A debt collector will make several attempts to collect on an outstanding debt before initiating a lawsuit. If you are worried about a debt collector taking you to court, it’s important to understand your rights. This article will discuss whether debt collectors can take you to court, the steps to take if you are sued by a collection agency, and how to handle your debt-related challenges.
Written by Attorney Karra Kingston.
Updated November 29, 2021
Individuals who are struggling to pay their credit card bills and other debts are all too familiar with the reality of notices and phone calls initiated by debt collection agencies trying to collect on their unpaid debt. If ignored, these phone calls and notices may turn into an even more stressful situation. A debt collector will make several attempts to collect on an outstanding debt before initiating a lawsuit.
If you are worried because you are receiving threatening letters and phone calls from debt collectors, it’s important to understand your rights. This article will discuss whether debt collectors can take you to court, the steps to take if you are sued by a collection agency, and how to handle your debt-related challenges.
Debt Collectors Can Sue You
Many people are surprised to learn that debt collectors can sue debtors for the balance of any outstanding debt. Many times, debt collection agencies will bring a lawsuit for breach of contract because when individuals don’t pay the debt they agreed to pay. Only debt collectors who own delinquent accounts are allowed to bring a lawsuit. Generally, debt collectors become owners of debt when they buy the rights to collect upon an account from an original credit card company or other unsecured creditor. Many creditors will sell their unpaid accounts to debt collectors for pennies on the dollar once a debt becomes 90 days or more past due. When this happens, individuals will notice the account on their credit report from the credit bureaus listed as a “charge off.” A charge off indicates that a creditor has closed an account holder’s account because they have failed to pay their delinquent debts. Many people believe that a charge off means that they are no longer liable for the debt. This, however, is not the case, they are still liable for the debt even though the debt has been sold to another company.
Time Limit on When a Debt Collector Can Sue You
A statute of limitations is the timeframe by which a creditor or debt collection company is legally allowed to sue you to collect upon the debt you owe. The time in which the statute of limitations extends is dictated by state law. Thus, every state has a different time frame in which a creditor can try to collect an outstanding debt against you. After the statute of limitations has been exhausted, a creditor can no longer sue you.
Often, individuals assume that because they have not heard from any collection agencies in many years, their debt is gone. This is not exactly true. Certainly, “ghost debt” or “zombie debt” that has been inactive past the statute of limitations period doesn’t have the ability to “come back to life.” However, over the past few years, numerous debt collectors have begun trying to collect on ghost debts. Debt scavengers purchase debt that has run past the statute of limitations in hopes that they will get an individual to repay their debt. These debt collection agencies purchase old debts that individuals are either no longer legally responsible for or are far beyond the statute of limitations and begin harassing consumers to pay the debt. Many of these debt collectors try to scare people by intimidating them, when in fact, the individual has no legal obligation to pay off the debt.
Individuals faced with either debt scavengers or legitimate debt collectors who are using unreasonable tactics have options. Under the FDCPA (Fair Debt Collection Practices Act) individuals can take legal action against a collection agency that uses unfair or threatening practices to collect a debt. The FDCPA protects consumers under federal law who are dealing with harassing collection agencies. Individuals may begin by reporting them to the Federal Trade Commission and the Consumer Financial Protection Bureau.
The time allowed for debt collectors to collect on outstanding debt varies greatly state by state. In most states, the statute of limitations runs anywhere from three to ten years. Generally, the time starts to run from when the person stops making their last payment. Individuals should be careful about speaking to debt collectors. The statute of limitations can start over if the individual makes a payment on their debt. If a debt has exceeded the statute of limitations, individuals can send written notice to the creditor to stop contacting them.
Individuals can use the statute of limitations as a defense to a collection or judgment action if the permissible amount of time has elapsed wherein a creditor may lawfully try to collect a debt. Keep in mind, the creditor can still choose to pursue a debt collection lawsuit against you for the outstanding debt, but articulation of a statute of limitations violation can help you to get that lawsuit dismissed.
Steps To Take if You Are Sued by a Collection Agency
If you are sued by a collection agency, it will be important to review the complaint very carefully and check that everything in the complaint is accurate. Some questions you’ll want to ask yourself include:
Is this debt yours?
Is the amount of money they are claiming correct?
Has the statute of limitations run?
The biggest mistake you can make is to ignore a lawsuit from a collection agency. When a complaint is filed, you must answer the complaint within a certain time. The time in which the complaint must be answered is dictated by state law. You can either hire an attorney to help you answer the complaint or represent yourself pro se. It is important to deal with your financial issues head-on, as doing so will help you avoid the worst possible consequences under the circumstances.
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What Can Happen if You Ignore the Lawsuit
If you ignore a lawsuit, you can make things more complicated for yourself. Once you ignore a lawsuit from a debt collector long enough that you pass the date upon which you’re entitled to mount a defense or otherwise resolve the issue, the creditor will get a default judgment against you. A default judgment allows a creditor to collect the money owed to them by garnishing your wages, attaching liens to your property, and/or levying your bank accounts.
