Martha visits a law firm. She is in urgent need of help. She had taken out a loan to pay for her daughter’s treatment. But now, Debt Collection Lawsuits threats!
She narrates anxiously how a debt collector called and threatened to file a lawsuit against her. A third party bought her debt from her credit card company. Now, apparently, she has to pay more than the borrowed amount!
So, what’s going to happen? Will Martha face a debt collection lawsuit? What options are open to her?
Martha is not alone. Millions of US citizens struggle with debt collection lawsuits.
- Are you also worried about the financial stress that comes along with a lawsuit for debt collection?
- Do you fear that the lawsuit will damage your credit score?
- Do you want to stop the debt collectors from seizing your assets?
- Can your creditors hold back your wages for repayment of the debt?
- Are you stressed and anxious about the death collection lawsuit?
No worries. We are here to help you. We will tell you your way out in these cases and the best way to deal with them. So, let us begin without delay!
If you owe money to your credit card company or other creditors, try to pay them off. However, in many cases, people are not always financially capable of paying off debts. The creditor will hire a third party to collect these debts. They may also sell your debt to a debt buyer.
Who Is A Debt Buyer?
Any company or organization that buys dealing quint debt from creditors at a discount is called a debt buyer.
- A debt buyer can buy all sorts of debts, including credit card debts, unpaid medical bills, personal loans, consumer debts, auto loans, etc. SoloSuit makes it possible for you to settle credit card debt before going to court so you can move on with your life.
- The debt buyer will buy the debt at a discounted price. However, they will collect the debts in full amount. Sometimes, they may also charge interest and additional fees for late payment.
- After the buyer has bought the debt, they become the legal owners of it. Sometimes, this may cause a problem for the debtor.
- The third party or the debt buyer who buys the debt is not liable to stick to the terms and conditions that the original creditor and debtor entered into.
What Problems Can A Debt Buyer Cause?
Debt buyers buy on collectible debts. They have a reputation for being harsh in their manner of debt collection.
- They buy the debts at discounted prices. However, debtors have to pay the actual debt off. These buyers can be very persistent debt collectors.
- Sometimes, they hire a debt collection agency and pursue legal action through debt-collection lawsuits.
If such a lawsuit takes a wrong turn, they will file a report against you to the credit bureau. This will adversely affect your credit score or ban you from taking out loans in the future.
What Is A Debt Collection Lawsuit?
A debt collection lawsuit is a legal action taken by the creditor against the debtor. The creditor can be a debt collector or a third party, too.
- A creditor has the right to file this lawsuit in court. The lawsuit states that the debtor owes the creditor a specific amount of money.
- The petitioner or the creditor files the lawsuit to the court having appropriate jurisdiction.
- The purpose of the lawsuit is to get a judgment from the court ordering the debtor to pay off their debts to the creditor.
- The court may pass a judgment in favor of the debtor or the creditor. If it lies in favor of the creditor, the debtor may have to pay back the debt anyhow.
- It can be through wage garnishment, asset seizure, bank account seizure, or property liens.
- Due to the complex nature of a debt collection lawsuit, the process can be stressful for all parties involved.
- The debtor who is already handicapped with financial burdens may find it very difficult to fight off another legal obligation.
- They often don’t know what to expect from these lawsuits or how to react to them.
However, if you are the debtor, it does not mean that a debt collection lawsuit will always be harmful to you.
On What Grounds Can A Debt Collector Legally Sue You?
Before you panic about a debt collection lawsuit, we would ask you to go through this section. These are the legitimate grounds under which a person can bring a debt collection lawsuit against you.
Although there can be more types of debts, but these are the primary and most common ones.
- Firstly, you should know that any kind of unpaid debt can lead to a lawsuit for debt collection. It could be related to credit cards, medical bills, personal loans, or other financial obligations.
- If you are under a substantial amount of credit card debt, there is a chance of a lawsuit. The petitioner will file the lawsuit to recover all unpaid amounts.
- Most of us have coverage and certain medical insurance.
- If you have not been able to pay them back for your bills, the insurance company may bring about a debt collection lawsuit against you.
- If you took out an auto loan but couldn’t pay it back, the lender will sue you for amount recovery.
- Student loans are a big hassle sometimes. We understand that you may have taken out a private loan to pay off your college expenses.
- However, if you don’t pay the lender back within the certified time, they may file a lawsuit against you.
- Did you mortgage your house for money? If you are unable to pay off your mortgage, the company will file a lawsuit to initiate the foreclosure process.
- Did you know that you could be subject to a debt collection lawsuit for unpaid rent amounts? Your landlord can initiate it against you.
- Has the court legally ordered you to pay off an amount to a certain party? If you have not been executing court orders, the party that deserves the damages will bring about a collection lawsuit against you.
