When a debtor gets to the point of no longer being able to pay their bills, their mind inevitably turns to the consequences of doing so...and one of the possible consequences is a lawsuit. At some point, if a debt goes unpaid long enough, the creditor (collection agency, or debt buyer) will probably sue you in order to get a judgement against you.
For context, this post primarily discusses lawsuits by unsecured creditors (i.e. credit cards).
First, what is a judgment?
A judgment is a decision by a judge or court memorializing the obligations of the parties. In the debt collection scenario, a judgment gives the holder a judicial lien on all assets of the debtor and the power to use a state's executory laws to collect the debt (i.e. garnishment, asset seizure, etc).
How soon after default might I expect to be sued?
The good news here is that time is on your side. Creditors do not want to sue because it is the most costly of collection methods. (but the cost is not that great, since the attorney's work on contingency, so don't think the creditor is shelling out attorney's fees to sue you, and YES, in most creditor lawsuits, the attorney's fees are added to the judgment).
In any event, the general time-line for lawsuits is 6-18+ months from the date of first default, with the average time before suit being 12+ months. Thus, you can probably not pay your credit cards for about a year before a suit will be filed, BUT, each creditor has their own rules and procedures and these will vary from city to city, and state to state. For many people, their debts can go unpaid for many years before a suit is finally filed. Thus, you generally have "more" time before a suit is filed, not less.
How will I know if I am being sued and how does a lawsuit work
At this point, we are getting into the nuts and bolts of a lawsuit, so by way of preface, realize that the specific rules will vary state to state and court to court. What I am going to describe below is the general process of a civil suit in a jurisdictions intermediate civil court. In my area, we have 3 levels of county courts, Small Claims, Justice Court, and District Court. Most collection actions happen in Justice Court. Basically, which court you get sued in depends on the amount of debt in question. If you are in a small jurisdiction, you may have only 1 or 2 levels of civil court. In general, the process is similar across the country, only the specifics tend to vary.
Before we go on, lets take an overview of the lawsuit
The creditor is the plaintiff, as such, the burden falls on the plaintiff to prove that you, the debtor, actually owe the debt. In most run-of-the-mill cases, this task seems easy (and many times it is), but how easy it is depends on who is suing. From the debtor's perspective, there are 2 types of defenses, substantive an technical. A substantive defense would be something to the effect that the debt has been paid, you are not the proper defendant, or the amount is wrong, or the statute of limitations has expired. Technical defenses tend to go toward showing the court that the plaintiff has insufficient evidence or violated some procedure. In most cases, technical defenses can be overcome, and so they really only serve to delay a judgment, whereas substantive defenses undermine liability and allow you to win the case.
The success or usefulness of technical defenses depends on who is suing you...if the original creditor is suing, your technical defenses will be limited...but if the plaintiff is further down the collection line, (i.e. debt buyers), technical defenses become more viable, i.e. chain of custody...the debt buyer has a hard time proving they really have the right to sue and that you are the proper debtor. Technical defenses are best brought as a preliminary motion that is filed at the same time as your answer.
For the sake of Discussion, let's assume a judgment is enter against you, now what.
Once the plaintiff gets a judgment against you, they can now go about garnishing wages, (if state law allows), put a lien on your home, levy your bank account, etc. But, even now, you still have some time. Each method of judgment execution has its own set of rules and procedures that must be followed. Assuming the creditor knows where you work, it will still take them 2-3 weeks from getting the judgment before they can garnish your wages.
So, what is the overall time-line
Day 1. Filing of complaint
Days 2-30, Complete Service of Process.
Day 40-60, if answer filed, Motion for Summary Judgement
Day 45-90, If no answer filed, but there was SbP Default Judgment Entered.
Does Bankruptcy deal with Judgments
Yes. A bankruptcy can eliminate a judgment (assuming the underlying debt is dischargeable). Note, once you get your discharge from BK, you need to file some paperwork with the court that entered the judgment and attach your discharge order.
