If you received a notice that a creditor is suing you, don't panic! You can protect yourself and your assets. In this blog, we'll walk you through what to do if a creditor sues you.
If you're facing a creditor lawsuit, consider consulting a Debt collection defense attorney who can help safeguard your rights and assets.
Understanding the Lawsuit
First, let's talk about what it means to be sued by a creditor. When you owe money to a creditor, such as a credit card company or a bank, and you fail to make payments, the creditor may decide to take legal action against you. This means they may file a lawsuit in court to try to collect the money you owe.
The lawsuit will typically include the following information:
- The name of the creditor suing you
- The amount of money you owe
- The reason for the lawsuit (e.g., failure to make payments)
- The court where the lawsuit was filed
- The date and time of the court hearing
Read the lawsuit carefully and understand what it says. If you don't understand something, ask for help from a lawyer.
Responding to the Lawsuit
Once a creditor serves you with the lawsuit, you have a limited time to respond. The amount of time you have to respond will vary depending on the state you live in, but it's typically around 20-30 days.
There are a few different ways you can respond to the lawsuit:
Filing an Answer
When you receive a lawsuit from a creditor, one of your options is to file an answer. An answer is a legal document that responds to each allegation made in the lawsuit and states your defenses.
In your answer, you'll need to admit or deny each allegation made by the creditor. If you admit an allegation, it means you agree that it's true. If you deny an allegation, it means you disagree with it, or you don't have enough information to admit or deny it.
In addition to admitting or denying the allegations, you can also raise defenses in your answer. Defenses explain why you don't bear responsibility for the debt.
Some common defenses include:
- The debt is not yours: If you believe the creditor has made a mistake and is suing you for a debt that doesn't belong to you, you can raise this defense in your answer.
- The debt is too old: Each state has a statute of limitations on debt-collection lawsuits. If the debt is older than the statute of limitations, the creditor may not sue you for it.
- The creditor didn't follow proper procedures: Creditors are required to follow certain procedures when collecting debts and filing lawsuits. If the creditor didn't follow these procedures, you may use this as a defense.
You must file an answer to tell your side of the story and raise any defenses you may have. If you don't file an answer, the court may enter a default judgment against you, which means the creditor automatically wins the case.
To file an answer, talk to a lawyer who can explain your options and create a strong legal argument.
Negotiating a Settlement
If you do owe the debt that the creditor is suing you for, a lawyer can negotiate a settlement, where you agree to pay a portion of the debt in exchange for the creditor dropping the lawsuit.
You may want to settle if you can't afford to pay the full amount of the debt but want to avoid a judgment against you. When you negotiate a settlement, you'll typically agree to pay a lump sum or a series of payments over time.
Here are some tips for negotiating a settlement:
- Be honest about your financial situation: If you cannot pay the full debt, tell the creditor. They may negotiate if they understand your financial constraints.
- Make a reasonable offer: When you make a settlement offer, offer an amount that you can realistically afford to pay. If you offer too little, the creditor may not accept it.
- Get the agreement in writing: If you reach a settlement agreement with the creditor, get it in writing. This will protect you from any disputes later on.
- Hire a lawyer: A lawyer can communicate with the creditor on your behalf and help you reach a fair settlement.
Even if you reach a settlement with the creditor, it may hurt your credit score. However, negotiating a settlement can help you avoid a judgment and will help you more than ignoring the lawsuit altogether.
Filing for Bankruptcy
If you cannot pay the debt and you don't think you can settle with the creditor, you might file for bankruptcy. Bankruptcy can help you eliminate or reduce your debts and get a fresh start financially.
There are two main types of bankruptcy for individuals: Chapter 7 and Chapter 13. A Chapter 7 bankruptcy liquidates (sells) your assets to pay off your debts, and discharges (eliminates) any remaining debts. A Chapter 13 bankruptcy creates a repayment plan to pay off your debts over time, and discharges any remaining debts at the end of the plan.
To file for bankruptcy, you'll need to meet certain criteria. For example, to qualify for Chapter 7 bankruptcy, you'll need to pass a means test that looks at your income and expenses. To qualify for Chapter 13 bankruptcy, you'll need to have a steady income and make payments under a repayment plan.
