Roadmap Roadmap

Debt Settlement Tutorial

Lawsuits and Settlement

As a negotiating tactic, many (if not all) original creditors and debt collectors will threaten to sue you. Few are in fact serious. For most, this is simply a ploy to soften you up. It is the debt collector's version of the good cop/bad cop routine.

The bad cop says, 'If you don't make immediate payment, we may have no choice but to exercise our right to take legal action.' That sounds scary. The good cop can then step in and say, 'Look, we don't want to take you to court. That's the last thing we want to do to a nice person like you, but we will if we're forced to. So here's what I can offer...'.

Always keep in mind that threats of lawsuits are fairly common; actual lawsuits are much less common. But it could happen, so what should you do if you do get sued?

If you have read the section on Lawsuits you know I am going to tell you to FIGHT IT!

Why? A better answer is, 'Why not?' You have nothing to lose. Chances are you can get the suit dismissed with the help of our Lawsuit Defense Partner Program.

Even if you aren't successful in getting the suit dismissed after discovery, and it looks like you might have to go to trial, then consider settling.

Keep in mind that lawyers don't want to go to trial any more than you do. Lawyers would much rather settle; their business is a numbers game, too. Preparing for a trial, attending the trial: it all takes time, and time is money. And a judgment is a worthless piece of paper unless you can enforce it. A settlement means money in the bank for the creditor, and cash is always king.

Let the attorney make the first offer, and then counter-offer accordingly (counter with 1/3 of their offer). As with other settlements, make sure you get the agreement in writing, and make sure the agreement includes provisions stating that the creditor or debt collector will not engage in further debt collection activities and will update your credit report.

The goal with pre-trial negotiations is to let the attorney know that, even if they get a judgment, it will be next to impossible to enforce. Perhaps you don't bank in state. Perhaps your income is exempt from garnishment. Perhaps you don't own a home or even if you do, don't plan on ever selling it. If you have read the sections on Asset Protection and Lawsuits, you should have a pretty good idea of how to make an attorney believe that any money you pay them in settlement is going to be more than they will get with a judgment.

Also keep in mind that you can still settle even after a judgment is awarded against you. Maybe you offer a little more, but your situation as the judgment debtor hasn't changed—they are still going to have a very tough time collecting anything from you, especially if you have followed my advice in the Asset Protection section. So feel free to negotiate at this point too, but make sure one of your conditions is that the creditor agrees to petition the court to vacate the judgment.

'Vacating' the judgment is like 'voiding' the judgment—in effect, the plaintiff (the creditor) agrees to give up its rights under the judgment. It's like the case never went to court at all.

Why should you care? Because judgments show up on your credit reports as negative entries. Once the judgment has been vacated by the court, you can dispute the judgment entry on your credit report and it should be removed. Alternatively, just send copies of the order to vacate the judgment directly to the bureaus and ask them to remove the entries.

> Form 982