Practical Advice
Given how long it takes from first default to a creditor actually suing, you have been living with this for some time. So hopefully, you are over the "indecision" or "denial" phase of debtor stress and prepared to address your problems. A lawsuit is a creditor's last resort, so this debt is going to be resolved one way or the other. What you need to decide is the best way to handle the situation. Moreover, odds are, this suit is not isolated, meaning that, you have other debt and money issues that need to be addressed. Thus, make some appointments with some BK attorney's, consultations are typically free. Do some homework, figure out if you have a defense to the suit (but be careful of the "extremist" debt defense websites, you know, the same websites that claim federal income tax is unconstitutional...
) Take the lawsuit as an opportunity to take the first steps to get your financial life back on track.
For context, this post primarily discusses lawsuits by unsecured creditors (i.e. credit cards).
First, what is a judgment?
A judgment is a decision by a judge or court memorializing the obligations of the parties. In the debt collection scenario, a judgment gives the holder a judicial lien on all assets of the debtor and the power to use a state's executory laws to collect the debt (i.e. garnishment, asset seizure, etc).
How soon after default might I expect to be sued?
The good news here is that time is on your side. Creditors do not want to sue because it is the most costly of collection methods. (but the cost is not that great, since the attorney's work on contingency, so don't think the creditor is shelling out attorney's fees to sue you, and YES, in most creditor lawsuits, the attorney's fees are added to the judgment).
In any event, the general time-line for lawsuits is 6-18+ months from the date of first default, with the average time before suit being 12+ months. Thus, you can probably not pay your credit cards for about a year before a suit will be filed, BUT, each creditor has their own rules and procedures and these will vary from city to city, and state to state. For many people, their debts can go unpaid for many years before a suit is finally filed. Thus, you generally have "more" time before a suit is filed, not less.
How will I know if I am being sued and how does a lawsuit work
At this point, we are getting into the nuts and bolts of a lawsuit, so by way of preface, realize that the specific rules will vary state to state and court to court. What I am going to describe below is the general process of a civil suit in a jurisdictions intermediate civil court. In my area, we have 3 levels of county courts, Small Claims, Justice Court, and District Court. Most collection actions happen in Justice Court. Basically, which court you get sued in depends on the amount of debt in question. If you are in a small jurisdiction, you may have only 1 or 2 levels of civil court. In general, the process is similar across the country, only the specifics tend to vary.
1. Filing of Complaint and Service of Process
The first thing the creditors attorney will do is file a complaint with the court, pay the filing fee, and the court will issue a summons back to the creditor. At this point, there is a live action in court, a case number is assigned, a judge is assigned, and a file opened at the court. It then becomes the responsibility of the Creditor to "serve" you a copy of that summons and complaint.
Service of Process: Generally, the creditor must serve the defendant personally, but that MEANS either (1) a process server hands you the summons and complaint, (2) leaving copies at your dwelling with a person of suitable age. But, if you have moved, or if the process server misses you, etc, the creditor has options...
If the creditor cannot find you, or you have moved from you last known address, the creditor can get permission to do "service by publication". SbP generally means publishing the summons in a news paper for a number of weeks. Once the run is complete, the court will consider the summons served.
And yes, creditors can get fairly unscrupulous when it comes to service of process because all they need to do an SbP is an affidavit from the process server that they tried to serve you on a few different occasions, couldn't find you, and did a database search. Thus, one way or the other, service of process is going to be successful.
Note, service of process for small claims court can sometimes be made by certified mail to your last known address.
The first thing the creditors attorney will do is file a complaint with the court, pay the filing fee, and the court will issue a summons back to the creditor. At this point, there is a live action in court, a case number is assigned, a judge is assigned, and a file opened at the court. It then becomes the responsibility of the Creditor to "serve" you a copy of that summons and complaint.
Service of Process: Generally, the creditor must serve the defendant personally, but that MEANS either (1) a process server hands you the summons and complaint, (2) leaving copies at your dwelling with a person of suitable age. But, if you have moved, or if the process server misses you, etc, the creditor has options...
If the creditor cannot find you, or you have moved from you last known address, the creditor can get permission to do "service by publication". SbP generally means publishing the summons in a news paper for a number of weeks. Once the run is complete, the court will consider the summons served.
And yes, creditors can get fairly unscrupulous when it comes to service of process because all they need to do an SbP is an affidavit from the process server that they tried to serve you on a few different occasions, couldn't find you, and did a database search. Thus, one way or the other, service of process is going to be successful.
