Summary: If you’re sued by a debt collector there are actions you can take. 1) Respond to the lawsuit. 2) Gather evidence and make sure the creditor can prove the debt. 3) Use an affirmative defense. Lawsuits are frightening, but you may be able to win your case. 

Sued by a debt collector? It can be an unsettling experience but it is not the end of the world. First, pause and understand what happened.

Debt lawsuits can come from outstanding credit card balances, medical bills, or personal loans. Approximately 23.5% of Americans have debt in collections according to the Consumer Financial Protection Bureau. If you don’t pay, collectors can sue.

It’s frightening to find yourself at the end of a lawsuit. While tempting to ignore it, this is the worst thing you can do. It’s important to understand debt collection laws, your legal rights, and be proactive.

In this guide, we’ll go over the steps you can take to address a debt collection lawsuit effectively.

What is a debt lawsuit?

A debt collection lawsuit is a legal process initiated by a creditor or debt collector to recover unpaid debt. This can happen with outstanding credit card balances, loans, medical bills, or other types of financial obligations. The creditor or debt collector files a lawsuit in state or federal court to get a judge to order you to pay them back. A debt collector sues you in court after other methods of collection have failed. It is their last resort to enforce payment. 

You’ll be served a summons either by email or hand delivered by a process server and a complaint. The summons notifies you of the legal action, and the complaint details the reasons for the lawsuit, including the amount owed. You must respond to the lawsuit in a timely manner. Failure to do so can lead to a default judgment in the creditor’s favor.

In court, both parties may present evidence and arguments. The debtor can challenge the lawsuit on various grounds, including disputing the amount owed, the ownership, or the that it’s expired. All are good affirmative defenses to get the lawsuit dropped.

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How does debt collection work?

When you borrow money and then fail to pay a bill, the original credit card company will make several attempts to collect. This usually involves reminders and phone calls. After about 180 days, the credit card company may turn the overdue bill over to a debt collection agency or sell it to a third-party collector.

Once a third-party collector is involved, they will contact you to recover the amount owed. Collection agencies are governed by the Fair Debt Collection Practices Act (FDCPA), which prohibits them from engaging in harassing, oppressive, or abusive behavior during the collection process.

Under federal law, you can sue for harassment if the collector violated the FDCPA. Harassment includes excessive communication, using obscene or profane language, and threatening violence or harm. Violations of collection laws can be reported to the Consumer Financial Protection Bureau, which oversees these practices.

Collection agencies want to be paid. If they can’t get the full sum, they may negotiate payment plans or a settlement. It’s when these efforts don’t yield results that the collector sues you to recover the funds. Thus, a third-party collection agency can sue you if other collection efforts have failed.

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First steps to take when being sued by a debt collector

Being sued by a debt collector can be stressful. It’s important to take a deep breath and act promptly. If you’re sued, here’s what you should do.

  1. Accept court papers
  2. Do not ignore the lawsuit
  3. Read the legal documents carefully
  4. Verify you owe the debt
  5. Gather documentation
  6. Prepare your response
  7. Plan for a court date
debt collection lawsuit

It’s very important to accept the court papers. Accept the papers but don’t panic, accept liability or pay either. Ignoring a collection lawsuit will result in a default judgment in the collector’s favor. According to The Pew Charitable Trusts, 70% of lawsuits end in default because the defendant failed to respond.

A default judgment can lead to wage garnishment, bank account levies, or liens on your property. It’s important to accept the papers and respond to the lawsuit within the specified deadline. The deadline is usually 20 to 30 days but varies by state’s laws.

Read the legal documents carefully. They will tell you about the lawsuit, why is was filed, for what amount owed, and when you need to respond by. Understanding these documents is essential for preparing an appropriate response.

Ensure that it is a legitimate debt and the amount claimed is accurate. Collection agencies are known to make mistakes. A common one is to serve papers to a person with a similar name. Make sure the unpaid bill is indeed yours and that it’s still within the time frame for collection. If it is outdated, or if you believe the claim is incorrect, you may have an affirmative defense.

You may want check with your state bar association to find legal representation. Attorney fees can be high but a lot offer a free consultation that you can take advantage of and assess your situation.

In some cases where the debt is yours and it’s within the timeframe for legal action, it may be beneficial to negotiate a debt settlement or talk to a credit counselor. You can get a free consultation with a non-for-profit credit counseling agency.

A debt settlement can involve paying a portion of the amount owed in a lump sum or installments depending on your financial situation. The collector may be happy to settle for less since it means they don’t have to deal with the hassle and expense of going to court.

Gather Information: Documenting Your Finances 

When you’re being sued it’s important to have all your documents in order.  

These include: 

  • Bank account statements
  • A detailed record of your income, expenses, and assets
  • Payment records including bank and credit card statements
  • All correspondence with the original creditor or collector. This includes a debt validation letter. 

These documents will help you understand your financial situation and provide vital evidence if you need to negotiate a settlement or defend yourself in court. 

Respond to a Lawsuit: Do not Ignore It

If you’re getting sued by a collection agency, it’s imperative to respond promptly. Even if the lawsuit is wrong, you must challenge it within 20-30 days.

Respond to a lawsuit by preparing a document called an “Answer.” In it, you need to address each allegation and state your defense. Be honest.

Collection agencies count on you not responding. Lawsuits are expensive. Their aim may simple to scare you into paying what you owe. Just by responding, you may compel them to dismiss the case, or – more likely – negotiate a settlement. 

Ensure the Creditor Can Prove the Debt

Collection agencies and creditors shoulder the burden of proof. This means it’s on them to prove to the court that you owe the debt.

