Can I Settle a Debt After Being Served?[yoast-breadcrumb]
Can I Settle a Debt After Being Served?
Getting served with a lawsuit over an unpaid debt can feel scary and overwhelming. You may be wondering, “Can I still settle this debt even after being served?” The good news is, yes, you can still negotiate a settlement on a debt even after being served with a lawsuit.
At our financial consulting firm Delancey Street, we’re experts at helping our clients manage debt and negotiate with creditors. We know it’s stressful to face a lawsuit. But with some practical tips, you can respond properly and aim for the best possible resolution.
Why Creditors Sue for Unpaid Debts
When you first miss payments on a debt like a credit card or loan, the creditor will start contacting you to collect. They may call, email, or send letters asking you to pay. If you are unable to pay over an extended time, the creditor may give up on collecting internally and sell the debt to a debt buyer or hire a lawyer for help collecting.
Eventually, if you still don’t pay, the creditor or debt collector may sue you. The goal is to get a court judgment against you. This judgment gives them power to collect through actions like:
- Garnishing your wages
- Levying your bank account
- Putting a lien on your property
So when you get served with a lawsuit, it means the creditor is at the end of their rope trying to collect. But this also presents an opportunity for settlement.
Responding to the Lawsuit is Crucial
When you get served with a debt collection lawsuit, you only have a short time to respond – usually around 30 days or less. It’s absolutely vital that you do respond within this timeframe. If you don’t, the court may award a default judgment against you. This means the creditor gets to collect their full judgment amount, and you lose options.
Some people think avoiding or ignoring the lawsuit papers will make it go away. This is never the case – it will only make matters worse! Default judgments allow creditors to forcibly collect without you having a say.
On the other hand, responding to the lawsuit preserves your rights. You aren’t admitting the debt is valid or that you owe it. Responding just keeps the legal process going so you can aim for settlement or build a defense.
How to Respond to a Debt Lawsuit
There are a few steps to take when responding to a debt collection lawsuit properly:
- Read the lawsuit paperwork thoroughly so you understand what it says.
- Determine if the debt is truly yours and the amount is correct.
- Draft and file an “Answer” with the court before the deadline.
- Send copies to the plaintiff’s lawyer.
An Answer is your official legal response to the lawsuit. It allows you to admit, deny, or state you lack sufficient knowledge to answer each paragraph. Your Answer gets filed with the court and served to the plaintiff.
If you’ve never responded to a lawsuit before, the process can feel intimidating. At Delancey Street, we can provide guidance or connect you with legal help. Having a lawyer draft your Answer is highly recommended.
What Happens After You Respond
Once you properly respond to the lawsuit, the ball is back in the creditor’s court, so to speak. They now have to prove their case and show you owe the debt. You can also start negotiating for settlement.
In many cases, the creditor would rather make a deal than move forward with an expensive, lengthy lawsuit. Courts also push both parties to reach agreements when possible. So there is strong incentive on both sides to settle.
How to Negotiate a Settlement
When trying to settle a debt lawsuit, first look at who you’re dealing with:
- Debt buyer – More flexible, often willing to settle for a fraction of the debt
- Original creditor – Less flexible, want a larger settlement
Some key tips for negotiating debt settlement after a lawsuit:
- Get help from a debt settlement pro if possible
- Be firm but polite in discussions
- Start lower and compromise up towards a reasonable offer
- Get any deal in writing before paying
You’ll need to come up with a lump sum settlement offer or payment plan that works for your budget. This takes calculating your available income and assets. The creditor will also run your numbers to see if the offer makes sense for them.
If you can pay a large percentage of the debt immediately, say 50-75%, many creditors will write off the rest. If you need more time, a payment plan over 6-12 months may work if you can pay a good chunk upfront.
Be Aware of Drawbacks When Settling Debt
While debt settlement after a lawsuit is possible, there are some potential drawbacks to be aware of:
- Your credit score will drop from the negative item
- Settled debt may be taxed as income by the IRS
- Not all creditors will agree to settle
- Collectors may still hassle you until paid in full
For these reasons, it’s smart to have an experienced professional like Delancey Street guide you through the process. We can help negotiate a deal that protects your rights and finances.
Other Options Beyond Settlement
Settlement is one option, but not the only option, when sued over a debt:
- Payment plan – Repay full amount over 6-12 months
- Chapter 7 bankruptcy – Debt discharged, assets may be liquidated
- Chapter 13 bankruptcy – Repay portion over 3-5 years, remainder discharged
With Delancey Street’s help, you can look at all options – settlement, payment plans, or bankruptcy – to find the best solution for your unique situation.
Don’t Wait to Address Debt Lawsuits
If you’ve been sued by a creditor or debt collector, it’s critical to take prompt action. Avoiding the issue won’t make it go away – it will only make matters worse.
By responding properly and negotiating, you can often settle the debt for less than you owe. This resolves the lawsuit and lets you move forward. Delancey Street has helped many clients manage debt lawsuits. Contact us today to discuss your options.
With some practical steps, you can aim for the best possible outcome, even when facing a debt lawsuit. We’re here to provide guidance and support each step of the way.