Can You Be Sued If You Are Paying on Debt?

Since debt arises as a result of a legally binding contract between a creditor and a debtor, failure by the debtor to pay according to the terms of the agreement would constitute a breach of contract. For most consumer credit transactions such as a credit card agreement or an installment car loan, the terms and conditions of the contract are clearly specified within the agreement including repayment terms and the incidents that will give rise to a default or breach of the contract.

Breach of Contract

If a debtor were making payments on the debit balance owed in accordance with the terms and conditions of the repayment agreement, the creditor would have no reason to file suit against the debtor and no legal case even if he were to do so. If, however, the debtor is making payments, but the amount of the monthly payment is below the minimum monthly amount required by the repayment agreement, the creditor would be within his rights to sue the debtor for breach of contract.

New Payment Terms

A debtor who diligently makes payments under the terms of a new repayment arrangement executed with the creditor and is later sued by the creditor for breach under the terms of the original contract might have a good faith defense to the action.

Novation

Novation is a legal concept that holds that if a creditor and debtor agree to new repayment terms they have in essence entered into a new contract the terms of which supersede those of the original contract. Whether the debtor would prevail on his legal argument would depend on the nature of the new payment agreement, whether it was oral or in writing and whether or not the creditor explicitly waived his rights to sue for breach of contract under the terms of the original contract.

Considerations

Though the decision to file suit would depend on the facts, circumstances and financial condition of each debtor, as a practical matter, most creditors would be reluctant to institute legal proceedings against a financially destitute debtor who is making a good faith effort to make some kind of payment--however modest--toward his debit balance. Even if the amount of the payments remitted by the debtor is below the required minimum monthly installment amount, unless the creditor has reason to believe that it would be able to secure additional sums from the debtor after obtaining a judgment, incurring court costs and attorney's fees would be wasteful.