Generally speaking, creditors would rather work out a viable payment plan with their debtors than initiate legal action, which not only costs money, but can prolong the collections process. Nevertheless, it is possible to be sued for debt, especially if you fail to communicate with your creditor and miss multiple payments. You may be sued by a creditor even if you have offered to make small payments on your balance, but creditors typically do not sue debtors who are at least making a good faith effort to repay a debt.
This article covers the basics of what to do if a creditor has filed a lawsuit against you for unpaid debt, from reading the complaint to choosing the right attorney. See our Debt Relief section for more information about ways to budget for and deal with debt.
Receiving and Answering a Complaint
Usually, the first indication that you are being sued for debt comes in the form of a legal complaint and summons. The complaint describes the nature and dollar amount of the claims against you for unpaid debt, while the summons is a written notification that you are required to appear in court on a given date if you wish to defend yourself against the claim. If you simply ignore the complaint by not replying with a formal answer, your inaction may result in a default judgment against you.
So, if you wish to defend against a creditor's legal claim against you -- even if you agree with the claim, but would rather work out a settlement -- you should generally answer the complaint.
You and/or the cosigner of your loan or account will be listed as the defendant(s). The complaint will describe why the creditor is suing and how much money it is seeking in damages (typically the amount owed, plus interest and any applicable penalties). You will have about 20 days to answer the complaint, depending on the state in which the claim was filed. You may have to pay a filing fee to the court when submitting your answer to the complaint, but low income defendants may qualify for a waiver.
If you choose to go without an attorney, perhaps because you lack the necessary funds or owe less than the cost of an attorney, you should make an effort to understand court procedures in your state and gather the necessary forms. One option is to download the appropriate civil action form (about $20 for most states).
Your answer typically will include an admission or denial of the claim, any legal defenses, potential counterclaims, and your signature. If you have income that is exempt from garnishment, such as Social Security payments, it may be included in the answer, as well.
Defenses to a Debt Claim
If you plan to defend a claim against you, an attorney can help you decide which defenses make the most sense. Since many consumer contracts include a provision for settling disputes through arbitration, the lawsuit may not even be valid. Also, the claim must be filed within the statute of limitations in your state (usually two or three years, but as long as six years in some states). Additionally, some states have different statutes of limitations for debt-related lawsuits.
A creditor suing you for an unpaid debt also must be able to document ownership of the debt. Creditors frequently sell debts to other entities, which are then considered "debt collectors" for legal purposes. They must be able to produce documentation of the debt in order to sue you, a requirement that does not apply to the original creditor. Therefore, you should request verification of the debt in writing once you are contacted by a debt collector (which may be another financial institution). If it cannot provide written verification, it may not collect from you.
Also, creditors are required by law to attach a copy of the account or written contract to the complaint, or else explain in the complaint why it is not attached. If the creditor or collector cannot produce the proper documentation, you may ask the court to dismiss the lawsuit.
Other defenses include: