Is a creditor or debt collector suing you for debt? If this is the case, you should act quickly to avoid a default judgment against you. The court may grant a default judgment, allowing creditors to take harsh measures against you, such as garnishing your wages or freezing your bank account, to collect the money owed.
Although judgments are no longer listed on credit reports, they can still be accessed through public records. A lender may search public records to find prior judgments against you if you need credit or want to rent a home in the future. If they see an open decision, they will likely reject your application.
What should I do after I receive notice of a debt lawsuit against me?
In response to the Complaint against you, you should file an Answer. If you file an Answer, the judge can grant a default judgment after hearing from you first. Your Answer should address each claim made by the creditor or debt collector.
In your Answer, you should identify any errors you believe to be present in the Complaint. A debt collector may dispute the amount you allegedly owe, or you may claim no relationship exists between you and the collector.
Once you have responded to all the claims against you, including your affirmative defenses, the purpose of this section is to present your side of the story and explain why you should not be held responsible.
No matter how you respond to the Complaint in your Answer, please ensure that your words are truthful. The Answer is a legal document, so you do not want to say anything inaccurate.
You intend to settle the matter before your court date. While trying to resolve the issue honorably, an Answer ensures the debt collector cannot sneakily obtain their judgment.
Before your court date, resolve the claim
Finding a way around a judgment is possible, but it requires action before the legal proceedings begin. One such approach could be paying off your debt entirely before the court hearing or striving for an agreement with the creditor. Another solution is trying out negotiations with the debt collector.
If the debt is paid in full, the lawsuit will be halted. Since you have paid the obligation, there is no further cause for action. However, only some can fully pay off debt before the court date.
There is still hope for you to avoid a judgment if you cannot pay the entire debt before your court date. Debt collectors may be willing to negotiate a settlement with you.
What is the process of debt settlement?
For a debt settlement to take place, an offer must be made.
Before sending a settlement offer, determine how much you can afford. You owe $2,000 and can pay off $1,500 right now. Start by sending a lower offer so that there is room for negotiation if this is the case.
A starting point might be to offer 50% of the debt, or $1,000. A written communication should be sent to the creditor or collector, stating something like this:
To settle my debt from [lawsuit case number], I am offering a lump-sum payment of $1,000. If you accept, please respond with a settlement agreement for me to sign. If you’d like to counter, please respond with the counteroffer amount. Please do not contact me in any other way than by responding to this message.”
In addition to the case number and the amount of the debt, you should include relevant information.
Your creditor or debt collector may counteroffer, but you’ve left yourself room to increase the offer amount and eventually reach a settlement since you started low.
Negotiations usually take several rounds before an agreement is reached. If the debt collector refuses to budge, be patient and stick to your guns.
It can help explain why you cannot pay the total debt. Please inform the debt collector if you are experiencing severe financial hardships, such as losing your job or caring for an aging parent. They will likely be willing to work with you if they understand your situation.
Make sure the debt settlement agreement is in writing
If you agree with the debt collector, ensure it is in writing. Having a contract in place can protect you if the debt collector decides to resume collection activities.
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The following is an example of a debt settlement agreement.
It is also essential that you adhere to the terms of the agreement. The agreement should pay the debt collector the settlement amount. If you fail to make the payment on time, they may rescind the contract and possibly file a new lawsuit against you.
Let’s look at an example.
Example: Kyle lost his job and fell behind on his credit card payments, so LVNV Funding sued him for $5,000. Kyle drafted and filed an Answer to the lawsuit. Based on Kyle’s budget, he decided to repay $4,000, or 80% of the debt. Kyle begins the settlement process by sending LVNV Funding an initial offer of $2,500. A debt settlement of $3,800 is reached after several rounds of negotiations. Kyle gets the settlement agreement in writing and pays off the settlement amount.
You can avoid further legal issues with debt collectors by paying your bills on time. Avoid the stress of a debt lawsuit by making a payment arrangement if you cannot afford to pay them.