What happens if a debt collector sues you but you can't pay?
Being served with a debt collection lawsuit can feel overwhelming, especially when you're already strapped for cash and struggling to make ends meet. The sudden reality of legal action, coupled with the stress of unpaid bills, might leave you feeling trapped and unsure where to turn. But if this has happened to you, it's important to take a deep breath. You may have more options than you might think.
Right now, nearly 9% of credit card debt is delinquent, meaning that the cardholders are behind on their payments. As a result, a significant number of Americans are at risk of being sued over their debt, and many of them are in the same position you're in: wanting to resolve the debt but lacking the funds to pay it off.
What's crucial to understand, though, is that ignoring the lawsuit won't make it go away. In fact, taking no action almost guarantees a default judgment against you. Luckily, you don't have to take that route, even if you don't have the funds on hand to pay what's owed. When you're in this situation, there are strategies you can use to protect yourself and work toward resolving the debt within your means.
Explore your debt relief options and take action today.
What happens if a debt collector sues you but you can't pay?
When a debt collector files a lawsuit, they're trying to obtain a court judgment against you. If you don't respond to the lawsuit within the specified time frame (usually 20 to 30 days), the court could eventually issue a default judgment in the debt collector's favor. This gives them powerful tools to collect the debt, including:
- Wage garnishment (taking a portion of your paycheck)
- Bank account levies (freezing and taking money from your accounts)
- Property liens (claiming a legal right to your property)
- Seizure of non-exempt assets
Responding to the lawsuit buys you time and opens up opportunities for negotiation. So, even if you can't pay, you should always file an answer to the lawsuit with the court. This preserves your rights and gives you time to explore your options. It also forces the debt collector to prove they have the legal right to collect the debt — something they may struggle to do, as they may lack the proper documentation to prove the debt is yours or that they have the right to collect it.
If the debt is valid but unaffordable, you might be able to work with the debt collector on a resolution, even after a lawsuit is filed. Courts often prefer to see parties resolve disputes outside of prolonged litigation. And, it's important to understand that there are some income and assets, like Social Security benefits or retirement accounts, that may be legally protected from debt collection efforts, though it depends on your state's laws.
Find out how the right debt relief program could help you now.
How to get rid of collections debt with limited funds
If you're unable to pay your collections debt outright, there are still options available. Here are some of the strategies you can use to address your debt when you have limited funds:
Negotiate a settlement
Many debt collectors are willing to accept a lump-sum payment that is less than the total amount owed, so if you can save or borrow a portion of the debt amount, you may be able to negotiate with the debt collector to settle the debt for a reduced figure. Be sure to get any agreement in writing before making a payment.
Enroll in a debt forgiveness program
You can also consider enrolling in a debt forgiveness program through a debt relief company. These companies work on your behalf to negotiate a lower lump-sum payment with creditors, which could reduce your balance by 30% to 50% or more. While fees are involved, the potential savings from reduced debt balances can make this option worth it in many cases.
Seek legal advice
Consulting with an attorney who specializes in debt-related cases can help you better understand your rights and options and help you determine whether the debt collector's case has legal weaknesses or if you qualify for exemptions that protect your assets. Some lawyers offer free or low-cost consultations and nonprofit legal aid organizations may assist if you have limited funds.
File for bankruptcy
Although bankruptcy is often considered a last resort, it can be a viable option for those with overwhelming debt and few assets. Bankruptcy can discharge certain debts, including credit card and medical debt, giving you a fresh financial start.
The bottom line
Being sued by a debt collector when you can't pay is scary, but it's not the end of the world. The key is to take action rather than ignore the situation. Respond to the lawsuit, explore your options and remember that most debt collectors would rather work out a reasonable solution than spend time and money pursuing legal action.