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Nobody wants to be in a complex financial position, sued for debt and unable to pay their creditors. However, many people in the United States are in debt. Can debt collectors sue you? If you are wondering: what happens if I am sued for debt and I have no way to pay? Keep reading. In this article you can find a complete guide on what to do if you are sued and you do not have the means to pay off your debt.

At Ortiz & Ortiz we are New York bankruptcy attorneys with over 30 years of experience in business and estate planning. Our team is available in English and Spanish, ready to advise and defend you with great determination to succeed.

Can you get sued for debt by creditors?

  • Normally, after about 6 months of non-payment of debts, you could be a candidate to be sued by a creditor;
  • Lawsuits for non-payment of debts are common;
  • Creditors use this tactic because it is efficient for them to get debtors to pay off what is owed.

It can be very overwhelming to be sued, particularly if you are being sued for unpaid debts. Many people face debt problems at some point in their lives. If you find yourself in this situation, you are not alone and you have options.

Even if you have been sued due to unpaid debt, you can still settle the matter as you can manage this debt in a number of ways. Here we explain all the options.

What is a debt collection lawsuit?

If you are being sued and you do not know what is wrong or you do not have money to pay, your first question is probably what a lawsuit means for you. Debt collection lawsuits are the most common type of civil court case in many states across the country.

A report published in May 2020 by the Pew Charitable Trusts – a nonprofit research group – shows that debt lawsuits were already the most common type of civil case at the time. And they anticipate that:

As the COVID-19 pandemic continues to close businesses and disrupt the national economy, the number of lawsuits for debt collection may continue to grow.

Erika Rickard, director of the project to modernize the civil legal system in Pew,

A debt collection lawsuit begins when a creditor appears in state civil court, accusing a client of non-payment of debts. Typically, the creditor will be represented by an attorney or an outside collection agency.

The complaint should state the identity of the defendant, why the creditor is suing them, and what they want. The most common is that the creditor wants the money owed plus interest. In addition, attorneys’ fees and court costs are usually added.

How do I find out if I am sued for unpaid debts?

  • The creditor, the collection agency or the attorney representing you will notify you of the claim through a “notice”;
  • This process consists of the delivery of a copy of the claim and a court summons;
  • The summons will contain information and guide you on when and how you can file a formal response in court and the date of your court hearing.
How to find out all my debts

How to find out all my debts? On our website we give you all the keys to know this basic aspect of your financial situation.

Debt collectors usually bet that most debtors will not attend the court hearing. In the event that the debtor and defendant do not attend the summons, the judge is empowered to issue a default judgment. With a default judgment, the creditor can:

  • Put a lien against your property.
  • Garnish your wages.
  • Try to freeze some or all of the money in your bank account.

Many debt lawsuits end in automatic victories for creditors, according to the report. It is probably because debtors rarely have lawyers. That is why it is essential that you seek legal advice and New York attorneys with experience in Asset Protection.

Thus, Ira Rheingold, executive director of the National Association of Consumer Advocates in the United States, recommends:

The worst thing anyone can do is ignore the lawsuit.

Ira Rheingold – NACA Executive Director.

What should I do if creditors sue me for unpaid debt?

First of all, when contacted by a creditor, we recommend that you verify the information. Start by verifying that it is from a legitimate and officially registered agency. You can review the agency’s legal record online at the National Multi-State Licensing System site.

In the event that you have been legitimately sued for unpaid debt, we recommend that you study your alternatives. You can review the checklist of debt dispute questions and templates on the Consumer Financial Protection Bureau site.

debt lawsuits defenses in the usa

If you were sued, we encourage you to respond to the complaint and the subpoena.

Generally, you have between 20 and 30 days to file a written response to the complaint. The document you submit is often called the “Answer.” You will probably have to pay a filing fee when you submit your response. If you don’t have a lot of money, you may qualify for a fee waiver.

In parallel to preparing your answer, you should gather all the information related to this particular debt for which you have been sued. This collection can include collection letters, the dates you missed your payments, and details about the original debt.

It is important to determine who the creditor is and if the collection information is accurate. It is common for debts to be repeatedly sold from one collector to another, which usually leads to errors.

It is also essential to determine if the debt has passed the statute of limitations. The statute of limitations is the time set by your state in which a creditor can sue you for an unpaid debt. The debt collector cannot sue you after that time, but they may try to collect from you.

