneys representing debtors often encounter collection agencies that don’t have the documentation to back up the lawsuit.
Hall recommends consulting a licensed attorney who specializes in debt defense.
“Much like a general practice doctor versus a specialist, an attorney focusing in debt defenses should generally be able to give deeper level advice and legal options compared to a generalist,” he said.
Hall said that even if you don’t believe you can afford to hire an attorney, you should ask around, as many attorneys will take your case for a low fee or a contingent fee
Settle the debt
Coleman said that someone who believes their debt is legitimate can try to negotiate an out-of-court settlement in exchange for having the lawsuit dropped.
“It’s a good option for consumers if they know they owe the debt, they agree with the amount and they can afford to pay something,” he said. “They might be able to work out some sort of settlement and not go to court.”
Coleman added that there’s incentive for the collection agency to do this, too, because the hassle and expense of court proceedings is also expensive for them. “There’s certainly motivation on the part of the debt collector to stay out of court if possible.”
Figure out if you’re exempt
Depending on the state and the amount you owe, people with limited wages and assets might be exempt from garnishment of wages, meaning they’re “judgment proof.” Consult a credit counselor, lawyer or other experts in your area to figure out if you fit these criteria.
File for bankruptcy
One option, depending on the size of the debt, is to file bankruptcy. “If the debt is large enough or if you have a large amount of other debts, analyze whether bankruptcy might be a viable option and if you would qualify,” Hall said.
Threatening to file bankruptcy can also help if you decide to settle. “This does not mean you have to file bankruptcy,” Hall said. “Being bankruptcy qualified and willing can represent strong leverage in a settlement scenario.”
If you file Chapter 7 bankruptcy, all of your debts will be forgiven and the debt collector will not be able to collect from you, according to the CFPB. If you file Chapter 13 bankruptcy, you might be able to negotiate a significantly lower amount to pay the debt collector, depending on your situation. Once you pay the agreed-upon amount, a debt collector cannot continue to pursue you.
Kardatzke warned that filing bankruptcy is not an option that should be taken lightly, and it depends largely on the amount of debt you owe. “If you have $5,000 or $10,000 in debt, bankruptcy is really not appropriate,” he said.
If bankruptcy seems a little too extreme for your circumstances, consider paying off debt with a debt consolidation loan. Read more about debt consolidation here.
What not to do when being sued by a debt collector
If you’re being sued by a debt collector, there are a handful of things you shouldn’t do.
Don’t act immediately
If a debt collector on the phone insists you must pay immediately, Kardatzke said you should take a deep breath and count to 10. Don’t agree to anything or share too much information. Ask for a debt validation letter or proof of the lawsuit in writing before anything else.
“[Stall if] anyone demands you make a decision or make a payment today over the phone,” he said. “There’s absolutely no reason why this deal shouldn’t be available in several days when you have time to get it checked out. Everything should be in writing.”
Hall said that if you’d like to verify information from a debt collector, you should hang up the phone and call back using the information you find online or information you get from the local Secretary of State verifying that the collector is legitimate.
Don’t immediately consult a debt settlement company
Kardatzke said people should be cautious of debt settlement companies, and avoid them if possible. “Ninety percent of the people who have come in who used a debt settlement company find they’ve been paying a lot of money for a couple years, but they’ve lost a good chunk of that money with nothing to show for it,” he said.
If you choose to work with a debt settlement firm, it’s crucial you understand what you’re getting into. Not all creditors will work with debt settlement companies, and you will have to pay the company a fee for managing the settlement. If you know exactly what you’re paying for, you may find that working with a debt relief company makes sense for your situation. You can learn more about major debt relief companies here.
Be on the lookout for scams
Because this industry is rife with scams, you should always be on guard for illegitimate lawsuits.
Emails from general domain accounts (@gmail.com, @yahoo.com, etc.) signify a potential scam. “Summons arise on paper, delivered by process servers,” Kardatzke said. “Not by email.”
You should avoid giving too much information, too. A legitimate debt collector might ask for a few details to verify who you are, but you should be cautious about sharing more than a few personal details.
Hall said that consumers should also be on the lookout for anything that seems strange, as legitimate debt collectors tend to follow a “cookie-cutter” approach. “If the collector is claiming immigration is coming for you, police are coming for you, someone is coming to your door or you better pay or you will go to jail, then likely it is a scam,” he said.
Never give access to your bank accounts
Never, under any circumstances, give a debt collector access to your bank accounts.
Coleman said providing bank account information can be taken as authorization to withdraw funds. “Once they have that information, they could certainly debit the account and take an amount that wasn’t agreed upon, which would have all sorts of consequences,” he said.
Do not accept liability
“Don’t explain yourself,” Kardatzke said. “Ask questions. There’s no reason to explain why you went into debt and apologize for it. You are making confessions that could be used against you. And if it’s a scam, you’re giving them a script.”
If you begin rambling or apologizing, you might even be speaking about a different debt than the one they called about, and could potentially talk yourself into a worse situation.
Don’t allow yourself to be a victim
It can be difficult to decipher legitimate debt collection lawsuits from scams. Be alert for anything suspicious, and don’t be afraid to ask for proof of everything in writing. “Even the reasonably educated among us are going to fall for some of this stuff,” Kardatzke said.
Remember: The most important thing you should do is to be proactive. Never ignore a lawsuit, as that can come with a series of unnecessary complications and potential roadblocks. And when in doubt, contact an attorney or nonprofit credit counselor at any point in the process for free or low-cost advice on how to navigate your specific situation.