A Creditor Has Sued You: Now What?
For many, the initial response to being sued is to panic and avoid the reality that the creditor has taken the steps to get paid by filing a lawsuit. Typically, before a creditor can garnish your wages or seize any assets, there needs to be a judgment against you, which is a court order stating that you owe the money. Filing the lawsuit is the first step for the creditor to obtain that judgment.
A creditor may take several months or years to finally file a lawsuit for an unpaid debt. You may have hoped that the creditor simply forgot about you. In reality the cause for delay is that the debt may have switched hands several times, being sold to debt collectors all over the country. A debt collector may also wait until it has acquired several of your debts from the original creditor or creditors.
When you know a creditor has or is about to file a lawsuit against you, the worst thing you can do is turn a blind eye and hope it goes away. Below are some simple steps you can take when a creditor sues you.
Step 1) Take a deep breath. You are going to have options to deal with the lawsuit.
Step 2) Do not avoid service. Typically, the sheriff will deliver the initial documents to you. If you avoid being served documents, the creditor will simply ask the court for permission to give you notice another way such as publishing it in the newspaper.
Step 3) Read the complaint. The complaint is the legal document that the creditor files with the court setting forth the facts and law for why you owe the money. The complaint will provide information such as the creditor’s name & location, amount of the claim (debt), and nature of the debt (e.g., goods, services, lease, or personal loan). It is important to understand who is bringing the lawsuit and the basis for the debt.
Step 4) File an Answer. In Nebraska, you have 30 days from the date you were served to file an Answer with the court, which is the document where you set forth the facts and reasons why you do not owe the money. It is also your opportunity to claim any defenses (e.g., that the statute of limitations has run). If you fail to file an Answer, the creditor can and most likely will obtain a default judgment, meaning that you will owe the money without having your day in court.
Step 5) Contact the creditor or their attorney and offer to settle the debt. In almost every case, the creditor is willing to work out a deal. A lump sum or repayment plan for less than 100% of the debt is very common. Many people, however, miss the opportunity to resolve the debt early on in the process, waiting until years of interest have accrued.
Step 6) Schedule a free consultation with a bankruptcy attorney to understand your options. If all of this seems overwhelming, an experienced bankruptcy attorney will be able to advise you of your bankruptcy and non-bankruptcy options for handling your debt.