By failing to answer a complaint, you’ll lose defenses that may have been available to you. For example, you can lose the ability to assert the passing of the statute of limitations. Even if your defense won’t get the lawsuit dismissed, it may allow you to negotiate with your creditor to get your debt settled at a lower amount. Once a default judgment is entered, the creditor has the upper hand and will typically not want to settle with you because they’ll have other means to collect the outstanding debt in full (ie. getting a wage garnishment, levying bank accounts, etc.)
When Having a Judgment Against You May Not Matter
Sometimes, individuals are legally considered to be judgment proof. When an individual is judgment proof, creditors can attempt to collect a debt against that person but, even if they secure a judgment against the debtor, debt collection agencies won’t be able to recover any money from them because they don’t have any nonexempt assets, earn too little income, and/or are receiving funds that can’t be garnished. For example, people collecting Social Security benefits, child support, veteran’s benefits, worker’s compensation, and disability benefits are generally protected from having those benefits garnished.
What Happens After You Respond to the Lawsuit
Before you submit your response to a lawsuit, you’ll need to decide whether you want to represent yourself or hire a lawyer to represent you. To respond to the lawsuit, you will have to appear in court. You may be able to negotiate with your creditor to alter the terms of your repayment. If you decide to go this route, it may be worth considering an offer of a lump sum payment. Many times, creditors are willing to accept a lump sum payment instead of waiting months or years to get their payment in increments.
Most of the time, people who are being sued by a debt collector have bigger debt problems beyond a single collection action. If this scenario is familiar to you, it may be a good idea to explore all of your debt relief options.
You Have Options on How To Handle a Debt Problem
If you are worried about your debt, know that you have options that you can explore to help you manage your debt-related challenges. One powerful debt relief option is bankruptcy. Bankruptcy can immediately stop a creditor from pursuing a lawsuit for unpaid debts. If a discharge is ordered in your bankruptcy case, you will no longer be held liable for your discharged debts and all collection and judgment actions tied to those debts will cease.
Bankruptcy isn’t right for everyone. If you are unsure whether filing for bankruptcy is the right decision for you, then you may want to speak with a bankruptcy lawyer or credit counseling agency that can review your financial situation and determine what debt-relief option is best suited for you.
Types of Bankruptcy
Individuals considering personal bankruptcy have two options, they can either file for Chapter 7 bankruptcy or Chapter 13 bankruptcy. Individuals who want to file Chapter 7 bankruptcy, must qualify. To qualify, individuals must pass the Chapter 7 means test which, in part, compares their household income with their state’s median income. Individuals who do not pass this will have to file a Chapter 13 reorganization bankruptcy instead of Chapter 7 liquidation bankruptcy.
In Chapter 13 bankruptcy, individuals are required to repay their debts over 3-5 years. To file Chapter 13, the individual must show the court they have enough disposable income to propose a repayment plan. Chapter 13 can be a good tool for individuals who need to catch up on their mortgage arrears. The Chapter 13 repayment process allows individuals to pay their mortgage arrears through the plan to avoid foreclosure.
If you are considering Chapter 13 as a debt relief-option, it is important to speak with a bankruptcy lawyer who can help you through the process. Most Individuals who file Chapter 13 without a bankruptcy lawyer fail to complete their repayment plan. Unlike, Chapter 13 where the failure rate is high, Chapter 7 cases are fairly straight forward and can be completed without a lawyer. Upsolve’s free web app can help you file bankruptcy on your own.
Alternatives to Bankruptcy
If you don’t think bankruptcy is the right debt-relief option for you, then you may want to consider some alternative options such as credit counseling, debt settlement, and debt consolidation.
Credit Counseling:Credit counseling is a good starting point for individuals who are trying to determine which debt-relief solution is best for their financial situation. The credit counseling process involves meeting with a non-profit credit counselor who offers a free 45-60-minute consultation. The credit counselor will help you explore debt relief options available to help get you out of debt and give you budgeting tips to help you better manage your finances. Watch out for credit counseling scams that charge money for their services. You should never have to pay for a consultation with a credit counseling agency.
Debt Settlement:Debt settlement can be a great tool if you have extra money to offer your creditors. The debt settlement process allows you to pay less than the amount you owe. Although this may be a good option for people who can afford it, many times people enter into debt settlement programs who should be exploring other options. Settling with a creditor can take a long time to accomplish and throughout that time, creditors may initiate lawsuits to collect the debt. It is important to make sure you are a good candidate for debt settlement before entering into a debt settlement program.
Debt Consolidation: Debt consolidation can be a good option for people with good credit. Debt consolidation allows you to combine multiple debts into one monthly payment. Generally, this process will lower your monthly payment. You can either take out a new line of credit and use this credit to consolidate your debt or you can work with a non-profit credit counseling agency to construct a debt management plan, which also serves as a form of debt consolidation.
Although creditors have the power to take you to court, you have the power to defend yourself. Additionally, you do have options available to help you navigate your financial struggles. You are not alone when it comes to struggling with debt. Thousands of people file bankruptcy every day. If you are not sure whether bankruptcy is the right option for you, you can speak with a bankruptcy lawyer who can help you decide which option is best for your financial situation. If you are concerned about the cost of attorney’s fees associated with filing for bankruptcy, you may be able to use our free online tools to help you through the process.