Disclaimer: This article does not provide legal advice and should not be taken as such. If you require legal assistance, it’s recommended to seek a free consultation with a local attorney.
For many Americans struggling with debt payments, the thought of a debt lawsuit can be terrifying. The financial consequences of such a lawsuit can be severe, potentially leading to long-term financial trouble. So, if you’re facing a debt lawsuit, what can you do? In this guide, we’ll explore some strategies you can use to get your debt lawsuit dismissed and avoid financial ruin.
Who Can File a Debt Lawsuit?
Multiple entities can file debt lawsuits, including the original lender or a debt collection agency that has purchased your account from the original lender. Debt collection agencies are known for their aggressive tactics in trying to collect debts, and filing a lawsuit is one of them. However, regardless of who files the lawsuit, the entity must be in possession of the debt account to have the right to file a lawsuit.
Factors that Affect Debt Lawsuits
The likelihood of a creditor filing a debt lawsuit depends on several factors, such as the amount of the debt owed and the expenses of the lawsuit. Creditors are selective about filing lawsuits as the process is time-consuming and can be expensive. For instance, if you owe less than $1,000, it’s unlikely that your creditor will sue you as it would cost more than they stand to gain. But, if your debt is substantial, say $5,000, it’s more likely that the creditor will sue you as they can gain even after accounting for all expenses.
What Happens in a Debt Lawsuit?
In a debt lawsuit, the creditor files a petition to the court in an attempt to recover the money owed to them. If you ignore the lawsuit, the court will likely issue an automatic judgment against you, and the creditor will win the case. But, if you choose to respond, you may be able to get the lawsuit dismissed or at least buy yourself some time to work out a repayment plan.
Possible Outcomes of a Debt Lawsuit
If a debt lawsuit is filed against you and you lose the case, several outcomes are possible, including:
Wage Garnishment
Creditors may seek wage garnishment if they know that you don’t have the means to make immediate repayment. This means a portion of your paycheck is automatically deducted and paid directly to the creditor, making your paycheck significantly smaller. Wage garnishment lasts until your debt is fully paid off, unless you file for bankruptcy or experience a significant financial event.
Involuntary Bankruptcy
Creditors can request involuntary bankruptcy in cases where the debtor has the means to repay the debt but refuses to do so. Chapter 7 bankruptcy is the only form of involuntary bankruptcy that individuals can file. In Chapter 7 bankruptcy, your assets are liquidated to repay your creditors.
Immediate Repayment
If immediate repayment is ordered, you must repay everything you owe immediately. This is not a repayment plan or settlement, and failing to repay may result in bankruptcy or other legal consequences.
Settlement
Creditors may offer a settlement before the case goes to court. This could be a reduced total price to pay off the debt or new installment plans. If you’re in a position to make payments, a settlement before the hearing may be a good option.
How to Dismiss a Debt Lawsuit
If you’re facing a debt lawsuit, there may be situations where dismissing the lawsuit isn’t feasible. In such cases, you may be wondering what to do next. It’s essential to take proactive steps and avoid ignoring the lawsuit to prevent an automatic judgment against you.
Request Proof of Possession of Debt
If a debt collection agency is suing you, it must provide proof that it has the legal right to collect the debt from you. This includes proof that the debt is yours, that they own the debt, that you owe the debt, and the original credit agreement that you signed. You can also request documentation of the “chain of custody” (how the debt collection agency acquired the debt). If the agency is unable to provide any of this documentation, the case will likely be dismissed.
Ask for Alternative Form of Repayment
If you have received a notice before the lawsuit is filed, you may still have time to negotiate alternative forms of repayment. You could request a break in payments until your hardship has passed, or ask for a smaller lump sum of money. If your creditor agrees to either of these alternatives, the lawsuit they filed against you will be dismissed, and you can move forward with a new payment plan.
File a Countersuit
Filing a countersuit can be an effective strategy if you have legitimate complaints against the agency suing you. If creditors overstep your rights granted by the Fair Debt Collection Practice Act, you may have a legitimate complaint that you can countersue for. Although filing a countersuit may end up costing you money, it could be worth it in the end if your case gets dismissed.
Check the Statute of Limitations
It’s crucial to make sure that the statute of limitations on your debt has not expired. If a debt account is nearing its statute of limitations, collections agencies may push harder to ensure they receive some form of repayment. If you are close enough to the expiration date, it is likely that the case will not make it to court before it expires. If this is true, then the case will be dismissed once it does get to court.
In Conclusion
Ignoring a debt lawsuit is not an option, and it’s crucial to take action to avoid the legal and financial consequences. By hiring an attorney, considering bankruptcy, negotiating a payment plan, or attending the court hearing, you can potentially find a solution that works for you and avoid the stress of a debt lawsuit.