What to do when creditors call you to collect

Keep calm. Be cautious and keep records of all conversations. You should not share private information (like bank accounts) no matter what debt collectors say. Don’t give in to their phone pressures.

Keep records of all your communications and make copies of any documents before sending them (it is preferable not to send any original documents).

What to do if the debt is effective?

If you are indeed a debtor, and the claim is within the collection period, the options are reduced. In any case, if you are sued and you do not have a way to pay immediately, here are some steps to follow to try to find an alternative to advancing the judicial process.

First, find the creditor before the hearing begins and see if you can agree to:

  • Establish a repayment plan that works on your budget.
  • Pay off the debt for an amount less than what you originally owed. If you can come to an agreement, make sure you get in writing that the creditor will consider the debt fully paid off and report it to the credit bureaus as paid.
  • You may also consider filing for bankruptcy if you do not have the means to pay the debt. By availing yourself of this instance, you will have an opportunity to start over.

What to do if you have a debt that you think you should not pay?

There are several cases in which you may legally refuse to pay a debt. You may be able to invoke these “affirmative defenses” if, for example:

  • What you bought was faulty or never delivered.
  • The debt contract was unenforceable or illegal, or was signed based on misrepresentations.
  • You legally canceled the contract.

Those examples are just a few of the possible affirmative defenses. If you believe that you could have such a defense, even based on other arguments, we recommend seeking legal advice on the best way to proceed.

What to do if you are sued for a debt that is not yours?

It is more common than you might imagine. There are multiple cases in which people have been sued for debts that do not exist, or for the wrong amounts of money.

In this case, your defense should require that the creditor have evidence to sue you.

At the hearing, you or your attorney can ask the creditor to provide you with proof of the contract and debt amount. If the creditor cannot prove it with valid documents, the judge can dismiss the case.

If we go even further: A lawsuit for a debt you don’t recognize may be the result of identity theft. There are cases in which credit card owners face a lawsuit for the expenses of a third party, who cloned and stole their data and money.

It is always advisable to check your credit report for activity that you do not recognize.

Respond to a debt lawsuit

Sued for debt? As we mentioned before, the first step is to respond to the demand. Typically, your answer will include:

  • Admission or denial of the claim.
  • Any legal defense.
  • Possible counterclaims.
  • Your signature.

If you have income that is exempt from wage garnishment, such as Social Security payments, it can also be included in the answer.

How to win a credit card lawsuit

The key to winning a credit card debt collection lawsuit is having strong affirmative defenses. You should know that you have rights under the Fair Debt Collection Practices Act (FDCPA) and can defend yourself in civil court.

If you plan to defend a claim against you, an attorney can help you decide which defenses make the most sense. Many consumer contracts include a provision to resolve disputes through arbitration, so the claim may not even be valid. It is essential to review the initial contract thoroughly, because the claim could be dismissed before proceeding with further diligence.

debt lawsuits

Another point to look at is that the claim must be filed within the time limit set by your state (the statute of limitations). If the creditor is outside this limit, then the court can dismiss your case. Generally, a creditor has two or three years to file a lawsuit, but in some states they have up to six years. Also, some states have different statutes of limitations for debt-related lawsuits.

The first step is to review the contracts, facts, and evidence with an experienced credit card trial attorney. Your attorney will be able to determine if the debt claim is valid. If the evidence does not make a strong enough case in your favor, you can try other defenses or argue a settlement.

Debt claim defense: Debt ownership

A creditor suing you for an unpaid debt has to prove ownership of the debt. Debts are often sold to other companies, considered “debt collectors” for legal purposes. These debt buyers must be able to present documentation of the debt in order to sue you, a requirement that does not apply to the original creditor.

You should always request verification of the debt in writing after a debt collector contacts you (which may be another financial institution).

If the creditor suing you cannot provide written proof, you may not be charged. This since they do not have the legal support to continue with the lawsuit.

Request the appropriate documentation

Additionally, creditors are legally required to attach a copy of the account or written contract to the claim, or to explain in the complaint why it is not attached. If the creditor or collector cannot produce the proper documentation, you can ask the court to dismiss the claim.