Note, service of process for small claims court can sometimes be made by certified mail to your last known address.
Before we go on, lets take an overview of the lawsuit
The creditor is the plaintiff, as such, the burden falls on the plaintiff to prove that you, the debtor, actually owe the debt. In most run-of-the-mill cases, this task seems easy (and many times it is), but how easy it is depends on who is suing. From the debtor's perspective, there are 2 types of defenses, substantive an technical. A substantive defense would be something to the effect that the debt has been paid, you are not the proper defendant, or the amount is wrong, or the statute of limitations has expired. Technical defenses tend to go toward showing the court that the plaintiff has insufficient evidence or violated some procedure. In most cases, technical defenses can be overcome, and so they really only serve to delay a judgment, whereas substantive defenses undermine liability and allow you to win the case.
The success or usefulness of technical defenses depends on who is suing you...if the original creditor is suing, your technical defenses will be limited...but if the plaintiff is further down the collection line, (i.e. debt buyers), technical defenses become more viable, i.e. chain of custody...the debt buyer has a hard time proving they really have the right to sue and that you are the proper debtor. Technical defenses are best brought as a preliminary motion that is filed at the same time as your answer.
2. Let's assume you were successfully served, what happens now.
The summons will tell you how many days you have to respond to the lawsuit, usually 20 to 30 days (and those are calender days, not business days).
You have 3 options.
1. Do nothing...file BK
2. Answer the Complaint
3. Answer the Complaint and file Preliminary Motions
1. If you do nothing, at some point, the plaintiff we get a default judgment against you. Since you did not appear in the case to defend the allegations, the court is forced to assume the allegations in the plaintiff's complaint are true, and enter judgment accordingly. Note, the plaintiff still has to present some evidence, but the evidence need only facially establish the claim, the court does not investigate or otherwise seek to verify the claims of the plaintiff.
2. An Answer to a complaint is simple in some respects and difficult in others. In an Answer, you must "admit", "deny", or claim you have "insufficient knowledge to admit or deny" each of the allegations for the plaintiff. Generally, the complaint will have enumerated paragraphs and each paragraph will assert a fact of some kind, thus, in your answer, all you need to do is say
"In answering paragraph 1 of Plaintiff's complaint, the defendant "..." the allegations contained therein"
You only admit a claim if you know the claim to be true, and you ONLY deny a claim if you KNOW the claim to be false. Thus, for most of the paragraphs, you will respond with "lack sufficient knowledge to admit or deny".
The tough part is affirmative defenses. It is with AD's that pro se defendant's often stumble; the problem is, if you do not assert an affirmative defense in your answer, the defense is waived. Thus, you MUST do your homework if you are planning on defending yourself.
3. Preliminary Motions are used if there is some defect in the Plaintiff's complaint or to raise technical defenses.
3. Ok, I have filled my Answer, now what happens
For the most part, you have bought yourself some time. But, if the plaintiff's attorney is on the ball, he will turn around and file a Motion for Summary Judgment.
A MSJ is a motion to try to end the case without trial. A MSJ will basically allege that there is no material disputed fact such that a trial is necessary and the attorney will attach the supporting documents and affidavits. Unfortunately, if you don't have any technical defenses, most collection cases are resolved by MSJ in the plaintiff's favor. Reason being, is that an MSJ now shifts the burden to the defendant to demonstrate to the court, with actual evidence, that there is a material disputed fact that needs a trial. Simply denying the claims is usually not enough to overcome an MSJ.
However, you are not without some recourse. Since most of the evidence is in the creditors possession, you can sometimes file a Motion for limited discovery to buy you some time.
But, if no MSJ is filed, typically what happens next is that the parties must hold a preliminary discovery conference and a discovery order must be entered with the court. That order will typically include a trial date.
But keep in mind, at any time before trial, an MSJ can be filed by the Plaintiff.
At some point, if you have been able to raise a defense to the claim, a trial date is set and the hearing is held.
The summons will tell you how many days you have to respond to the lawsuit, usually 20 to 30 days (and those are calender days, not business days).
You have 3 options.
