A lawsuit is typically a last resort for debt collectors; because litigation is expensive, collectors usually exhaust all other options, including demand letters, phone calls and attempts to offer you repayment plans before deciding to file suit against you. Avoiding a credit lawsuit is essential for avoiding financial disaster because, after the collector files suit, your options are severely limited.
Challenging the Lawsuit
After the collector files a lawsuit against you, you will receive a summons. The court will give you time to respond to the suit; the time frame varies by state but is usually about 30 days. You may appear in court or respond in writing, depending on your state's laws, to challenge the suit. Typically, you can only successfully challenge a lawsuit for debt if you can submit proof that you paid the debt, your state's statute of limitations on your debt has expired or the collector filed the suit in violation of procedural laws.
Payment Arrangement
In some cases, a collector may consider a payment arrangement to repay the debt after filing a lawsuit against you. You may contact the collector after receiving a summons to inquire about a payment arrangement. However, the collector is under no obligation to provide you with repayment options and may be less likely to work with you than if you had contacted the collector before the lawsuit. Also, a payment arrangement will not avoid judgment; if you violate your payment agreement, the creditor can use the judgment to collect from you.
Bankruptcy
Filing bankruptcy will stop the lawsuit and judgment process. A personal bankruptcy provides protection from collection efforts and allows you to reorganize or erase most types of debt. Your bankruptcy attorney will notify the court of your bankruptcy as soon as you file to halt judgment proceedings. However, filing for bankruptcy protection will affect your credit for 10 years after discharge.
Ignoring the Lawsuit
Although not recommended, you may choose to ignore the lawsuit. If you choose this option, the court will issue a default judgment in favor of the collector. After default judgment, the collector can place a lien against your home or other real estate, which prevents you from selling your home until you satisfy the judgment. In most states, the collector can also freeze your bank accounts, garnish your wages and liquidate your property to satisfy your debt, subject to state restrictions and exemptions.
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