What to Do if You’re Sued by a Debt Collector

What to Do if You’re Sued by a Debt Collector article image.

If someone has been past due on a debt for several months, lenders may sell the debt to a collection agency, which will take steps to collect the money from the borrower. In many cases, debt collectors turn to lawsuits to try to force collection through the court.

If you've recently received a summons for a debt-related lawsuit, it's important to understand what you're up against and how you should proceed.

What a Lawsuit From a Debt Collector Means

Debt collectors employ many different tactics to try to collect on a debt—and in many cases, they turn to lawsuits to make it happen.

When a debt collector files a lawsuit against a consumer, they're trying to get a court to force collection. This can come in the form of wage garnishments, property liens and bank account freezes, all of which can have a serious negative impact on your life and financial well-being.

If you simply ignore the lawsuit, the court may enter a default judgment, which essentially gives the plaintiff—the collection agency, in this example—what they're asking for. As a result, it's crucial that you respond quickly when you've been sued by a debt collector.

Here are four steps you can take to protect yourself in a lawsuit.

1. Challenge the Lawsuit

Debt collectors are never the original lender, which means that there may be details about the situation that you can use in your favor.

Depending on where you live, for example, a lender may not be legally allowed to collect on a debt after a certain period, which can range from three to 20 years.

It's also possible to be sued for a debt that you've already paid off—in this case, a mistake has been made, but you shouldn't have to pay for it.

Finally, it's possible to be sued for a debt that doesn't even belong to you. Or, even if the debt does belong to you, the collection agency may have the wrong figures or you may no longer owe money because the statute of limitations on the debt has passed.

If you disagree with any or all of the information in the lawsuit, you can contest it. You can also challenge a lawsuit if you have evidence that a collection agency has violated the Fair Debt Collection Practices Act and your consumer rights.

The important thing is that you respond by the date provided in the summons.

2. Provide Documentation

If you're going to challenge the lawsuit, make sure you have evidence of your claims. For example, when a debt collection agency first contacts you about a debt, it's required to provide a debt validation letter within five days. Furthermore, they're required to verify the debt if you dispute it within 30 days of the first contact.

If you have these documents, you can share them with the court, along with your own documentation showing that you no longer owe the debt or the figures are incorrect.

Also, if you believe the collection agency violated your consumer rights, share documentation backing up your claim, which can be in writing from the agency or a recording of a phone call.

The important thing is that you take steps to prove your case so that the court either rules in your favor or limits what the collection agency can do.

Finally, if you aren't sure you can win but you have limited wages and assets, provide documentation showing this, as the court may prevent the agency from garnishing your wages or freezing your bank accounts.

3. Consider Alternatives

If you have no reason to dispute the lawsuit, consider some of your alternative options. If you can afford it, for instance, you may offer to settle the debt.

Debt settlement involves paying less than what you owe on an account. Because debt collectors typically buy debt for pennies on the dollar, they're often open to a settlement. Even if they're confident they'll win the lawsuit, settlement can help the agency avoid costly court and attorney fees.

If your financial situation is dire, you may also consider filing for bankruptcy. While it's rarely ideal, bankruptcy can help you avoid paying the debt and making an already unmanageable situation worse. It could, however, have a devastating effect on your credit.

4. Hire an Attorney

If you want to fight a debt collection lawsuit, it may be a good idea to hire an attorney. While you can defend yourself and save money, the right attorney will have experience working with consumers and protecting their rights.

An attorney can help you determine the best steps to take to defend yourself and which alternatives to consider based on your situation. They can also work as a middleman between you and the collection agency, so you don't have to worry about dealing with the agency directly.

How Debt Collections Affect Your Credit

When a lender sells a debt to a collection agency, that agency may choose to report it as a separate account on your credit reports. Just like late payments, collection accounts can damage your credit score significantly.

But if the collection account is inaccurate, you can file a dispute with the credit reporting agencies. In some cases, the information may simply be updated instead of removed entirely.

If the information is accurate, the collection account will remain on your credit report for seven years from the original delinquency date on the original loan—in other words, the first time you were late on a payment.

For example, if you stopped making payments on a loan in July 2019 and the collection account was first reported in January 2020, the negative item will remain on your reports until July 2026.

Building Credit After Collections

Regardless of how you approach a lawsuit from a debt collector, it's important to start taking steps to improve your credit. While you can't remove a legitimate collection account from your credit report, you can take steps to build a positive credit history—which can help outweigh negative items on your credit reports over time.

Start by monitoring your credit regularly and considering areas of your credit reports that you can address. This may include paying down credit card balances, getting caught up on other past-due accounts, disputing inaccurate credit information and more.

The process of rebuilding credit after collections can take time, but it can make a big difference in your financial life in the long run.

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