What Happens If a Creditor Sues Me?

Here's what to expect if you are served with a lawsuit by a creditor.

If you fall behind in payments on bills, credit accounts, or loans (such as a car loan, telephone bill, or credit card account), the creditor can sue you. If you've gotten served with a creditor lawsuit, or fear that one might be coming, make sure you understand how the lawsuit process work and what you need to do to preserve your rights.

The Creditor Files a Complaint

Your creditor starts the legal process by filing a complaint with the court. The complaint must state that you signed a contract for credit or took out a loan and that you did not live up to your promise to pay back the money you borrowed.

Once filed with the court, your creditor serves you with a copy of the lawsuit (usually by handing it to you in person or mailing it). Along with the lawsuit, the creditor will also serve you with a summons. The summons often tells you how much time you have to formally respond to the lawsuit.

Responding to the Complaint

You can respond to the complaint in one of three ways.

  • file an answer
  • file a legal document asking the judge to throw out the case, or
  • do nothing.

Most states give you 20 to 30 days to make your decision and formally respond. It's important to find out how much time your state gives you to respond to a lawsuit, and then act within this time period.

Filing an Answer

A common way to respond to a lawsuit is by filing a legal document called an answer. In the answer, you go through each statement the creditor makes in the complaint (called an allegation) and either deny or admit it. You may also set forth your own separate defenses to the lawsuit -- a defense is a legal reason excusing you from not doing what you promised in the contract. For example, if your creditor gave you more time to pay your bill but then sued you before the new due date, you could state that as a defense in your answer.

Keep in mind that listing the defense in your answer is not enough to win the lawsuit, however. You still must prove it by presenting evidence at trial.

Filing a Document Asking the Court to Throw Out the Lawsuit

You can challenge the lawsuit before you file an answer if there is some legal reason why the lawsuit isn't valid and the facts underlying this reason are not in dispute. For example, if the creditor's lawsuit states that your last payment on the debt was six years ago, but the statute of limitations in your state (the time period the creditor must bring a lawsuit) is four years from default, then you could file something called a demurrer, asking the judge the dismiss the lawsuit because the statute of limitations had expired.

You challenge a lawsuit in this way by bringing something called a motion. You'll most likely need a lawyer to help you.

Not Responding At All

If you don’t respond to the lawsuit, the creditor can ask the judge for a default judgment. Some judges will automatically grant the default judgment; others will require the creditor to provide some proof that you owed the debt.

In some cases, it makes sense to do nothing and let your creditor get a default judgment against you. for example, if you owe the debt and have no defenses, it might not be worth spending the time and money to fight the lawsuit.

The Discovery Process

Once you file an answer, the case moves into the discovery phase. The legal system works best when both sides have all the facts; discovery is the process that allows you and the creditor to get that information. It also allows you to find out things that will be helpful to prove your case.

Discovery tools let you ask the other side those questions you want answered. For example, you can send the other side written questions called interrogatories. You can force the other side to produce documents for your inspection, and you can set a deposition where you ask questions in person. There are other less commonly used discovery tools as well.

Settling the Case

Most lawsuits end in a settlement. You and your creditor may settle the case at any time. This usually happens if you agree to pay a certain amount of money and the creditor agrees to accept that amount to settle the case in full. Some courts will require that you and the creditor attend a settlement conference before going to trial.

Going to Trial

If you don’t settle the case, it goes to trial where either a judge or a jury decides who wins. If this happens, the creditor must present evidence and prove that you owe the amount it seeks. You also have the opportunity to present evidence of any defense you may have for not paying your bill. If you win, it means you no longer owe the debt. If your creditor wins, it gets a judgment against you and may begin collection efforts such as  garnishing your wages  or levying against your bank account.

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