The Truth About Creditor Lawsuits

First the bad news: Some people are sued by creditors who are attempting to recover a debt. If that suit is successful, a judgment is entered, and the creditor can enforce that judgment by garnishing wages, putting liens on property and/or even taking money out of your bank account.

But here’s the good news: In our experience, less than 20% of accounts receive lawsuits. In fact, one of our partners reports that only 6% of their clients are sued by original creditors or 3rd party debt collectors.

And here’s the better news. If you understand your rights, know how the system works, and get help when you need it, in many cases you can make it too difficult of expensive for the creditors to win and eventually get the case dismissed.

Here’s why.

98% of the time when a creditor sues a debtor one of two things happens:

  1. The debtor buries his or her head in the sand and doesn’t respond to the lawsuit and the creditor gets a judgment by default; or
  2. The debtor shows up in court and tells the judge some sad story about how they got in their present situation. However, all the judge cares about is whether the account is theirs and whether they made the charges. The debtor says, “Yes, but…” and the judge again rules in favor of the creditor.

Remember, suing someone is the most expensive collection effort a creditor can pursue. Even if they get a judgment, they still have to enforce that judgment and there is no guarantee they will be able to collect anything at the end of the day. As a group, those who can’t make minimum payments to their creditors don’t have a lot of assets to collect on.

Even the worst attorneys – and believe me creditor attorneys are the worst – still bill at least a couple hundred dollars per hour for their time.

So let’s look at this from the creditor’s perspective:

  • They most likely purchased your account for pennies on the dollar.
  • They are used to winning the vast majority of their lawsuits by default.
  • Enforcing these judgments costs even more time and money with no guarantee for return.

As long as creditors are making money suing debtors they will continue to do so.

However, if you know your rights and respond to the lawsuit with requests for discovery, interrogatories, admissions, etc., you throw a wrench in their business model. In order to pursue the suit, they have to keep spending more and more money and pretty soon their theoretical profit margin disappears and they start losing real money. Furthermore, the more work you throw at these bottom-feeding attorneys the more likely it is that they will mess up somehow, allowing you to have the case dismissed!

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