How to Stop a Lawsuit from a Creditor

The best way to stop a lawsuit before it is filed is to work out a settlement with your creditors before they file.  Often a debt settlement plan can a law firm representing your interests can achieve this.

The trend of lawsuits being filed by creditors have increased in recent years mainly due to the rise of third-party Debt Purchasers. These companies buy debts from Original Creditors (like banks and credit card companies) for a fraction of what they are worth and then try to collect on them. When phone calls and letters don’t work, creditors often file lawsuits. If the creditor wins and a judgment is entered against the defendant in the lawsuit, the defendant might suffer serious consequences, such as wage garnishment in many states and seizure of bank accounts.

This might sound like a horror story, but it happens to millions of people each year. In fact, back in 2013, approximately 3 percent of all U.S. workers had their wages garnished due to consumer debt.

The best way to avoid a judgment to prevent your lawsuit from going to court. There are steps you can take to stay out of the courtroom.

1. Check the Statute of Limitations

Creditors only have a certain amount of time to sue you for a debt. This is called the statute of limitations, and the clock starts ticking as soon as you stop making payments. However, if you pay again, the clock resets. For example, if you don’t make any payments for six months, you’ll be six months into reaching the statute of limitations. If you make a payment on month seven, the statute of limitations will start over.

The statute of limitations can be a bit confusing due to jurisdiction issues, especially when a credit card company initiates the lawsuit. Since statutes of limitations vary by state, some credit card companies include a choice of venue clause in the agreements so the companies can choose where to file the lawsuit. However, judges have been known to throw these clauses out. Due to these confusing rules, you might face a lawsuit in your home state or the state in which the card issuer is based.

Find out the state where the lawsuit has been filed and check the statute of limitations. Also, remember that the statute of limitations depends on the type of debt. If you live in Arizona, it’s six years for written contracts and three years for open-ended accounts (meaning credit cards). In Florida, it’s five years for written accounts and four years for credit cards. It’s four years for both types of accounts in Texas.

2. Make Sure the Company Has the Right to Sue

If you’re being sued by a creditor, that company is likely the second or even third collection agency that has pursued your debt. The debt collection company must have legal standing to file a claim and collect the debt. This means that the debt collector must produce your signed credit agreement and evidence regarding the chain of custody for all the debt-related paperwork. If the creditor cannot provide this documentation, the case will likely get dismissed.

3. Negotiate a Settlement

You might be able to negotiate a settlement with the credit company before the case moves forward. It’s possible to avoid the lawsuit while only paying around 50 percent of the debt, but you need to be careful when doing this and often creditors take advantage of people who are not represented by attorneys.

First, do not make a payment until you receive a written contract accepting the settlement and agreeing to dismiss the lawsuit. Then, make sure you follow the agreement to the letter. Making one late payment can render your contract null and void.

4. Avoid a Default Judgment

If debt collectors have been after you for a while, you might have collection fatigue. You may be tired of opening letters, and you may feel like it’s better to ignore everything. However, ignoring your court summons will not stop the lawsuit from proceeding. The clock starts ticking as soon as you receive your summons. If you do not respond to the summons before the deadline, the court will enter a default judgment against you and the creditor can begin taking collection actions, including wage garnishment.

You have 14-20 days to answer a summons in Texas and 20 days in Arizona and Florida. Don’t wait until the last minute.

The court can also enter a default judgment if you – or an attorney representing you – fail to show up for a hearing.

5. Answer the Claim

Answering your claim will buy you some extra time and prevent the judge from issuing a default judgment. You will agree or deny the charges in the answer, or you can state that you lack the knowledge needed to answer. Once you fill out your answer, you must file it with the court and provide the opposing attorney with a copy.

6. Consider Bankruptcy

If you have explored your other options and the lawsuit is still moving forward, filing for bankruptcy might be your best choice. Once you file for bankruptcy, the court will issue an automatic stay injunction. This will bring the creditor’s lawsuit to a halt.

Most debt can be wiped clean with bankruptcy, including nonpriority unsecured debts, such as credit card debt. However, there are some exceptions. If you made any false statements when applying for credit, you cannot eliminate the debt with bankruptcy.

The court will also look at your credit card activity and can deny a bankruptcy based on your behavior. First, the court will see if you took out a large cash advance within 70 days of filing bankruptcy. If you’ve taken out an advance over $1,000, your claim might be denied. Next, it will look at the last three months of credit card usage before filing. If you spent more than $725 on luxury services or goods in that time frame, you will be denied.

Of course, if you are facing a credit card lawsuit, it’s unlikely that you have used your card in months.

7. Get Legal Representation

You can also get legal representation to stop the lawsuit before it goes to court. Your lawyer can research the debt to ensure that it’s valid. This includes the validity of the contract and the amount owed. These are just two examples of legal defenses. Your lawyer can use a legal defense to attempt to get the case dropped before it goes to court.

8. Remember to Act Quickly

You don’t have much time to take action once you receive a summons. Act quickly so you can stop the lawsuit. Whether that means paying the debt or proving it isn’t valid, you have legal options at your disposal.