Fighting Back Against Collection Lawsuits

A collection lawsuit occurs when a creditor files a petition with the court to begin a lawsuit against a consumer who owes them money. Collection lawsuits can be expensive and time-consuming. Most creditors will opt not to go this route when trying to collect an alleged debt repayment. If there are other options available, creditors will tend to go with another method.

Most of the time, a creditor will choose the quickest way to get their payment by repossessing your car, home, or terminating your utilities. Collection lawsuits are rarely issued for debts under $1,000. In cases where a customer is making small payments, even if these payments are below the minimum requirement of the creditor, the creditor will not issue a lawsuit.

More aggressive collection agencies will threaten to garnish employee wages as payment for a debt. However, the creditor cannot take control of your wages unless they have obtained a court judgment.

A credit counselor can help clarify credit issues before a lawsuit issue arises, but make sure you are dealing with qualified counselors. If your problem is housing debt, look for Department of Housing and Urban Development (HUD)-approved agencies. The Consumer Credit Counseling Service (CCCS) is a good choice for credit card issues and other debt problems.

Debts less than $1,000 rarely result in collection lawsuits.

Before a Lawsuit

Trying to negotiate a workout agreement with the creditor might help at this point, but it won't be easy. Robert J. Hobbs from the National Consumer Law Center and lead author of Fair Debt Collection, the authoritative treatise on debt collection law, says:

To negotiate, the consumer needs something to give up. The consumer could offer a lump sum settlement if they have savings, but most people would not be in that position if they did. Some collectors would require 100%; a debt buyer may accept 50%. Some credit card companies will demand 100% plus 25% attorney fees. If the consumer finds a lawyer with some experience in the area, the lawyer may find a legal defense, say the statute of limitations, that provides greater negotiating leverage.

Could Declaring Bankruptcy Help?

Telling creditors you might have to declare bankruptcy can help minimize their threats. Most creditors prefer to get paid some of the debt versus none at all. If they realize the consumer will go bankrupt, they might be more receptive to working out a plan. This might be a good idea. Hobbs says, "It could be if the consumer had talked to a bankruptcy attorney and therefore could be convincing to the debt collector."

Defending Yourself

You might be able to defend your case if you never received the good or service stated in the lawsuit, the good was defective, the contract for the service was legally canceled, or the contract was illegal to begin with. Also, make sure the information the collector has about the debt you owe is correct, and ask for documentation backing up the claim.

Once a lawsuit has been issued against you, read and follow the summons instructions carefully, appear in all required court appearances, and provide all the documentation that can help defend you. In some cases, a creditor will drop a lawsuit if it appears that you are just not giving up.

The creditor is spending money on lawyer fees and court appearances pursuing this lawsuit and the longer you put up a fight, the better your chances can be of getting the lawsuit dismissed. However, consult your lawyer on the appropriate steps you need to take in defending your specific case. Each case is different and the laws that apply to consumers and creditors in each state also vary.

If you need a lawyer for legal advice on how to handle your particular case, there are resources available for those with limited income. The Legal Services Corp. (LSC) provides programs in each state that can help. Local organizations such as your library, community center, or senior citizens center might also be a good provider of information for free or low-cost legal advice. Your state or county bar association can be another option. They often provide referrals for fee lawyers who deal with consumer credit issues. Organizations like the National Association of Consumer Bankruptcy Attorneys (NACBA) or the National Association of Consumer Advocates (NACA) can also provide assistance.

After a lawsuit is initiated, Hobbs suggests going to the National Association of Consumer Advocates as a resource. "It has a directory of good attorneys. It is too late for credit counselors at that point."

According to the book, Solve Your Money Troubles, by Robin Leonard and John Lamb, when looking for ways to defend your case, ask yourself the following questions:

  • Did the seller use false advertising to entice you to buy their product or service?
  • Were you pressured into buying? Were high-pressure tactics used?
  • Was key information about the transaction or agreement hidden and only surfaced after you had already signed the agreement?
  • Did the seller give you a "right to cancel" form? This document gives you the right to cancel a sale within three days for any reason.
  • Was the product you bought defective or didn't work at all and the seller refused to repair or replace it? Did the product not work like you were told it would?
  • Was the service you paid for not provided or was it only partially provided?
  • Did the seller not comply with the warranty agreements?
  • Were there deceptive terms in the loan you signed?
  • Was the car you bought a lemon, costing you hundreds or thousands of dollars in repairs?
  • Were payments made to the creditor not properly credited to your account?

The Bottom Line

There are a number of ways to defend yourself when a collection lawsuit has been launched against you. Just remember that there are resources available to you if this ever occurs. If you're unsure of what to do, it's always best to consult a lawyer. "The best thing is to find a lawyer who recognizes that they have a defense that will allow him to represent you for a low fee or a fee that will be paid by the debt collector," says Hobbs.