1. Do nothing...file BK
2. Answer the Complaint
3. Answer the Complaint and file Preliminary Motions
1. If you do nothing, at some point, the plaintiff we get a default judgment against you. Since you did not appear in the case to defend the allegations, the court is forced to assume the allegations in the plaintiff's complaint are true, and enter judgment accordingly. Note, the plaintiff still has to present some evidence, but the evidence need only facially establish the claim, the court does not investigate or otherwise seek to verify the claims of the plaintiff.
2. An Answer to a complaint is simple in some respects and difficult in others. In an Answer, you must "admit", "deny", or claim you have "insufficient knowledge to admit or deny" each of the allegations for the plaintiff. Generally, the complaint will have enumerated paragraphs and each paragraph will assert a fact of some kind, thus, in your answer, all you need to do is say
"In answering paragraph 1 of Plaintiff's complaint, the defendant "..." the allegations contained therein"
You only admit a claim if you know the claim to be true, and you ONLY deny a claim if you KNOW the claim to be false. Thus, for most of the paragraphs, you will respond with "lack sufficient knowledge to admit or deny".
The tough part is affirmative defenses. It is with AD's that pro se defendant's often stumble; the problem is, if you do not assert an affirmative defense in your answer, the defense is waived. Thus, you MUST do your homework if you are planning on defending yourself.
3. Preliminary Motions are used if there is some defect in the Plaintiff's complaint or to raise technical defenses.
3. Ok, I have filled my Answer, now what happens
For the most part, you have bought yourself some time. But, if the plaintiff's attorney is on the ball, he will turn around and file a Motion for Summary Judgment.
A MSJ is a motion to try to end the case without trial. A MSJ will basically allege that there is no material disputed fact such that a trial is necessary and the attorney will attach the supporting documents and affidavits. Unfortunately, if you don't have any technical defenses, most collection cases are resolved by MSJ in the plaintiff's favor. Reason being, is that an MSJ now shifts the burden to the defendant to demonstrate to the court, with actual evidence, that there is a material disputed fact that needs a trial. Simply denying the claims is usually not enough to overcome an MSJ.
However, you are not without some recourse. Since most of the evidence is in the creditors possession, you can sometimes file a Motion for limited discovery to buy you some time.
But, if no MSJ is filed, typically what happens next is that the parties must hold a preliminary discovery conference and a discovery order must be entered with the court. That order will typically include a trial date.
But keep in mind, at any time before trial, an MSJ can be filed by the Plaintiff.
At some point, if you have been able to raise a defense to the claim, a trial date is set and the hearing is held.
For the sake of Discussion, let's assume a judgment is enter against you, now what.
Once the plaintiff gets a judgment against you, they can now go about garnishing wages, (if state law allows), put a lien on your home, levy your bank account, etc. But, even now, you still have some time. Each method of judgment execution has its own set of rules and procedures that must be followed. Assuming the creditor knows where you work, it will still take them 2-3 weeks from getting the judgment before they can garnish your wages.
So, what is the overall time-line
Day 1. Filing of complaint
Days 2-30, Complete Service of Process.
If service by publication, 30-60 days
Day 31-50, if no answer, and no SbP, Default Judgment Day 40-60, if answer filed, Motion for Summary Judgement
Day 55-85 Hearing on MSJ
Day 90-180: TrialDay 45-90, If no answer filed, but there was SbP Default Judgment Entered.
Does Bankruptcy deal with Judgments
Yes. A bankruptcy can eliminate a judgment (assuming the underlying debt is dischargeable). Note, once you get your discharge from BK, you need to file some paperwork with the court that entered the judgment and attach your discharge order.
Practical Advice
Given how long it takes from first default to a creditor actually suing, you have been living with this for some time. So hopefully, you are over the "indecision" or "denial" phase of debtor stress and prepared to address your problems. A lawsuit is a creditor's last resort, so this debt is going to be resolved one way or the other. What you need to decide is the best way to handle the situation. Moreover, odds are, this suit is not isolated, meaning that, you have other debt and money issues that need to be addressed. Thus, make some appointments with some BK attorney's, consultations are typically free. Do some homework, figure out if you have a defense to the suit (but be careful of the "extremist" debt defense websites, you know, the same websites that claim federal income tax is unconstitutional...
) Take the lawsuit as an opportunity to take the first steps to get your financial life back on track.
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