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Creditor Lawsuits Creditor Lawsuits

An Overview of the Litigation Process

In later sections we'll look at how to prepare for the possibility of a debt collection lawsuit, and deal with that lawsuit if you are served. But first let's take a high-level look at the overall process, starting with the day you stopped making payments on a credit card. To keep things simple, we'll assume you have one credit card with a balance of $5,000.

You fall behind on your payments and your phone starts to ring. The calls start out as "friendly" reminders as they try to get you to make your account current. At this point they are fine with the fact that you are delinquent because they just added late fees to your account and maybe increased your interest rate as well.

If you continue to not pay, your phone will ring more frequently and the friendly reminders will start to turn into thinly veiled threats. If they can't get you to make your account current, they are going to try to get you to make a partial payment to reset the 180-day "clock." After 180 days of non-payment the credit card company usually writes off your debt. Remember, even making a partial payment can reset that time period.

They know the system, and they'll do anything possible to work the system to their advantage. But you know the system too. So you stand firm. After 4-5 months of non-payment, don't be surprised if you receive a settlement offer.

You should be aware that almost every original creditor or third-party debt collector will threaten to file a credit lawsuit. The threat of a suit is a very inexpensive collection tactic and causes a large number of people to pay up. But a threat is just that—a threat.

While the debt collection laws say creditors cannot threaten to sue if they have no intention of suing, proving that they actually have no intention is tough and creditors know it. As long as a creditor occasionally sues a few people, they've shown they have some level of intent (after all, if I did it once, I might do it again). Don't let threats of a debt collection lawsuit intimidate you into paying. In most cases, the threat of a debt collection lawsuit is all bark and no bite.

If the original creditor chooses not to sue, they will assign or sell your debt to a debt collector. The debt collector then attempts to collect the debt, and around 20% of the time, you will receive a credit lawsuit.

So let's assume a worst-case scenario, and a creditor decides to use litigation to collect the debt.

To file a debt collection lawsuit, a collection attorney draws up the necessary documents, pays a fee, and files those documents at your local civil courthouse. The court then requires the plaintiff (creditor) to "serve" you with a notice of that suit. That notice is called a "summons" because in effect you are "summoned" to appear at the court on a certain date and time. Service is required because, after all, if you don't know you are being sued how can you respond to that suit or mount a proper defense?

"Service" means different things in different jurisdictions. In the old days, service meant a person authorized by the court would personally hand you a summons. Now, depending on where you live you can be served in person, by certified mail, or by having the summons taped to your front door. (An easy way to find out how the process works in your area is to call your local courthouse and just ask how the summons process works.) In any case, the process cannot go forward until proper service, as defined in your jurisdiction, has occurred. That's why you see people running away from a process server in the movies—they're trying to avoid being served with a summons.

Summons and complaints are generally valid for approximately 45 days. (Again, the time period varies by locality so verify with your court.) If you aren't served within the statutory time period, the lawyer must re-file the suit, or simply let it go.

I know what you're thinking—if you don't get served properly you're home free, right?

Not necessarily. Oftentimes a debt collector will use improper service, or no service at all, as a technique to get a default judgment against you. Remember, if you don't respond to the summons you lose by default. Then you will need to go to the court and try to have the judgment lifted due to improper service, and eventually have to deal with the suit anyway. In my mind, if you receive a summons—even through improper service—it is probably better to just deal with the summons from the start.

That said, there is no reason to make legal service any easier for a creditor. There is no credit card debt law that says you have to sign for a certified letter, or answer your door, or identify yourself to a stranger.

Whether you respond to a suit that was improperly served is up to you. However, let's assume you were properly or improperly served and decided to respond.

Once you have been served you are given a specific amount of time to answer the complaint.

You must answer the complaint within the time frame specified on the summons or the creditor will get a default judgment against you.

And the judgment is almost always awarded for the full amount of the debt, plus interest, penalties, court fees.

Once that happens the game is over! You lost the suit, and they won. Without you even trying. Doing nothing is absolutely the worst thing you can do.

I briefly covered this above, but it bears repeating. Up until the point you are sued and a judgment is awarded, your debt is considered an alleged debt. The creditor alleges you owe a debt and it is up to the creditor to prove it. Don't make the creditor's job any easier by admitting to anything or handing them a default judgment.

When a creditor wins a suit, the law no longer sees the debt liability as alleged but as an actual debt. You lose your rights and they gain rights. They immediately get rights to place liens on your property, garnish wages, and levy (withdraw) money from your bank account.

That's why if you are sued, the worst thing you can do is ignore the suit. If you ignore the summons, the creditor automatically wins, ruining all the hard work you've done up to this point.

So go ahead and answer the complaint within the specified time period.

Answering thriod.

Answering the complaint isn't hard, but you will most likely need a little help and guidance (listen to the audio recordings in the Resource Library). Your answer will force the creditor to provide information, and produce contracts and other documents proving you owe them money and that they have the right to collect on the alleged account.

The process you initiate by answering the complaint costs the creditor time and money. Calls are cheap. Letters are cheap. Threats are cheap. Creditor lawsuits are expensive, and responding to your requests for information is even more expensive.

By making the creditor prove the account is yours (how they calculated the amount of the alleged debt, that they are legally licensed to collect debts in your state, that they hold right, title, and interest in the debt, etc.) you put the burden of proof where it should be—on the creditor. The last thing you want to do is make their job any easier by saying to the judge, "Yes, the debt is mine but I lost my job and my wife died and my dog got sick..." You just proved the creditor's case, so don't be surprised when the judge looks at you sympathetically and rules in the creditor's favor.

I am certainly not suggesting you should perjure yourself. All I am saying is there are no debt collection laws that say you need to make the creditor's case for them. You are the star witness and you can only make a conclusive determination (just like the court) based on the facts presented. I bet you don't have your account numbers memorized, or remember what purchases you made, or for how much, or even know whether the creditor suing you has a legal right to do so!

If Discover bank is your creditor and some other entity is trying to collect on the account, but they can't show any proof that they have a legal right to collect on the debt, then guess what? They don't have a legal right to collect on the debt. Whether you remember having a Discover card at one point and making some charges is immaterial.

The good news is that many debt-buyers don't respond to your requests for documentation (the part of the litigation process called discovery) for two reasons. First, as I already mentioned above, it is simply too costly. They are used to getting default judgments paying little more than a filing fee. Second, many debt collectors simply don't have the documentation required to respond to your discovery requests to prove their case.

If they don't prove their case in a timely or appropriate manner, you can move to have the case dismissed. And then you move on, too.

And if, after making them jump through all of these hoops, they are still pursuing you, you can always settle the account. Creditors don't want to go to trial anymore than you do. And if going to trial is what you want to do, our Lawsuit Defense Partner can help walk you through that process as well. Chances are that, even if you get a judgment against you, the judge will lower the amount of the judgment which is also a victory in itself.

No matter what, you should take full advantage of your knowledge of the system, exercise your every right, and most of all never give up those rights.

That's the debt litigation process at a high level. Now let's look at the process in more detail. We'll start with what happens before a creditor lawsuit is filed.

> Before a Lawsuit Is Filed

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