Shouldering a large debt and struggling to keep up with payments is highly stressful. And if you’re served papers in a debt collection lawsuit, it only adds insult to injury. You might feel like you’ve run out of options. You might be wondering: Is settling a debt after summons possible?
In short, yes, you can. Here’s what you should know about the debt settlement process when facing a lawsuit.
What Is Debt Settlement?
If you’re struggling with debt, you’ve probably been searching for solutions. One option you may have come across is debt settlement. This process involves negotiating with creditors to pay back less than the total amount of money you owe. In exchange for a lump sum payment or payment plan, the creditor will agree to close the collection account and stop pursuing you for the total amount.
You might be wondering why a lender or credit card company would agree to accept less than the total balance. Usually, debt settlement is only possible if you’re far behind on payments. If it becomes apparent that you don’t have the money to pay them back, creditors might decide to accept a settlement instead of spending time and money on collections efforts. Debt settlement can also help avoid wasting resources on a lawsuit.
What Happens When You’re Served for a Debt?
Missing one or two payments on a loan or credit card debt isn’t great. But it’s not the end of the world. You’ll probably have to pay a late fee, and your credit score could drop temporarily. However, getting back on track right away is important, or you could face more significant consequences for your financial situation.
When you continue missing debt payments, the creditor will attempt to collect it from you. They may do this via an internal collections department. Or the original creditor might hire a debt collection agency or law firm to help collect the debt. It’s also possible that your debt will be sold off to a third-party debt buyer who will then attempt to collect it. Once your debt goes to collections and is written off the original creditor’s books, it’s often noted as a charge-off on your credit report. A charge-off listed on your credit report can bring your score down significantly.
The Debt Collection Lawsuit Process
Eventually, if you fail to pay back the debt, the creditor or debt collector may decide to sue you. A debt collection lawsuit aims to obtain a judgment against you. A judgment allows the creditor to take specific actions to collect the unpaid debt. This can include wage garnishment, freezing your bank accounts, seizing assets, and more.
If you are sued for a debt in civil court, you are served legal documents known as a court summons and complaint. The summons lets you know you’re being sued, while the complaint explains why.
Sometimes, these documents will be handed over to you in person. However, it’s also possible that you are served via the mail. (If your debt contract contains a Confession of Judgment, common in certain types of debts, you may not receive notice of a lawsuit but a judgment directly). Other debt agreements, such as MCA contracts, alter how you can be notified of a lawsuit. This is why it’s essential to seek an excellent MCA debt help attorney who can advise you of your rights if you are sued.
What to do if You’re Sued
Responding immediately when you are served for a debt collection lawsuit is essential. Failing to file an answer with the court by the deadline (usually 30 days or less) means the creditor can ask the court to award a default judgment against you.
Don’t worry: Responding to the lawsuit doesn’t mean admitting fault. It will help you, but it has to be done right. It’s best to use an attorney to assist you with responding to a lawsuit from a creditor. And once you’ve been served, you still have the opportunity settling a debt after summons.
Can You Settle a Debt After Being Served?
The short answer: Yes. Going to court is expensive — for both you and the creditor. There are many legal fees involved. Plus, you could decide to file for bankruptcy, in which case the creditor may get nothing. So, even if you’ve been served, your creditor may prefer to settle out of court.
Once a lawsuit is filed, it could present a new opportunity to negotiate a settlement with the debt collection lawyer. Plus, the court may encourage both parties to agree before the trial starts, especially if you owe a significant amount.
Resolve Your Debt by Settling for Less Than the Full Amount
This is where you offer to pay a large, one-time payment to settle the entire debt for less than the total amount owed. Creditors may be willing to accept a lump sum that’s significantly less than the full balance, especially if they believe it’s the most they can realistically collect. Typically, this means you’ve missed several payments in a row and it’s clear that you don’t have the financial resources to catch up within a reasonable time frame.
Pay the Debt in Full with a Structured Payment Plan
If you can’t afford a lump-sum payment, you might negotiate a payment plan to settle the debt. This could involve making smaller, manageable payments over a set period until you’ve paid off an agreed-upon amount that is less than the original debt.
If you’re experiencing financial hardship due to circumstances like illness, job loss, or another significant event, you might qualify for a hardship plan. Some creditors have specific programs that offer temporary reduced payment plans, lower interest rates, or other modifications to help you manage your debt under difficult circumstances.
Initiate Bankruptcy
As a last resort, filing for bankruptcy can discharge certain debts. Chapter 7 bankruptcy may eliminate most of your unsecured debts, while Chapter 13 involves a repayment plan over three to five years. Bankruptcy has long-term financial and legal implications, so it’s usually considered when other options aren’t viable.
Can I Settle a Debt on My Own?
While it is possible to negotiate a debt settlement on your own, this is a situation when it’s best to hire an experienced debt relief attorney. Debt settlement on its own can be tricky and requires excellent negotiation skills. You could have credit, legal, and tax problems if not done right. The situation is incredibly complex if you also face a debt collection lawsuit.
Working with a debt help attorney experienced in handling settlements, lawsuits, and other debt-related issues is best. They can advise you on the best course of action, explain debt collection laws, and ensure you get a favorable outcome that works within your budget. An attorney will act in your best interest and uphold your rights, such as those in the Fair Debt Collection Practices Act (FDCPA). They’ll also be able to advise you on whether or not your debt has exceeded the statute of limitations on collection.
Many settlement agreements require a lump sum payment to the creditor. However, you may not have that much cash on hand (otherwise, you wouldn’t be in this situation in the first place). With the help of an attorney, you might be able to arrange an affordable monthly payment plan instead, which works in your budget and resolves the collection and legal part of the lawsuit. This may prevent your bank accounts or wages from being garnished.
Where to Get Debt Settlement Legal Help
Getting sued over a past-due debt can be scary. But you don’t have to face this challenge alone. If a debt collection agency files a lawsuit against you, take it seriously. Consult an experienced debt relief attorney who can improve your chances of getting a settlement agreement and having the court rule in your favor.
Tayne Law Group has over two decades of experience helping consumers and businesses with debts. We offer a free phone consultation so you can learn about our process and how we can help. You’ll always speak with an experienced, dedicated attorney and never have your matter outsourced to a call center. So don’t wait. Call us today for a free consultation and learn about your options when you are in debt. Our phone number is (866) 890-7337. Or you can fill out our short contact form. We never share or sell your information, and all conversations are confidential.
Frequently Asked Questions
The actual amount you should propose as a settlement will depend on your personal financial situation and the requirements of that particular collection agency. However, offering 25% to 50% is a generally a good place to start.
Initially, settling a debt may negatively impact your credit score. This is because the creditor will report the debt as settled for less than the full amount owed. This is considered less ideal than paying in full. Lenders and future creditors might view this as a sign that you didn’t fulfill your financial obligations as originally agreed.
Over time, however, settling a debt can have a positive effect. By settling an outstanding debt, you are reducing your overall debt burden and showing that you have taken steps to resolve past financial issues. As the settled account ages and you continue to add positive credit activities (such as making on-time payments on other accounts), your credit score can begin to recover.
A debt settlement typically stays on your credit report for seven years from the original delinquency date of the debt. The original delinquency date is the date of the first missed payment that led to the account eventually being settled. Even after settling a debt for less than what was originally owed, the credit reporting agencies keep a record of the settlement and its associated delinquency for seven years.
