What do I do if I’m being sued by a debt collector?
If a debt collector has sued you, whether it’s the original creditor or someone to whom they’ve sold the collection rights, it’s important that you respond in some way. You don’t want to ignore the lawsuit. If you do, the collector will get a “default judgment” and then may try to execute that judgment by garnishing your wages, levying your bank account, or putting a lien on your house.
You can respond to the lawsuit by filing a timely answer to their complaint or negotiating a settlement before your answer is due. If you file an answer, you could well prevail in the suit.
There’s a third option for responding to a debt collection lawsuit: File a case with the Bankruptcy Court. In fact, debt collection lawsuits are one of the most frequent reasons why people file bankruptcy cases.
When you file a case with the Bankruptcy Court, something comes into effect called the “Automatic Stay.” Your creditors are “stayed” from attempting to collect any debt from you. That means no letters or phone calls, no garnishments, no foreclosures, no repossessions, and no lawsuits. Any debt collection lawsuit must cease upon filing of a bankruptcy case.
If the debt that you’re being sued on is the only debt that you’re carrying, it may well be preferable for you to file an answer and defend that suit. But you’ll have to pay court fees and lawyer fees that will probably be higher than a chapter 7 bankruptcy lawyer’s fees. What’s more, there’s still a good chance you might not prevail.
On the other hand, if you have many outstanding debts and multiple potential lawsuits, it might make better sense for you to file a case with the Bankruptcy Court. You’ll still have to pay filing fees and lawyer fees, but you’ll do so only once, and you’ll take care of all that debt with one fell swoop. What’s more, your likelihood of success is higher: At the end of a bankruptcy case, you receive a discharge of your unsecured debts, and that discharge happens automatically, by operation of law.
What if there’s already a judgment against me?
Just because you have a judgment against you doesn’t change the your treatment by the Bankruptcy Court. The Automatic Stay still kicks in, not to stop the lawsuit, but to stop any attempts to execute the judgment (e.g. garnishment). Also, the existence of a judgment alone does not render the debt non-dischargeable because it’s still an unsecured debt. (To be rendered non-dischargeable, they have to get a lien against your property.)
So if you have a judgment against you, and your wages are going to be garnished, or if the debt collector is threatening to put a lien on your property, call a bankruptcy attorney AS SOON AS POSSIBLE. You can’t afford to have money taken out of your paycheck, and you certainly don’t want unsecured debt converted into secured debt.