Sued for Debt? Here’s what to expect.
In this article, you will learn how to deal with debt lawsuits.
Table of Contents
- What happens when you get sued for debt?
- Debt Validation
- Debt Lawsuits and Bankruptcy
- Debt Lawsuits and credit score
What happens when you get sued for debt?
The lawsuit begins with a creditor filing a complaint and paying the court costs. This creditor can be a debt collection company, a collection agency, a credit card company, a law firm, a car lender, or any other creditor that thinks you owe them money. Medical debt is also a common source of debt lawsuits.
Once the lawsuit is filed, you have a live debt collection lawsuit that must be served on the defendant (the borrower). A constable generally completes the service of process if you live in Texas, or the creditor can hire a private process server. Getting served is not always straightforward, and one should look into the relevant state law to learn about the rules regarding serving court papers.
Once the borrower was legally served, an answer to the debt lawsuit must be filed within the time frame allowed by state law; otherwise, the defendant could default on the lawsuit, which could mature into a default judgment. The court where the debt lawsuit is filed along with state law determines how long you have to file an answer. Some debt collection lawsuits are Federal, and for Federal debt lawsuits, one looks at the Federal law requirements. Lawsuits relating to Student Loans could fall into this category. According to Texas state law, you have 14 days to answer a debt lawsuit filed in a Justice of Peace Court, commonly known as JP courts. You have 20 days to respond to the debt lawsuit filed in County Court or District Court.
Once a legally sufficient answer is filed in the debt lawsuit, the court sets a hearing date in the Texas Justice of Peace courts. Some courts are backed up, and it could take a while before a trial is scheduled. Things are more complicated if the lawsuit is filed in a District or County Court. In those courts, discovery is conducted, and Motions for Summary Judgment are not uncommon. If you are facing such a lawsuit, you should seek legal advice from a law firm in your area that does debt collection defense work. If you are in Texas, call, text, or book your Zoom appointment with us to see if we can offer you legal help.
The answer to the lawsuit can also include reasons why the debt is invalid or cannot be collected. Some of these reasons are called affirmative defenses. For example, you may believe that the debt is too old and the creditor is suing to collect time-barred debt. Generally, this type of debt collection affirmative defense is called the Statute of Limitations.
The answer to the debt collection lawsuit can also demand an understanding of the account balance calculation. Likewise, the defendant could request to understand which fees were added to the balance. For example, the answer can ask the sum of all late fees and attorney’s fees added to the balance. It could also demand to know if the plaintiff, or the filer of the case, rightfully possesses the debt underlying the lawsuit. In other words, you could ask for the validation of the debt.
Debt Validation
Debt validation plays an essential role in many debt collection lawsuits, and it could be the key to a favorable debt settlement agreement or the dismissal of the case. Through debt validation, you could demand the party suing to show that they have the legal authority to collect the debt in question. It is especially relevant when the original creditor has sold or transferred the debt to a debt buyer. For example, the original creditor in a particular debt lawsuit could be Synchrony Bank, but the suing party could be a debt buyer like Midland Credit Management or LVNV Funding LLC. Once the Debt Buyer buys the original debt, it steps in the shoes of the original creditor and collects the debt originally owed to the original creditor. These debt lawsuits are often confusing for the defendants since they have never borrowed money from the debt buyer or the party suing directly.
The lawsuits initiated by debt buyers need to show that the debt in question was lawfully assigned to them by the original creditor that issued the credit card in the first place. Court papers often include documents that purport to show this assignment. Whether or not the documentation provided by the debt buyer is sufficient to render a judgment is a question of fact decided by the judge generally. Jury Trials are also possible. Look into the local practice in your area.
Suppose the creditor has broken the Fair Debt Collection Practices Act (FDCPA), a federal law that protects consumers from unfair debt collection practices. In that case, the defendant’s answer could include a counterclaim alleging a violation of the FDCPA. However, FDCPA only applies to consumer debt and not business debt. What qualifies as consumer debt is jurisdiction-specific, and one should not automatically assume their debt is consumer debt.
At the hearing, both sides present their arguments and evidence. Some allege identity theft as a defense. As you may imagine, telling the court that someone else incurred the debt is common, and courts could be skeptical about this defense. That’s my experience, at least.
Once the hearing is concluded, the judge typically renders a Judgment in favor or against the debt collector. The judge could also split the baby halfway, so to speak, and reduce the balance allegedly owed. The debt collector partially wins because it gets a favorable judgment and the defendant partly succeeds because they will not be liable for the entire amount of the lawsuit.
If the debt collector obtains a judgment, they will try to collect on that judgment until the entire amount is satisfied. The judgment holder can lien property, file a wage garnishment, and bank account garnishment depending on the relevant state collection laws. Every state has its collection laws regarding wage garnishment, account garnishment, and perfection of liens, which are some of the more common legal tools to collect a debt post-judgment.
Once a debt collector obtains a judgment, that judgment typically gets recorded in the county where it was obtained or where the defendant resides. Again these issues are state law specific unless you are dealing with Federal Law such as Federal Income Tax Debt. In Federal Law matters, Federal collection laws apply.
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Debt Lawsuits and Bankruptcy
Another option to deal with debt lawsuits filed by debt collection agencies and other creditors is to seek bankruptcy protection. Filing for bankruptcy will stop these lawsuits because a federal law called the automatic stay will “stay” or stop all debt collection efforts, including pending creditor lawsuits.
Whether a debtor should fight the debt lawsuit or file bankruptcy depends on their entire debt and income profile. Suppose the total amount of outstanding debt (the unpaid debt sought to be collected in the lawsuit plus all other unpaid debt) is high enough in relation to the household income. In that case, seeking bankruptcy protection may make sense. In my experience as a debt defense and bankruptcy attorney, often, lawsuits could be for comparatively small amounts compared to the total amount of unpaid debt, including outstanding medical bills. It may make sense to address the entire debt at once by filing the correct bankruptcy chapter instead of dealing with one creditor and one debt lawsuit at a time. It may make sense to obtain a credit report to see a list of all creditors and the amounts owed. Of course, bankruptcy is a complex subject, but it can be a powerful debt management tool. Although some self-help resources are available (be wary of places that offer you to file bankruptcy for free), bankruptcy law is complex and sometimes counterintuitive. Seek professional help, especially since most consumer debt and consumer bankruptcy attorneys offer a free consultation. Just be sure to select one with experience in debt settlement and bankruptcy in your area. Also, a valid and timely credit counseling certificate from an approved provider is typically necessary to file for bankruptcy.
In some areas, legal aid or similar organizations help indigent citizens. The bar associations generally list such organizations and could provide referrals. It should be noted that filing for consumer bankruptcy is generally more affordable than it appears. Begin with a free evaluation. If you live in Texas, contact us. You’ll be glad you did.
Debt Lawsuits and credit score
Judgments are reported to the credit bureaus and appear in the public records section of credit reports. As you can imagine, such an entry will impact your credit score.
In addition to the impact on the credit score, if the judgment relates to back rent or eviction, it could cause issues with securing a property to rent. Landlords generally frown upon unpaid rent judgments.
Once the judgment is satisfied, it should be removed from the credit report, and its impact on the credit score should lessen. But again, regardless of the judgment’s impact on the credit score, the fact that the judgment is likely to appear in the public records section of the credit report should be of concern. Be proactive, act before a judgment is rendered, and consider bankruptcy as an option if you have difficulty paying the unpaid debt.
Hooman is a 18 year bankruptcy veteran from Georgia. He recently relocated to Texas to aid people on their path to financial recovery. During his time away from the office he finds peace in art, writing,
teaching, and traveling.
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