Request that the collector provide detailed documentation proving the amount owed, the original creditor’s information, and evidence that the unpaid bill has been legally transferred to them. 

Without this documentation, the collector may not have a valid claim and may have to drop the lawsuit. Challenging the proof of debt can be a powerful defense strategy and may lead to the dismissal of the case.

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What are the TOP things to ask a debt collector?

If you’ve been served with legal papers, knowing how to respond to a lawsuit can significantly impact the outcome. The first thing to do is question the debt collector. Collection agencies make mistakes. It may not be legitimate, they may not have a legal right to sue, or it could be a scam.

debt validation letter

Always ask for:

  • Verification of the debt
  • The collector’s name, address, and phone number
  • The debt amount, what it is for, and when it occurred
  • The name of the original creditor
  • Proof that you owe the debt

Get all information in writing. This provides a record that can be useful if you need to dispute the lawsuit.

A lot of debts are old and sold to third-party collection agencies. Ask for documentation proving the purchase. It is important to establish that the debt collector has a legal right to collect on the debt.

If the debt is past the statute of limitations, then they may have a right to collect it but not a right to sue you. That’s why the date is so important. Being proactive and informed about the lawsuit and your rights can lead to a more favorable outcome.

Whatever you do, never admit that it’s yours. Admitting liability can reset the statute and give the collector the upper hand.

How does the statute of limitations on debt work?

The statute of limitations refers to how long a creditor or collection agency has to sue you for unpaid dues. The exact amount of time varies depending on the type of debt and the state it occurred in. Generally, it ranges from three to six years, but some go up to ten and even twenty years. The clock starts ticking after your first missed payment or after the last payment was made to the account. It varies by state. 

statute of limitations for debt

It’s important to note that the statute does not eliminate the debt. It still exists, and the creditor or collection agency can still attempt to collect it. All it stipulates is that they can no longer legally sue you.

Once the statute has passed, the debt is considered time-barred. If a collector sues you for a time-barred debt, you have a good defense.   

You still have to respond to the collection lawsuit and provide evidence it’s time-barred. Ignoring the lawsuit won’t help, as the court may not be aware it’s time-barred and could still rule in favor of the collector.

The other thing to keep in mind is certain actions can reset the clock on the statute of limitations. These include making a payment, a promise of payment, or even acknowledging that it’s yours. This is why it’s crucial to be cautious in your communications with collectors and never admit liability.

The statute of limitations is different from the credit reporting time limit. The latter is the period late payments stay on your credit report, usually seven years. Unpaid bills on your credit report can continue to hurt your credit score until they are paid.

Understanding the circumstances under which a creditor can sue you is crucial for your defense. If you’re facing a collection lawsuit, check the time frame. It may give you a good defense and get the case dropped.

How long can a debt collector pursue old debt?

There is no time limit on how long a debt collector can pursue an unpaid bill. They can try to collect until it’s paid. The statute of limitations only prevents them from taking you to court. Here are three examples of how this can play out:

Lisa in California is sued by a debt collector for an outstanding credit card balance of $600. She can’t remember the bill but she knows that she stopped making payments on that card five years ago. The statute of limitations for credit cards in California is four years. She responds to the lawsuit with proof that the outstanding balance is old causing them to drop the case but they still call her.

Over in Indiana, John has an unpaid hospital bill from eight years ago. He is contacted by a collector and he agrees to a payment plan. The statute of limitations on unpaid medical bills in Indiana is six years. But now that John has acknowledged and agreed to pay his bill, the statute resets, and the six-year period starts anew. If John misses a payment, the collector can take him to court.

Lastly, let’s look at Laurie in Texas. She was served a lawsuit on an old auto loan. The statute of limitations in Texas is four years and the loan is ten years old. So she ignored it. Due to her failure to respond, the court issued a default judgment in the collector’s favor. By court order, her wages are garnished and her bank accounts are frozen.

debt lawsuit

If a debt collector claims you owe an old bill, you may not be legally obligated to pay. But be careful as they can still pursue any unpaid bills and the statute only protects you from lawsuits.

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FAQ

1. Can debt collectors sue you for an old debt?

Collectors can sue for old debts if they are within the statute of limitations. The statute varies but it typically 3-6 years. Once it’s past the statute of limitations, collectors lose the right to sue. However, be aware that certain actions, like making a payment, can restart the statute, allowing them to take you to court.

2. How do you respond to a debt collector?

First, verify the debt. The collector must send a validation letter within five days of contacting you. Otherwise, request one. If it is not yours, dispute it. If it is, then try to negotiate a settlement for a reduced amount. If it is old, be careful not to admit guilt. Whatever you do, do not ignore legal notices.

3. What happens if you ignore a debt collector?

Ignoring a collector can have serious repercussions. Initially, collection efforts may intensify. If the unpaid amount is substantial, the collector might escalate to filing a lawsuit. Ignoring legal notices can result in a default judgment against you, potentially granting the collector the right to wage garnishment, bank account levies, or liens on your property. Depending on your state laws and the amount you owe, you may be considered judgment proof and exempt from wage garnishment.

4. How long can you ignore a debt collector?

You can ignore a collector for up to several years but it’s not advisable. Outstanding balances do not disappear until you pay them. Collectors can continue to attempt to collect for as long as the bill remains unpaid. They simply cannot take you to court once the statute has passed.

Bottom Line

Facing a court summons for debt collection is never fun but remain calm, you do have options. The worst thing you can do is ignore it.

Always verify that the debt is yours. Confirm that the collector is legitimate and they have a legal right to collect the money. And find out if it is within the relevant statute of limitations. You may find you have a good affirmative defense and can win or dismiss your lawsuit.

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