September 09, 2021
Summary: Are you being sued by a junk debt buyer for an old debt? Learn how to make the right defense to beat junk debt buyers in court.
In many cases being sued for debt is a scary experience. But what you might not be aware of is that many attorneys representing debt buyers do not have the proper documentation to sue you. Summons and complaints are often sent out to people who assume they either need to give up the money or hide, but this is not the case. You should always respond to a summons and complaint with a legal Answer, but you should also ask for proof of their ability to collect your debt.
In the U.S court of law, whoever is suing you for debt must prove that you signed a credit agreement or that you agreed to pay the debt in some way. Most junk debt buyers do not have this but assume you won't ask for the proof. That is why you need to know your rights and how to handle a court case with junk debt buyers.
After you receive a credit card you may experience bad financial times. This might include a job loss or economic distress. Then this leads to a hard time making payments. Although many people try to work with their credit card companies, in any case, it is common to fall behind on payments. After the credit card account is at least 120 days delinquent, the account will become “charged off”. This means that the original creditor has written off the “bad debt”. Then, the creditor will do one of the following:
When the debt is charged off you still owe the debt, it just means that you no longer owe the debt to the original creditor because someone else has purchased it. Once the creditor sells the account to a junk debt buyer, it will be placed with many others in a portfolio. It can include thousands of accounts within each portfolio.
Junk debt buyers will buy these portfolios at pennies on the dollar. This means that you no longer deal with the original creditor and rather the debt buyer. This is typically when a lawsuit will be filed against you for the full amount. It might even include court costs and attorney's fees added on with interest.
Typically a junk debt buyer doesn't know much about the debt. They have thousands of debt names on a spreadsheet, and they will attempt to collect. In many cases, they do not need to prove they owe the debt because consumers will ignore the lawsuit.
This is the wrong thing to do. If you ignore the lawsuit then a default judgment will be placed against you. This will allow the junk debt buyer to garnish your wages, pull money from your bank account, and even freeze your assets.
If you challenge the lawsuit and ask for proof, you have a much higher chance of beating the lawsuit or even settling for a smaller amount. This can be done out of court and is called a “settlement”. Because they have purchased your debt for a small amount, they are usually willing to let it go for less because they will still make money on their investment.
One method that is unknown to many is using the arbitration clauses in consumer contracts for your benefit. Most underlying credit card agreements in debt buyer lawsuits contain mandatory arbitration clauses. This means that you can convince them to arbitrate their claim against you.
There are a few reasons why you might want to arbitrate within your debt-collection proceedings:
Debt collection lawsuits are typically cheap and effective. If you choose to go through arbitration, it is carried out by a private arbitrator. Most credit card arbitration agreements state that the debt buyer has to pay all of the arbitration fees. These can be extremely expensive as compared to a debt collection lawsuit.
Additionally, unlike a standard court case, a debt buyer cannot recover its court costs in the arbitration award. Therefore, arbitration will always be more expensive for the debt buyer. Plus these costs cannot be shifted to the consumer should you lose. In many cases, the debt buyer will forgo the lawsuit altogether to avoid this.
If the debt buyer won't drop the case, you still have a much better chance of leveraging a good settlement. This means that instead of paying a higher settlement because you have no leverage, you will have the opportunity to ask for a settlement even as low as 30% of the total amount owed. If you do settle ensure that the debt buyer includes the following in the conditions:
In an arbitration, the debt buyer is unable to turn the junk debt into a “super debt”. This means that you can no longer have a default judgment placed against you. This saves you from wage garnishment and asset seizure.
Additionally, the statute of limitations for a judgment is anywhere from four to six years on average (depending on the state). Because of this, if you cannot have a judgment placed against you, the statute cannot start. This gets you closer to the statute expiring and being unable to be sued for debt entirely.
Although arbitration is not the best choice for every junk debt buyer lawsuit, it can be the right choice for many. You need to examine your options, consider the pros and cons, but always send a legal response via an Answer to the debt buyer.
SoloSuit makes it easy to respond to a debt collection lawsuit.
How it works: SoloSuit is a step-by-step web-app that asks you all the necessary questions to complete your answer. Upon completion, you can either print the completed forms and mail in the hard copies to the courts or you can pay SoloSuit to file it for you and to have an attorney review the document.
"First time getting sued by a debt collector and I was searching all over YouTube and ran across SoloSuit, so I decided to buy their services with their attorney reviewed documentation which cost extra but it was well worth it! SoloSuit sent the documentation to the parties and to the court which saved me time from having to go to court and in a few weeks the case got dismissed!" – James
Here's a list of guides for other states.
Being sued by a different debt collector? We're making guides on how to beat each one.
Is your credit card company suing you? Learn how you can beat each one.
Need more info on statutes of limitations? Read our 50-state guide.
Need help managing your finances? Check out these resources.