What Happens When You Are Sued by a Creditor – and Can’t Afford It?

We’ve received many questions about getting sued for credit card debt. Here are two questions from readers that address how the process works:

Question: “Can I be sued for credit card debt if I’m disabled and over 60 here in the state of Georgia?’’

– Kenny in Georgia

Mandi Woodruff, executive editor at MagnifyMoney, responds…

Being in debt is stressful enough, but the prospect of getting sued is even worse. Unfortunately, debt doesn’t just go away. If you’re a few months behind and facing financial hardship, your best bet is to call the creditor and see if you can work something out. If the debt has already been sent to collections, then, yes, you are at risk of being sued.

Whether or not your debt is actually collectible, however, is another question.

When it comes to the statute of limitations — or the amount of time that a creditor has to sue you — collection laws differ by state. In your home state of Georgia, the statute of limitations on credit card debt is generally six years. That is, six years since the last payment was made on the debt, not the date that you ran up the bill. So if you made a payment last year to try to get a debt collector off of your back, that will have restarted the clock. If six years have passed, though, the debt becomes “time-barred,” meaning a creditor cannot win a lawsuit against you.

However, that doesn’t mean the collector will leave you alone. They may try to trick you into acknowledging your debt by offering a payment plan, or sue anyway, knowing that some people will ignore the lawsuit. If you’re a no-show, a default judgment can be filed against you, meaning your wages will be garnished, accounts will be frozen and/or liens put on your property. The bottom line here: do not ignore any lawsuit threats, even if you think you’re in the clear.

Now, if you know that you do in fact owe the money but don’t have any income or assets to draw from, there probably isn’t much a creditor can take from you. In fact, some forms of income, including Social Security and disability income that is directly deposited into your bank account, are protected from wage garnishment (unless you owe debt to the federal government, such as a tax bill). Therefore, in your situation, if your only income is Social Security disability, that will remain protected. But the same can’t necessarily be said if you have other assets.

So what happens if you do receive a notice that you are being sued?

First, don’t ignore it. You must respond to the lawsuit by the date specified in the court documents. This forces the debt collector to prove that you owe the debt. If you believe your debt might be outside of the statute of limitations or that there is an error, you can request a debt verification letter from the debt collector asking about it.

Next, consider hiring an attorney specializing in debt. It’s worth getting professional guidance on the best way to proceed. A consumer advocacy attorney can start by helping you respond to the lawsuit, and sometimes they may even be able to work out a debt settlement in exchange for dropping the lawsuit.

Consider bankruptcy as an option. If you have no means to pay back the debt and it’s significant, filing for bankruptcy might be the way to go. The process can be complicated and not everyone is a good candidate, so speaking with an attorney is a smart move.

Question: “What options do I have when I’m being taken to court by a credit collector when both the original creditor and credit collector would not accept the payments I could make? My original creditor sent me to collections while I was paying what I could as a single parent with lots of bills. Then I tried to make a deal with the collections firm, but they refused to accept what I could pay until I got my taxes. Now I’ve been served for court and I have no money for a lawyer. What can I do?’’

– Emily in Missouri

Steve Rhode, the Get Out of Debt Guy, answers…

A common misconception is that sending a little bit of money will keep you out of trouble with your creditor or collector – and keep you out of court. It doesn’t and it won’t.

You get no credit (so to speak) for good-faith efforts. The only payment you can make that will keep the creditor happy is at least the minimum payment you agreed to in your original lending agreement.

Outside of that amount, the next payment that can keep you out of trouble is a lesser payment – but one that the lender agrees to accept. Acceptance requires an offer from you and an agreement from the lender to accept the reduced payment. You don’t get to just send what you can afford.

What not to do

You do have a very good option, but before we get into that, let’s talk about your very worst option. That would be ignoring a court summons. There’s no scenario where that works out for you. It will lead to more costs and more stress.

By not showing up, you will lose by default. The creditor will get a judgment and go for wage garnishment if that is available in your state. So first, check out the Debt.com report How to Answer a Civil Summons for Credit Card Debt. That will give you step-by-step instructions for dealing with this serious matter.

The good option

So what’s that one good option? It won’t sound like one at first: bankruptcy. That’s the surest way to legally slam the door on your debt. You will be protected from your creditors, and your debt will be eliminated. Forever.

Bankruptcy sounds bad because it’s serious – and because in the past, less-than-scrupulous people have abused it. But it’s also a legitimate and powerful tool for those in need. Each year, this country sees around 1 million bankruptcy filings.

So where do you start? Bankruptcy isn’t something you do yourself, like a weekend home repair project. It’s akin to building an addition to your home. First, check out Weighing the Pros and Cons of Bankruptcy. Then call a professional, which is required under the law. You can reach that person at Debt.com .