16th Oct 2017
If you have fallen behind in payments to a creditor, whether it be a credit card, medical bill or other type of debt, it is possible that this creditor will file a lawsuit against you in an effort to collect on the debt. The lawsuit can be filed in either County Court, District Court or Small Claims Court (Justice of the Peace Court, or J.P.). When this happens, either a private process server or Constable will come to hand-deliver the petition to you. They are required to make an effort to serve you personally first; however, if they make a few attempts and you are never available to be served, they can receive permission to serve you in some alternate manner.
Once you are served, a clock will start to tick down giving you a certain amount of time to file an answer to the lawsuit. The amount of time depends upon where you live and which court the lawsuit was filed in. Typically, the deadline is in either 14 or 20+ days. You should consult with an attorney to verify your deadline. On the citation page of the petition, it will generally tell you when you must file a written answer to the lawsuit. If you do not file a written answer, then the creditor can receive a Default Judgment against you and with that judgment, they can try to seize your non-exempt assets in an effort to collect on the judgment.
You have 4 basic options with a lawsuit. First, you can do nothing and let them receive the default judgment against you. If you follow this option, you need to be prepared for them to try and garnish your bank account or seize other non-exempt property. Some people are fine with that and have decided to go on a cash basis without a bank account. A judgment is valid for 10 years and can be renewed every 10 years so you need to know that it is going to be around for a while if you go with this option.
Second, if you dispute that this is your debt or if you believe the debt is not valid due to the statute of limitations or some other affirmative defense, you can file an answer to the lawsuit and proceed with trial to prove your defense. The third option is to work out some sort of a settlement with the creditor to pay them some percentage of what is owed to them. A creditor is not required to settle, but they often will settle for something now rather than having to fight and wait to be paid.
Your final option is to file either a Chapter 7 or Chapter 13 bankruptcy that will stop the lawsuit from proceeding and then discharge that debt in the bankruptcy so you are not required to pay them outside of the bankruptcy. This is often the best option if the creditor is suing you for a high amount of debt or if you owe other debts that can be put into the bankruptcy.
If you settle the debt for some amount less than what is actually owed, you do need to know that the creditor is required to file a 1099 with the Internal Revenue Service, who will tax you on that amount as if it were income to you. Also, other creditors can sue you for their debts if they find out that one was successful.
If you would like to discuss these options in more detail, please contact me at 281-847-4345 or email@example.com so we can schedule a free, no obligation consultation. Please contact me as soon as you can so you don’t miss your filing deadlines. I look forward to hearing from you soon.