Lastly, debt collection lawsuits can even arise out of a breach of contract. Suppose you have not held up your part of the contractual obligation. This has led to financial losses for the other party. In such cases, they can bring about a lawsuit against you.
What Happens In A Debt Collection Lawsuit?
A debt collection lawsuit can be quite a distressful event. It is understandable if you don’t know what to expect or how to react. Every case can be different depending on varied circumstances and various state laws.
As it can get overwhelming for you, we advise you to get legal representation as soon as possible. You can hire a lawyer who specializes in one of the following:
- consumer protection laws (to better understand your rights as a debtor),
- bankruptcy credit counseling (if you are bankrupt and unable to pay off your debts),
- or consumer credit rights (your rights as a consumer to the credit companies/ third parties).
Now, let’s look into what a debt collection lawsuit looks like.
Filing Of The Lawsuit
The lawsuit for debt collection will begin with the creditor or third party making a complaint in a court of appropriate jurisdiction. This complaint is also known as a debt collection petition.
The complaint is a formal document containing the reason why the collector is choosing to sue the debtor.
- The most common reason is for the repayment of money that the debtor owes them. Interest amounts, fees, and additional costs should also be a part of the petition.
- The debtor will receive a copy of this complaint by means of a professional server or the local sheriff.
- This official server can choose to leave another copy of the petition with an adult living at your address.
- A third copy can also reach you through your mail.
The court may allow the plaintiff to send you the complaint along with a summons. A summon is the court’s way of letting you know about the lawsuit against you. It will give you all the necessary details about the case and the timeline within which you have to send a formal response (called “answer) to the court.
Most frequently, the debtor has to sign a formal acknowledgment of receipt of the papers.
The Debtor’s Answer
After you get a summons regarding the debt collection lawsuit, it is your turn to send in an official answer within 20 to 30 days. This will make you the respondent in the case.
- To this answer, you are responding to the allegations made in the complaint. It is also your chance to raise any counterclaims and defenses in your favor.
- For instance, if the statute of limitations has your debt rendered invalid, this is your chance to speak up.
- If your creditor is acting in violation of the Federal Fair Debt Collection Practices Act, you must immediately bring it to their notice in this answer.
Under all circumstances, the debtor (you) must continue to attend all Court hearings. You will also have to respond to all notices and summons from the court. In these conditions, your lawyer will come to your defense.
- They will prepare and file your response.
- When the lawsuit reaches the trial stage, your attorney will represent you in court.
- If you are in debt, there is a chance that you are still struggling financially. Paying for the services of a lawyer can cost you more than paying off your debt sometimes.
- So, if it is difficult for you to hire an attorney you can, you can send in an answer to the petition by yourself.
- You can file your response and represent yourself in the court proceeding.
- This is especially applicable if the charges that your debt collector has brought against you are legally and factually incorrect.
- If you can provide evidence to the court to prove their invalidity, try to represent yourself.
However, before you do that, make sure to learn all about Consumer Protection laws and debt relief laws applicable to your case. Make sure to bring about the right argument to support your case otherwise, the court will reject it.
What Happens When The Creditor Is At Fault?
If the collector or creditor is in clear violation of the law, there is a big chance that a lawyer will take your case on a contingency fee basis. This way, they will only receive their fee amount after the case goes in your favor. Many attorneys can even agree to provide you with a free initial consultation.
What Happens When You Don’t Answer In A Debt Collection Lawsuit?
If you are the debtor in a case and you don’t respond to the suit, consider your case already lost. The court will pass a one-sided judgment in favor of the person who filed the debt collection lawsuit.
- The court will pass a judgment awarding the debt collector the amount he claimed in the complaint.
- However, the court will examine if the amount is legitimate and go through the evidence that the collector presents.
- The award from the court will also include fees for the Attorney, other legal costs, and additional charges on top of the debt amount.
If the court judgment goes against you, a certain amount of your wages will be deducted every month to pay off the creditor. This is known as wage garnishment. The court might also order the liquidation of your property to pay off creditors.
Should You Answer The Suit If You Are At Fault?
Many solution articles will suggest you not respond to the debt collection lawsuit if you are at fault.
- However, our advice is that you discuss your case in detail with a lawyer first. Go through the details of the debt amount with your lawyer.
- Tell them honestly that you do not have any defenses for your case. It will be beneficial for you to tell them under what circumstances you took out the loan.
- Even if you do not have much money to pay legal fees, take a free first consultation with a lawyer.
Another option is to simply pay off your debts. We understand that it can be a sensitive topic for many. There are people you need to take care of and things you need to do with that money.
However, Is All Of That Worth It When You Feel The Pressure Of A Debt Collection Lawsuit?
