What Happens If A Debt Collector Sues You?

As a business owner, chasing down unpaid debts isn’t exactly how you imagined spending your entrepreneurial journey. It’s about as fun as trying to teach a cat to fetch. That’s precisely why many businesses turn to debt collection agencies. After all, these agencies live and breathe to recover unpaid debts.

Now, debt collectors have quite a few tools in their arsenal. They can send letters (lots of letters), make phone calls (many, many phone calls), and report debts to credit bureaus. But sometimes, when all else fails, they pull out the big guns—legal action.

You might be thinking, “Wait, can they actually do that?” Absolutely! And it happens more often than you’d expect. But, what exactly does it mean to be served court papers or sued by a debt collection agency? Are you completely helpless in such situations, or are there things you can do about it?

That’s exactly why I’m writing this post: to discuss what really happens when a debt collector sues you and what you can do about it.

What Happens If A Debt Collector Sues You?

Debt collection isn’t just about persistent phone calls and stern letters. Sometimes, it escalates into legal territory, and that’s where things tend to get more complicated and nerve-wracking. However, you have rights under the Fair Debt Collection Practices Act (FDCPA).

In this guide, we’ll walk you through everything from the moment that court summons lands on your desk to the various ways these lawsuits typically play out. Before long, you’ll find practical insights that’ll matter to your business. This applies to collection agency owners wanting to understand the process better, law firms looking to expand their knowledge, and even business owners curious about how their contracted collector handles legal proceedings.

Can a Debt Collector Sue You?

Absolutely, yes. However, just because they can doesn’t always mean they should or will. Part of what a debt collection attorney does is consider several crucial factors before heading to court. First, there’s the statute of limitations. It’s like an expiration date on milk; once it’s passed, you can’t really do much with it.

Then, there’s the cost-benefit analysis. Filing a lawsuit isn’t cheap, and smart collectors won’t waste resources pursuing a judgment they can’t collect. They’re looking at things like the debtor’s assets, income, and likelihood of payment.

They also consider proper documentation. A debt collector needs more than just a hunch that someone owes money—they need solid evidence. This may include original credit agreements, payment histories, and clear records of the debt’s ownership and transfer.

The debt amount also plays a crucial role. While there’s no universal minimum, most collectors won’t sue for small amounts because the legal costs might exceed the potential recovery. However, when the debt is substantial, the documentation is solid, and the debtor appears to have the means to pay, legal action becomes a much more attractive option.

What Happens When A Debt Collector Sues You?

Let’s break down exactly what happens, from the moment a debt collector initiates legal action to your potential options for response.

Step 1: You receive a court summons.

The debt collection lawsuit begins when you’re served with a court summons and complaint. The summons will typically arrive by certified mail or be hand-delivered by a process server. It contains crucial information: who’s suing you, how much the debt collector claims you owe, and most importantly, how long you have to respond (usually 20-30 days, depending on your jurisdiction). This document is essentially your formal invitation to participate in the legal process, and ignoring it is never a good strategy.

Step 2: Your response period begins.

Once you receive the summons, the clock starts ticking. During this response period, you have several options. You can file an answer to the lawsuit, where you respond to each claim made against you. You may admit to owing the debt, deny it, or state that you don’t have enough information to admit or deny. You could also raise defenses—perhaps the statute of limitations has expired, or maybe you’ve already paid the debt. This is also when you might choose to negotiate a debt settlement or seek legal counsel.

Step 3: The court process unfolds.

If the case proceeds, you’ll enter the discovery phase. This is where both sides can request information from each other to build their cases. The debt collector might ask for documentation of any payments you’ve made, while you might request proof that they own the debt and have the right to collect the debt. This phase can involve written questions (interrogatories), requests for documents, and sometimes even depositions.

Step 4: Achieve resolution through various means.

The case can be resolved in several ways. If you don’t respond to the lawsuit, the court might enter a default judgment against you—basically declaring the debt collector the winner by forfeit. If you do respond, the case might end through:

• Settlement: You and the debt collector reach an agreement outside of court.
• Summary Judgment: The judge decides the case based on the law without a full trial.
• Trial: Both sides present their evidence and arguments to a judge.
• Dismissal: The case gets thrown out if the debt collector can’t prove their claim.

