How to Manage Being Sued For Bad Debt

Like many people, you may be facing credit card bills that have overwhelmed you, medical bills that are simply too high to pay, or other debt that continues to accumulate. Unfortunately, when unpaid debt accumulates long enough, creditors may take the step of suing you in an attempt to collect their money. When this occurs, don't panic. Instead, consult with your CPA and keep the following things in mind.

Lawsuits are Common

As more people have found themselves heavily in debt, remember that you are not the only person in the world being sued by a creditor. In fact, it happens quite frequently, with almost half of all civil judgements being linked to unpaid debts. Once a creditor decides to sue you, they will file a complaint in a state civil court, then notify you of the lawsuit by sending you a copy of the complaint or court summons. Many times, these will come from a collection agency or law firm, which can be intimidating. If you receive such a notice, show it to your CPA and discuss your various options.

Default Judgements

In many of these situations, the people being sued never show up for their court hearing. As a result, the judge will deliver a default judgment in favor of the creditor. If this happens, the creditor will then have the legal authority to place a lien against your property, garnish your wages, and possibly freeze your bank account in an effort to collect.

Not the Original Creditor

By the time you are actually being sued for bad debt, the debt itself is more than a few years old. Actually, the creditor who is suing you is probably not even the original creditor, since it is common for old debts to be sold multiple times over along the way. In many instances, even if the statute of limitations has expired for a debt, some creditors may attempt to revive the debt, hoping you'll be intimidated enough to hand them some money. This is a violation of your consumer rights, meaning it is no longer legal for you to be sued. However, the old debt will continue to damage your credit.

Gather Your Information

Once you know you are being sued, start gathering pertinent information related to the debt in question. Along with the letter you received from the debt collector, closely examine your own records about the debt. Since old debts find their way into the hands of many collection agencies and others, mistakes are common. Thus, you may find you have already paid the debt, or it was a debt you never incurred. Since you usually have 30 days to respond to the creditor, review your records and meet with your CPA as soon as possible.

Respond or Ignore the Lawsuit?

Generally, it is always better if you respond to the lawsuit against you, even if you know the statute of limitations has expired or that the whole thing is one big mistake. By ignoring the lawsuit, you will lose your ability to dispute the debt, plus put your property, bank account, and wages at risk. Along with meeting with your CPA, you should also talk to an attorney who specializes in such cases, since they usually offer free consultations. During your consultation, an attorney can point out various defenses you could use, help you draft a response to the creditor, and even agree to represent you in court if necessary. Once a creditor knows you have legal representation, they may back off completely or suddenly become much more willing to discuss a settlement.

Paying the Debt

While you may be thinking your case will inevitably find its way to court, that is actually rarely the case. Even if you hire an attorney, a deal can likely be reached before a court hearing that will allow you to settle the debt for less than you owe, and to also set up a payment plan with affordable payments you make each month until the debt is paid. If you do reach a deal with a creditor, always make sure you get the agreement in writing. The agreement should state the creditor will consider the debt to be paid in full, and will report it to credit bureaus as such. If you don't have this in writing, it becomes your word versus theirs, which could get complicated very quickly, especially if you are dealing with a creditor who is less than stellar in terms of their business practices.

Affirmative Defenses

Should you believe you don't owe a debt for whatever reason, your attorney may advise you to use what is known as an affirmative defense. The most common of these is having a debt contract that was illegal or unable to be properly enforced, which could occur if you can prove you signed it while under duress or based on falsehoods given you by the original creditor.

Identity Theft

Finally, you may be sued for a debt you absolutely know is not connected to you in any way, shape, or form. When this happens, identity theft may be to blame. If you suspect this to be the case, your CPA and attorney will advise you to make the creditor show absolute proof you owe the debt. In most cases, they won't be able to do so, especially if you have plenty of documentation to the contrary. If the creditor is unable to prove that you do indeed owe the debt, the judge will likely dismiss the case and let you walk out of court a winner.

While it can be stressful to be sued for unpaid debt, always remember that you will have numerous options from which you can choose. By working with your CPA during this process and relying on the advice of an experienced attorney, you may find it possible to emerge from this situation with your credit score still intact, no liens against your property, and your bank account and wages still under your complete control.