How to Handle a Debt Collection Lawsuit

A debt buyer is a company that buys old debts cheaply, then sues consumers to collect. File an answer, demand proof of the debt and who owns it, raise strong defenses, and present your evidence to the judge, and you can often beat the lawsuit. Debt buyers file thousands of these suits every year, and they count on you not fighting back. If you respond, and the debt buyer lacks the needed evidence to get a judgment against you, the case could be dismissed.

File an Answer to the Complaint

To fight a debt buyer's lawsuit, you must file a written response (which could be an answer, but not always) with the court by the deadline in the summons. You'll typically have 14 to 30 days after you're served, though the exact number of days depends on your state. If you miss that deadline, the court enters a default judgment against you for the full amount the debt buyer requests, assuming the plaintiff meets the evidential "prove up" requirements.

Getting Served

You'll get a summons and complaint when the debt buyer files suit against you. This could be by certified mail, from a process server who hands it to you in person, or by another method allowed in your jurisdiction. Don't let a missed deadline cost you the case. A default judgment can lead to wage garnishment, a bank account levy, or a lien on your property, depending on your state's laws.

Preparing Your Response

What you include in your response will depend on the case type and whether it's a state or federal matter. If you file an answer, you'll likely deny all allegations other than those you know to be true. The plaintiff must prove every required element of the case that you don't admit. It's best to get help from a knowledgeable attorney or a self-help group at the local courthouse.

Possible Defenses

Your answer should include any affirmative defenses you have. Affirmative defenses are defenses you must prove yourself. Typical affirmative defenses to a debt buyer suit include:

• The plaintiff lacks standing. Here, “standing” means the debt buyer's ability to sue you. The debt buyer lacks standing if it doesn't have a legal right to sue to recover the debt. Use this defense if the debt buyer can't prove it owns the debt.

• Statute of limitations. Depending on your state, the statute of limitations on a written contract or account is typically three to ten years, so check your state’s law to find your deadline. If the original debt is older than that limit, the statute of limitations may have run out. You'll want to check your state's statute of limitations chart, and learn more about time-barred debt, which is debt too old for a collector to sue you over.

• Improper service of process. The debt buyer must serve you with the summons and complaint in accordance with your state's rules. If you weren't served properly, you might be able to get a default judgment vacated or have the case dismissed.

• Failure to state a claim upon which relief may be granted. This general defense applies whenever the complaint doesn't state enough facts to support the claim. For example, the debt buyer might fail to allege that you owed the debt to the original creditor.

• Mistaken identity. If the debt isn't yours, for instance, someone stole your identity, or the debt buyer mixed up your account with someone else's, you can raise this as a defense.

• Accord and satisfaction. This means you already paid the debt to the original creditor's satisfaction. If you've paid the debt, use this defense.

There are plenty more affirmative defenses that might apply. If you have questions about them, talk to an attorney.

Demand Proof From the Debt Buyer

Once you've filed your answer, you can demand that the debt buyer prove both how much you owe and its legal right to collect it. You and the debt buyer do this through "discovery," the formal process of exchanging documents, exchanging written questions, and taking depositions.

You can request that the debt buyer hand over all the documents and evidence it has. You can also submit written questions, called interrogatories, to the debt buyer. To learn more about the discovery rules in your case, check with your local court clerk or a consumer law attorney.

Many debt buyers can't produce the information they'd need to prove the case. While you're gathering evidence, also watch for violations of the federal Fair Debt Collection Practices Act (FDCPA). Debt buyers who misrepresent how much you owe, threaten to sue after the statute of limitations has run, or use other unfair or deceptive tactics may be breaking the law. If you spot a violation, you might have a counterclaim that can offset or wipe out what you owe. (15 U.S.C. § 1692 and following.)

Demand Proof of the Right to Collect the Debt

The debt buyer must prove that it has the legal right to sue you, usually through a signed assignment or bill of sale that names your account and shows it was purchased by the debt buyer from the original holder. Never take the debt buyer's word that it owns your debt.

Most debt buyers will claim in their complaint that they lawfully purchased the debt and own it, but many can't back that up with paperwork. Ask the debt buyer for copies of the agreement between it and the original creditor. If it can't produce that, ask the court to dismiss the lawsuit.

Demand Proof of the Amount of the Debt

The debt buyer also must prove exactly how much you owe, including when the account was opened, how much you borrowed, and the interest rate, which is documentation a lot of debt buyers simply don't have because they buy bad debts in bulk. Typically, a debt buyer gets nothing more than a spreadsheet listing names, addresses, and balances, with no supporting paperwork.

You have the right to request documents from the debt buyer showing, among other things:

• the date the account was opened
• how much was borrowed
• how much was paid
• the interest rate charged, and
• how much the debt buyer claims is owed.

If the debt buyer can't produce this information, consider asking the court to dismiss the lawsuit.

Present Your Evidence to the Judge

You present your defense evidence to the judge either by filing a motion asking the court to dismiss the complaint, or by using it at trial. If the debt buyer shows up to trial without evidence, you can ask the court to dismiss the case.

Settlement With a Debt Buyer

If the debt buyer has all the paperwork it needs to prove its case, your best move might be to settle before trial. The debt buyer may accept less than what you owe to avoid the cost of going to court.

What Happens If You Lose or Ignore the Lawsuit?

Losing or ignoring a debt buyer's lawsuit will likely result in a money judgment against you that can trigger wage garnishment, a bank account levy, or a lien on your property. If that happens, you might still have options, including asking the court to vacate the judgment, appealing, or filing for bankruptcy.

The table below compares what typically happens if you respond to a debt buyer's lawsuit versus if you ignore it.

Consider asking the court to vacate a default judgment if you weren't served properly or missed the deadline for a good reason. Another possible approach would be to appeal a judgment entered after trial. Both options have short deadlines, so act fast.

Filing for bankruptcy is another option because it immediately triggers the automatic stay, stopping most collection actions. This is an especially helpful strategy for avoiding wage garnishment or a bank levy. (11 U.S.C. § 362.)

Next Steps

Handling litigation is complicated, and choosing the wrong path can block you from pursuing your case. Because of this, the best course of action is to consult with an attorney about your options, ideally before the deadline to file your response. A lawyer can help you determine whether it makes more sense to fight the lawsuit, raise an FDCPA violation, or file for bankruptcy.

Only in rare cases would you do nothing due to being judgment proof. Though keep in mind that being judgment-proof is often temporary, and judgments can be renewed and continue to accrue interest until they're paid.