Other common defenses for debt lawsuits

Other examples of situations that can be used to defend your case are:

  • Mistaken identity: Mistakes of this type often occur in debt lawsuits. Look in detail at all the documentation.
  • Identity theft: Card cloning and identity theft is also a fairly common situation. Constantly review your credit card charges.
  • Debt has been discharged in bankruptcy: If you filed for bankruptcy, the lawsuit should be dismissed.
  • Fraudulent charges (if it’s credit card debt)
  • The creditor violated the Fair Debt Collection Practices Act: You must be able to document your case with evidence.
  • You have already paid the debt: You will need to provide copies of official pay stubs.
  • The creditor did not serve you adequately: In this case it is also important that you have proof of the defective service or product.

These defenses may depend on the laws of your state.

What can I do if I cannot pay my debts?

Not having the money to pay off debts can be very distressing since you could get sued for debt. But, keep in mind that there are always alternatives and solutions. One of them is to consolidate debt, while another option is to file for bankruptcy. While bankruptcy has consequences, it also allows you to restart your financial situation. With this, you can have a fresh start.

Consolidate debt

This alternative can help you sort out your financial situation and, in a way, start from scratch. Debt consolidation combines all debts into one payment. This allows you to reduce the interest rates you pay for each loan. So you can resolve your debt situation faster.

File for bankruptcy

If you are considering the option of filing for bankruptcy, I recommend that you go through the process point by point and what you must do to file for bankruptcy.

In bankruptcy law there are several chapters, which represent the different alternatives of bankruptcy that exist.

Each of them applies for different situations, they have different requirements to be able to benefit from them, and they also grant various conditions for those people and / or businesses who apply to be able to benefit from any of the modalities.

options when being sued for debts

Among the most common are Chapter 7 bankruptcy, which is the bankruptcy known as “liquidation.” It refers to the fact that you, as a debtor, give up all your property in excess of what is exempt. There is also the Chapter 11 form of bankruptcy. This option is known as “reorganization.” It is used mainly by companies and by individual debtors who have very large debts.

Finally, we mention Chapter 13 bankruptcy. It is known as the “salaried plan.” This type of bankruptcy is a reorganization that allows you to devise a plan to pay part or all of your debts if you have regular income. This plan contemplates a term of 3 or 5 years.

Note: Read more about bankruptcy and the types of bankruptcy that exist in the United States and the difference between Chapter 7 and 13. Discuss whether after filing for bankruptcy you can apply for personal loans or refinance your home.

Can I go to prison for accumulated debt in New York?

We saw that there are several alternatives to civil proceedings to respond to a debt claim. It is important first to review all the details of the case. Then, appeal to the different causes that could dismiss the claim. You can also reach an agreement on a payment plan, debt reduction, etc. In more complex cases, you might consider filing for bankruptcy.

Although it is not legal in the United States for creditors to threaten debtors with jail, in many states this has become common practice. You can review this guide that regulates collections in New York.

What can happen is that creditors demand an appearance before a judge and if you do not appear, it could end in an arrest. A situation that can lead to trauma and anguish. As we recommended above, you should always appear for these types of subpoenas.

Note: Here you can read our article detailing whether you can go to jail for debt in the United States.

But what about the accumulated debts in New York? Can you go to jail? Fortunately, in New York this practice does not occur in the same way. Consumer protection laws set limits on debt collectors. Along these lines, there are laws in New York State that prohibit harassing and threatening conduct against debtors.

Why hire the attorneys at Ortiz & Ortiz?

Being sued for debt and having no way to pay is a situation that overwhelms anyone. Fortunately, despite how overwhelming it might feel, there are options and ways out of this. You can consolidate your debt or file for bankruptcy, among other alternatives.

If you were sued for unpaid debts, and you have no way to pay them, you should know that there are several alternatives and steps to follow to resolve the matter. As we mentioned, remember that unpaid debts are not punishable with jail in the United States. What is a serious offense is the contempt of a court order or not appearing in court. For this reason, always go to court if requested.

Don’t wait to contact us! It is important that this process is carried out by an expert lawyer, who can advise you at all times. Our estate planning attorney in New York can review your case and discuss your options:

  • First, they will do a study of your current financial situation.
  • Our lawyers will answer all your questions about the different alternatives to solve your debt situation.
  • Along the same lines, our lawyers will guide you in what steps to follow. Whether it’s protecting you from creditors, consolidating debt, filing for bankruptcy, or something else.

For these and other services contact us today. We look forward to it!