Each outcome carries different implications for your business relationships and financial future. Choosing to settle the debt amicably might allow you to pay less than the full amount while avoiding court costs, while a judgment against you could lead to wage garnishment or liens against your property.

However, here’s something many don’t realize. Even after a judgment, there’s still room for negotiation. That’s because debt collectors often prefer to work out a payment plan rather than spend more resources on enforcement actions.

What To Do If A Debt Collector Sues You

Being served with a debt collection lawsuit doesn’t mean you’ve lost the battle—far from it. Your response and actions during this critical period can significantly influence the outcome. Below are the essential steps you should take to protect your interests and manage the situation effectively.

Step 1: Don’t ignore the lawsuit.

This might seem obvious, but you’d be surprised how many people receive a court summons and simply hope it will go away. Here’s the reality: ignoring a lawsuit is like ignoring a toothache—it only makes things worse. When you fail to respond, the court typically issues a default judgment against you, essentially handing the debt collector an automatic win. This can lead to wage garnishment, bank account levies, or property liens. Meanwhile, all these unsavory situations could have potentially been avoided with a proper response.

Step 2: Verify the debt and the collector’s right to sue.

Before doing anything else, check the collections debt and ensure you’re dealing with a legitimate claim. Request a debt validation letter from the collector and verify they have the legal right to sue. This means checking whether:

• The debt is actually yours.
• The amount claimed is accurate.
• The collector owns the debt or has authority to collect it.
• The statute of limitations hasn’t expired.

Step 3: Gather your documentation.

Start building your case file immediately. Collect every piece of documentation related to the debt, which may include: 

• Original credit agreements
• Payment records
• Communication history with the original creditor
• Any correspondence with the debt collector
• Proof of any payments made
• Records of any disputes filed

Step 4: Consider your response options.

You generally have four main options when responding to a debt collection lawsuit:

1. File an answer contesting the lawsuit if you don’t think you owe anyone.
2. Negotiate a settlement.
3. Pay in full (if you agree you owe the debt and can afford to pay).
4. File for bankruptcy (in extreme cases).

Each option has its own implications and consequences. For instance, settling might mean paying less than the full amount but could affect your credit report differently than paying in full.

Step 5: Seek legal representation.

While not always necessary, consulting with a lawyer who specializes in debt collection defense can be invaluable, as they can assist you in the following:

• Identify potential defenses you might have missed.
• Handle communication with the debt collector.
• Ensure your rights are protected.
• Navigate complex legal procedures.
• Negotiate with the debt collector on your behalf.

Step 6: Respond within the time limit.

Whatever action you choose to take, do it within the timeframe specified in the summons. Most jurisdictions give you 20-30 days to respond. Missing this deadline can result in a default judgment, effectively taking away your chance to present your side of the story.

Step 7: Keep detailed records moving forward.

Document everything from this point forward. This documentation serves as your business diary, potentially providing crucial evidence if disputes arise about what was said or done during the process. So, make copies of all documents you send or receive, keep notes of all phone conversations (including dates, times, and names), and save all email correspondence, as applicable. And, if possible, maintain a timeline of events.

Your success in handling debt collection lawsuits often comes down to how well you understand the process and how promptly you take action. 

When a debt collector files a lawsuit, it marks a significant turning point in the collection process. While it might feel overwhelming, understanding the legal implications and your options can make all the difference in reaching a favorable resolution.

Want to know more about debt collection? Connection2Collections is the perfect platform to master the intricacies of professional debt collection. When you join our community, whether as an individual or company owner, you’ll connect with seasoned professionals who’ve navigated countless collection scenarios and lawsuits. But, that’s not all! You’ll also get regular updates on legal trends and compliance requirements, insights on strategic approaches to handling collection lawsuits, and lots more.

Don’t navigate the complex world of collections alone. Join Connection2Collections today and become part of a community that’s reshaping the future of debt collection. You can also share your experiences or ask questions in the comments below. See you there!