When you owe a creditor and something occurs so you can no longer make the payments, the company has limited options. It can write the debt off or it can try to collect from you. If lenders wrote off all their debts, they might have a hard time staying in business. The majority attempt to collect by filing a lawsuit against you. This is only the beginning of the process, however.
The Process
Your creditor generally will not rush straight to the courthouse as soon as you miss a few payments. It cant sue you free of charge. It must pay court filing fees and attorneys fees, which can become substantial if you fight the lawsuit. Usually, your creditor will try all other means of collecting from you first, through written notification and phone calls. After a period of time elapses with no successful resolution of the debt, your creditor will file a summons and complaint in your state's civil court. Most creditors will send you a duplicate copy of the complaint by certified mail, which in many states constitutes service. However, some states require that a process server hand the complaint to you personally.
What You Should Do
After you receive the complaint, your best course of action is to answer it. If you dont, youll automatically lose the lawsuit. If you do, youll put your creditor on alert that suing you is going to cost some additional money. If you answer, your creditor must pay an attorney to appear in court at the appointed time. Depending on how large your debt is, this might even cost more than the amount you owe. The effort to sue you could actually end up costing your creditor money. After you answer the complaint, your creditor will probably make overtures to you for settlement, such as paying a lesser amount in a lump sum, or setting up a payment plan. To answer the complaint, go to the courthouse and ask the clerk for an answer form. Complete it, sign it and file it. You usually have about a month after receiving the complaint to do this.
The Result
If you dont reach a settlement, and if you dont answer the complaint, the court will probably award your creditor a default judgment against you. After your creditor has this judgment, it can apply for a writ of execution. A writ of execution allows your creditor to garnish your wages and your bank accounts and to potentially file liens against your property.
Other Creditor Options
Even if your creditor writes off your debt, this might not help you avoid a lawsuit. If your creditor decides that it is probably not going to be able to collect from you, but it doesnt want to go to the time and expense of filing a lawsuit against you, it might sell your debt to a debt buyer. These collection companies pay a percentage of your debt, then take over the job of trying to collect the original balance from you. Theyll tack on collection fees and other penalties, so if they do manage to collect from you, they make money. Debt buyers have the right to sue you as well, and they are often more aggressive than the original creditor.
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