For months it was letters and phone calls. Then someone hands you a summons, and the process has actually begun. Panic sets in. What do I do now? Is it all over? A summons can be a very intimidating and scary document, and it is important to note that you are not alone. A debt lawsuit by itself is not game over. When a creditor decides to enforce its contractual right to repayment, it may file a lawsuit to prove that you actually owe the debt. But you aren’t finished just yet. You have fewer options now than you had before the creditor went to court, but you still have options, and the owners who come through this in the best shape are usually the ones who engage with the process, as opposed to keeping their heads in the sand. There is no overnight fix or quick fix for how you deal with the threat of debt collection. But there are steps you can take to buy yourself time and create some negotiating space.
It is tempting to put the papers in a drawer. The thinking goes: if I just don’t look at it, it won’t happen; they will just go away. They won’t. Someone will want the money that was promised, and that someone made the effort of filing a lawsuit. Even so, a lot of business owners just don’t respond or hire a lawyer to respond for them, because they are not sure how to do it, they are worried about having to pay legal fees, or because they just want the creditor to drop the case or go away. But if a business owner does not respond, the court enters a default against the business owner, and the case goes forward. The creditor wins, and the business faces serious consequences.
Every lawsuit has a time limit on the answer. If you don’t answer the lawsuit on time, it goes into default. In most cases you will have only 30 days from the day the process server delivered the papers, so note that date and act quickly. Neglecting the lawsuit leads to a default judgment. Whatever you do, do not ignore the deadline. But don’t panic.
Start with the Paperwork
The more you know about the lawsuit process, the more likely you are to get a good result. Start with the paperwork. When a creditor initiates a lawsuit against a business, they file a summons and complaint with the court. The process starts with the service of the complaint on the business, typically done by a process server. Read what you were given and identify the parties. Once a lawsuit is filed against a business, the creditor is referred to in court as a plaintiff. Do you recognize it as one of your creditors? If not, the complaint should explain how it came to have the right to sue you. It is quite common for lenders to sell loans to other companies. If a debt is sold to a debt purchaser, that purchaser then becomes your new lender or creditor. Be sure to look at who assigned it after it was made by the lender and who the current owner is. Because debt can pass through several hands, it may take some digging to confirm that the claim against you is legitimate.
Assuming it is, look next at the last activity on the account. A statute of limitations on a debt is a limit on the time available to enforce the debt through legal action. The statute of limitations will vary by state. The statute of limitations on debt in Florida is five years. If nothing has happened on the account in that time, the collector cannot force you to pay. You can raise the expiration of the state’s statute of limitations as a defense in your answer. It means the collector can’t sue you because it’s too late.
Once the debt is old, the creditor can’t sue on it, and that is what makes it so valuable to you. If you make a small payment on it, you restart the statute of limitations. Now the creditor can sue. So be very careful. Do not pay a dime on such debts. You’ll be sorry you did.
Bargaining Power in Negotiating the Best Settlement
If the debt is valid and still within the limit, you still need to file an answer, and an attorney can help you with that step. Answering the lawsuit isn’t claiming that you don’t owe the money, it’s just putting them to their proof. Fighting the case slows the creditor down on its way to a judgment, and that time is valuable. Contesting the lawsuit provides you with time to save money and gather the funds for a payment. If a business challenges the lawsuit, it puts pressure on the creditor to settle it, and before a judgment, you have bargaining power in negotiating the best settlement.
That is where the negotiation really begins. They want you to pay. If you respond to a lawsuit, you force the creditor to do some work and incur some expense to take the case to court. They have those expenses of their own, and that can be leverage in your favor. Keep in mind also that they want to collect. But they have an interest in having this over with, too. Think about your goals in this transaction. What do you want to happen? Start considering a payment plan. If you don’t already have a proposal in mind for the debt to be paid off, think about the facts of the case. What’s a reasonable proposal? The goal is to take a little bit of pressure off the debt and buy time while you figure out how to pay it.
A Symptom of a Growing Debt Problem
Once the answer is filed and you have a plan for this debt, step back. Was this lawsuit a single account that got out of hand, or a symptom of a growing debt problem? Did you simply fail to pay an invoice? Or is the business behind with several creditors at once? If so, what are the chances of being sued by other creditors, or of the account being levied? Has an account already been levied? Is the business still sustainable? Can it be? If you find that your business simply doesn’t have the resources to pay all the bills and still run itself, it’s time to explore options. The lawsuits are simply confirming a situation that’s already established. Answering one at a time only postpones it. You may need to take more drastic action than simply responding to this lawsuit and resolving this one debt.
None of this is easy, and much of it will be done under duress and stress. But the sooner you deal with it, the better. Focus now on the steps you can take. That is what will put you ahead of the problem, instead of behind it.