Here are some things to keep in mind if you're considering filing for bankruptcy:
- Bankruptcy can hurt your credit score and may make it harder to get credit in the future.
- Bankruptcy cannot discharge all debts, such as student loans and certain types of taxes.
- You'll need to complete credit counseling before filing for bankruptcy and take a financial management course after filing.
- Bankruptcy can be a difficult and time-consuming process, so work with a qualified bankruptcy attorney who can guide you through the process.
Filing for bankruptcy can provide relief from overwhelming debt and help you get a fresh start. If you're considering bankruptcy, explore all of your options and talk to a qualified attorney who can help you understand the pros and cons.
No matter which option you choose - filing an answer, negotiating a settlement, or filing for bankruptcy - take action and do not ignore the lawsuit. By responding promptly and seeking help when you need it, you can protect your rights and work towards a resolution that works for you.
Protecting Your Assets
If a creditor sues you, you may worry about what will happen to your assets, such as your bank accounts, your car, or your home. Here are some steps you can take to protect your assets:
Don't Ignore the Lawsuit
One of the worst things you can do when a creditor sues you is to ignore the lawsuit. It may be tempting to put the lawsuit out of your mind and hope it goes away, but this is a big mistake.
If you ignore the lawsuit, the court may enter a default judgment against you. A default judgment means that the creditor automatically wins the case because you didn't respond. Once the creditor has a default judgment, they can start trying to collect the money you owe them.
The creditor may garnish your wages, which means they can take money directly out of your paycheck. They may also put a lien on your property, which means they have a legal claim to your assets until the debt is paid.
Ignoring the lawsuit also means that you lose the opportunity to raise any defenses or negotiate a settlement. If you don't respond to the lawsuit, the court will assume that you agree with everything the creditor is claiming, even if that's not the case.
The bottom line is that ignoring a lawsuit from a creditor is never a good idea. As soon as you receive the lawsuit, take action by contacting a lawyer or a credit counselor who can help you understand your options and create a plan to respond.
Consider Exempt Assets
If a creditor sues you, you may worry about what will happen to your assets. Will the creditor take your home, your car, or your bank accounts?
The good news is that you can exempt some assets from creditors' collection. The law protects exempt assets. Creditors cannot take them to pay off your debts.
Exempt assets will vary depending on the state you live in.
Some common examples of exempt assets include:
- Retirement accounts, such as 401(k)s and IRAs
- Pensions
- Life insurance policies
- Unemployment benefits
- Social Security benefits
- Disability income
- Veteran's benefits
In some states, you may protect a certain amount of equity in your home or car.
Just because an asset is exempt doesn't completely protect it. For example, if you have a significant amount of equity in your home, the creditor may force a sale of the home to pay off your debt.
If you're concerned about what assets a lawsuit could take, talk to a lawyer who can explain the exemptions in your state and create a plan to protect your assets.
Don't Transfer Assets
If a creditor sues you, you may be tempted to transfer your assets to someone else, such as a family member or friend, in an attempt to protect them from being taken by the creditor. This is known as a fraudulent transfer, and it's illegal.
A fraudulent transfer is any transfer of assets that is made with the intent to hinder, delay, or defraud creditors. If you transfer assets to someone else in an attempt to hide them from creditors, the court may view this as a fraudulent transfer and could impose penalties.
Some common examples of fraudulent transfers include:
- Transferring ownership of your home or car to a family member
- Giving away valuable assets, such as jewelry or artwork
- Selling assets for less than they're worth
- Transferring money to an offshore account
Not only is making a fraudulent transfer illegal, but it can also make your legal situation even worse. If the court finds out that you've made a fraudulent transfer, they may impose additional penalties or even criminal charges.
If you're concerned about protecting your assets from creditors, the best thing to do is to talk to a lawyer who can help you understand your options and create a legal plan to protect your assets.
Speak to a Lawyer Today
If a creditor sues you, take action. Don't ignore the lawsuit or hope it will go away on its own. The sooner you respond and start working on a solution, the better off your case will resolve.
If you're feeling overwhelmed or unsure of what to do next, don't hesitate to reach out to a lawyer for help. A qualified consumer protection attorney can review your case, explain your options, and help you create a plan to protect your rights and your assets. With the right help and support, you can get through this difficult time and move forward with your life.