Fighting Back Against Collection Lawsuits

If a creditor or debt collector has filed a lawsuit against you, there are steps you can take to fight back. But it is important to act quickly. You'll want to carefully review the claims made in the lawsuit to make sure they are accurate. You'll also want to collect any information that supports your case. You will probably need to hire a lawyer with experience in this area and possibly seek other help. Throughout the process, be aware that you have rights under federal law to be treated fairly.

How Collection Lawsuits Work

A debt collection lawsuit occurs when a creditor files a petition with the court to initiate a lawsuit against a borrower who owes them money. Collection lawsuits can be expensive and time-consuming, so most creditors view this as a last resort. If there are other options available, creditors will tend to try those first.

Collection lawsuits are less likely to be issued for debts under $1,000. In cases where a debtor is making small payments, even if those payments are below the minimum requirement of the creditor, the creditor will not file a lawsuit.

Professional collection agencies can be more aggressive and lawsuit-prone. For example, they may threaten to garnish employee wages as payment for a debt. However, they cannot take control of your wages unless they have obtained a court judgment first.

Common Reasons for Collection Lawsuits

Collection lawsuits can come about for a number of reasons. Medical bills are a major one. Even for someone with insurance, a serious illness or medical emergency can lead to substantial bills that may be unmanageable.

Credit card debt is another major source. Personal loans, student loans, and even overdue utility bills can also lead to debt collections and ultimately to lawsuits.

Even if the person had every intention of repaying the debt when they took it out, life events such as job loss, unexpected expenses, or economic downturns can make it impossible.

What You Can Do Before a Collections Lawsuit

You might be able to prevent a lawsuit if your creditor is willing to negotiate with you. For example, the creditor might accept a repayment plan that is more workable for you, such as stretching out payments over a longer period or reducing your interest rate. Another option may be a debt settlement, which allows you to satisfy the debt for a portion of what you owe.

You can attempt to negotiate by yourself or hire a company to do it on your behalf. If you decide to go the latter route, be sure to check out the company to make sure it is legitimate.

What You Can Do During a Collections Lawsuit

Never ignore a lawsuit if one is filed against you. It is important that either you or your attorney respond by the deadlines. Be mindful of what you say in response, however. You may want to acknowledge that you've received notification of the suit, but it's often advised to defer to your legal counsel before making any other statements.

Make sure the information the collector has about the debt you owe is correct, and ask for documentation backing up the claim. A debt collector is required to provide certain information to you, including the amount debt you owe and how you can dispute it.

To initiate this process, you'll need to submit a written request that includes your name, address, and specific details about the debt, such as the original creditor's name and the amount owed.

Sending your request via certified mail with a return receipt requested is recommended, as it provides evidence that the collection agency got it. After the agency receives the request, it is obligated to respond within 30 days.

Once a lawsuit has been issued against you, read and follow the summons instructions carefully, and show up for all required court appearances. Provide all the documentation that can help defend you. In some cases, a creditor will drop a lawsuit if it appears that you are just not giving up.

Working With the Original Creditor vs. a Collection Agency

Dealing with the original creditor involves direct communication with the person or business you owe money to. They may be open to discussing payment plans, interest rate adjustments, or even settling for a reduced amount. The key takeaway here is to try to maintain a relationship with your original creditor as this may be the best course of action.

On the other hand, interacting with third-party collection agencies introduces a different dynamic. These agencies purchase or are assigned debts from original creditors after those creditors have basically given up on collecting them. Therefore, you may no longer have any interaction with the original creditor since you don't technically owe them the debt anymore. Communication with collection agencies can be more challenging. Their primary goal may be to recover the full amount owed.

Beware of Debt Collection Scammers

Some debt collection efforts are scams. By law, a debt collector must provide information, such as the amount of debt you owe, as well as the current and original creditor. A debt collector withholding that information can be a warning sign. Other warning signs include threatening you with jail or asking you to pay them with gift cards or other prepaid cards.

Your Rights Under the Fair Debt Collection Practices Act (FDCPA)

Enacted in 1977, the Fair Debt Collection Practices Act (FDCPA) is a federal law that spells out what third-party debt collectors are and aren't allowed to do. It's meant to protect consumers against deceptive, unfair, and harassing practices during the debt collection process.

For example, it restricts the times of day and how often debt collectors may attempt to contact you and prohibits them from making false or misleading representations.

Additionally, the FDCPA mandates that debt collectors provide consumers with clear and accurate information regarding the debt. You are entitled to know the amount owed, the name of the original creditor, and your rights to dispute the debt. If a debt collector violates the rules, you have a right to sue them for damages.

As the Consumer Financial Protection Bureau explains, "If you prove a violation occurred, you may be awarded $1,000 in damages, plus additional compensation for any actual harm they caused. If you win, the collector may also be responsible for paying your lawyer fees and costs."

Keep in mind that beyond the FDCPA, individual states may have additional laws and regulations governing debt collections, creating an additional layer of protection for consumers.

The Bottom Line

When a collection lawsuit has been launched against you, it is crucial that you respond by the lawsuit's deadlines. There are also steps you can take to try to avoid a lawsuit in the first place. Throughout the process, bear in mind that you have rights under federal, and often state, law to be treated respectfully and fairly.