Ask your lawyer if they can help you reach a negotiation/settlement. In many cases, once the debt collector knows you are willing to pay, they might not press charges.
Debt Collection Lawsuit Trial
A lot of debt collection cases don’t make it to the trial. Instead, they reach a settlement, or the debt collector gets a judgment in their favor.
- When the debtors are at fault, the collectors have a big chance of winning the cases without even approaching the court.
- However, in case your case reaches trial, your attorney will represent you in court.
- They will present documents and evidence to back up your claims. You can even discuss with your attorney in detail and come up with legitimate counterclaims to the petition.
- After carefully going through the cases of both parties, the judge or jury members reach a final decision.
Federal And State Laws You Should Know About
Debt collection lawsuits are no different from other lawsuits in the sense that specific laws in the United States govern them. There are both state and federal laws that cater to the broad spectrum of debt collection.
Fair Debt Collection Practices Act (FDCPA)
The first law is the Fair Debt Collection Practices Act (FDCPA). The Federal Trade Commission (FTC) enforced it. The Act sets up distinct guidelines that all debt collectors should abide by.
Debt collectors cannot be abusive, deceptive, or unfair while collecting debt repayments from debtors.
Before the consumer takes out a debt officially, the creditor has to make full disclosures about the loan amount. These terms and conditions should be the same when they are collecting the debt.
Fair Credit Reporting Act (FCRA)
The FCRA maintains the accuracy and privacy of consumer credit reports. All credit reporting agencies in the US should maintain accurate credit information. This means that if a credit collection lawsuit states a wrong amount, the debtor can hold them responsible under this Act.
Telephone Consumer Protection Act (TCPA)
The TCPA puts a reasonable restriction on telemarketing practices. If you are a debtor unable to repay your debts, it does not mean that the creditor/collector can bother you with unsolicited text messages. Debt collectors will have to be mindful of the guidelines established through the Act.
State Debt Collection Laws
Each U.S. state has its own set of laws. They control and limit unfair debt collection practices. These laws are additional protections for consumers who are already burdened by extreme debt. The state that you reside in will have state-specific laws governing debt-collection lawsuits. For example, each state has its own statutes of limitations and interest rate limits.
Here’s A Little Pick-Me-Up: Court Rulings That Went In The Debtor’s Favor (Debt Collection Precedents)
There have been multiple rulings from the Court of the US that have held up the importance of the rights of a debtor when it comes to debt collection lawsuits.
Midland Funding, LLC v. Johnson
The case of Midland Funding, LLC v. Johnson took place in 2017 Through it, the Supreme Court upheld the importance of the statute of limitations in debt collection lawsuits.
The ruling clearly stated that debt collectors lose their right to file lawsuits in case of time-barred debt.
Crawford v. LVNV Funding, LLC
Another important case relevant to debt collection lawsuits is Crawford v. LVNV Funding, LLC of 2008. This case targeted the problem caused by “robo-signed” affidavits. Debt buyers frequently use robot signatures.
A robot signature is one that a party makes without knowing what they are signing into. The court held that affidavits that are robo-signed do not qualify as evidence in debt collection lawsuits.
Rather, to make them valid, the individuals signing them have to know the details of the debt first.
Madden v. Midland Funding, LLC
The case of Madden v. Midland Funding, LLC took place in 2015. Through it, the court rightfully addressed the issue of high-interest rates on debts.
A debt buyer can only legally charge interest rates that stay within state usury limits.
The Second Circuit Court of Appeals held that the National Bank Act did not automatically exempt debt buyers from state usury laws. They would have to operate within the limits of the law.
Obduskey v. McCarthy & Holthus LLP
The case of Obduskey v. McCarthy & Holthus LLP (2019) clearly outlined the laws that debt collectors have to follow.
The Supreme Court case held that all law firms carrying out nonjudicial foreclosure actions are not debt collectors. However, just like debt collectors, under the provisions of the FDCPA, they have to comply with the law.
Consumer Financial Protection Bureau (CFPB) v. Frederick J. Hanna & Associates
Debtor rights are important. The case of Consumer Financial Protection Bureau (CFPB) v. Frederick J. Hanna & Associates of 2016 proved that. The case ended with the court delivering a consent order.
Through it, a debt collection law firm paid a significant settlement amount to a debtor for wrongful debt collection practices. The firm authorities also changed their debt collection practices after the CFPB pointed out violations of federal law.
Thus, through these cases, we understand that even if you are a debtor and a defaulter, the courts and the law have your back!
It’s A Legal Wrap!
Whether you are a debtor or a debt collector, it is essential that you be aware of your rights and duties.
If you have gone through this article, we hope that we have addressed all your doubts related to debt collection lawsuits. If you have any further doubts, feel free to leave a comment in the section below. Also, let us know other topics where we could provide you with legal help.