What to Do if You are Served with a Collection Lawsuit

10 Apr What to Do if You are Served with a Collection Lawsuit

respond to lawsuitCollection agencies will refer delinquent accounts to a law firm when they reach an impasse with you about the payment of a delinquent debt. Often times, collection agency owners are owned by or are associated with collection law firms, so from the collection agency’s perspective a lawsuit is just another step in the collection process.

From your perspective, however, collection litigation should be taken much more seriously than dunning letters and collection phone calls. Litigation starts the clock running on a judicial process that can result in a judgment against you. In most jurisdictions a judgment means that every asset you own can be at risk. Liquid assets such as bank accounts and cash equivalent assets are at the most risk.

Once a suit is filed, it is too late to do much in the way of asset protection and if a judgment is rendered, the plaintiff has the right to demand from you specific information about what assets you own and where they are. This demand for information is part of the post judgment discovery process and you do not have the option to ignore these requests for information. If you do ignore discovery requests you can be sanctioned by the court and even imprisoned if you remain in contempt of the court’s order.

Therefore, if you are served with a lawsuit, or even if you discover that a suit has been filed against you but you have not yet been served, it is imperative that you take action immediately.

You have several options if a collection lawsuit is filed against you.

— Legal advice columnists will advise you to contact a lawyer to review the collection lawsuit. Realize, however, that lawyers will expect to be paid for their time. If ABC credit card company sues you for $10,000 and you owe this money, does it make sense to pay a lawyer $150 to $300 to look at the lawsuit and substantially more to answer it?

Even if you have a legitimate basis to challenge the debt procedurally – such as questionable documentation or disputed notice – you may have to pay legal fees up front and if you go into litigation and the court rules against you, you will have used up funds that you do not have to waste.

My point here is this: there are situations where a creditor’s procedural failures may give rise to a cause of action for damages in your favor, the vast majority of collection lawsuits are demands for money that you actually do owe. You can pay a lawyer to delay the inevitable result but at some point a judge or jury will render a decision that may not be favorable to you.

You can try to answer the lawsuit yourself. If you are reasonable intelligent and have access to the Internet or a good bookstore, there are numerous resources that will guide you step by step through the lawsuit answer process.

You can use your answer to demand proof of the debt and other documentation but in most cases filing an answer to a lawsuit for a debt you owe will buy you time – usually one to three months – but not much else. Buying time can be a useful and relevant negotiating strategy but only if you take advantage of the time to work out a deal. If you do file answer make sure that your answer pleading denies all relevant assertions by the plaintiff and that it raises all affirmative defenses available to you.

You can contact a bankruptcy lawyer for advice about the Chapter 7 or Chapter 13 option. The good news here is that most consumer bankruptcy lawyers do not charge consultation fees and you should be able to rule out or rule in bankruptcy as a possible option.

If bankruptcy is not an option, it is useful to know this early so you can adjust your negotiating position. You do not want to start negotiating when the lawsuit is in pre-judgment status or, worse, in post-judgment status. Instead, start negotiating when all options – bankruptcy, litigation, counterclaims, etc. – are all on the table.

Collection lawyers assume that most lawsuits will not be answered and will go into default . If someone does file a formal answer with demands for information, you may find that there is an opportunity to negotiate a reasonable settlement.

Under no circumstances should you ignore a lawsuit and allow it to proceed to a default judgment status. You will almost always get the best results in negotiation when no default has been entered and all of your options remain on the table.

If you can afford a lawyer to represent you in settlement negotiations, hire one, but if not, remember the following basic ground rules for negotiation a debt settlement:

  • treat the negotiations like a business deal – ignore any attempts by your adversary to make you feel guilty or ashamed. This is a contract dispute – nothing more, nothing less.
  • do not promise more than you can deliver
  • avoid agreeing to a settlement that involves a consent judgment or any type of automatic withdrawal from your bank account
  • pay a lawyer to review the terms of your settlement agreement. Sometimes a word or phrase can create issues down the road
  • ask and research about the worst case scenario under a judgment.
  • take an aggressive approach to negotiations. Ask for terms most beneficial to you – do not ask the plaintiff what it wants. Get creative in your thinking – for example, include in your proposal that payment starts in 90 days, or build in a lump sum payment in 30, 60 or 90 days. Remember, you have something they want, not vice versa so demand terms that favor you.

Collection lawyers want litigated files off their desks. An offer of $250 cash today and $250 per month for the next 18 months is often more attractive than noting own and $100 per week every week.

by , Atlanta bankruptcy attorney.

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Jonathan Ginsberg, Esq.

I represent individuals in Chapter 7 and Chapter 13 cases filed in the Northern District of Georgia, which includes Atlanta, Newnan, Gainesville and Rome. I publish several informative web sites, including www.atlanta-bankruptcy-attorney.com and an Atlanta bankruptcy blog, www.thebklawyer.com/thebkblog. Please mention Bankruptcy Law Network when you call.
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