You're sorting through mail after work when you spot an official envelope. Inside, there's a notice saying a loan company plans to sue you over an old debt. Your heart races. Can a loan company take you to court? The short answer is yes, but you have more power than you think.

Being sued by a collection agency or loan company feels scary. But lawsuits are just one tool creditors use. You have defenses, deadlines, and options at every stage. From checking if the debt is real to fighting in court, you can take back control.

What happens next depends on facts and your actions. Who owns the debt? How old is it? Do they have proof? What does your state law say? The choices you make now are important.

To help you confidently deal with collections, we’ll cover how lawsuits start, what court orders mean, what happens if you ignore the case, and when debt collectors give up.

Can a loan company or debt collector really sue you?

Yes, loan companies and debt collectors can sue you. If a loan company does sue you and you do not respond, the company is likely to win, since ignoring a lawsuit can lead to a default judgment against you. But the good news is that not everyone who threatens a lawsuit will actually file one.

Who can file a lawsuit against you?

Three types of companies might sue you:

• Original creditors - The bank or company you first borrowed from
• Third-party collectors - Companies hired to collect for the original creditor
• Debt buyers - Companies that buy old debts for pennies on the dollar

Each type has different proof requirements. Original creditors usually have stronger paperwork. Debt buyers may struggle to prove they own your debt.

When are lawsuits more likely?

Debt collectors are more likely to sue when the debt amount is large (usually over $1,000). They are also more likely to sue if the debt is recent and within your state’s statute of limitations. If they have good paperwork proving you owe them money and you haven’t responded to their contact attempts, the likelihood of a lawsuit increases.

When are lawsuits less likely?  

Lawsuits are less likely when your debt is very old. A small debt of under $500 is less likely to attract a lawsuit, or if the debt has already been disputed. If the debt collectors find out their paperwork is missing or wrong, they probably won’t try to sue you.

Do debt collectors give up?

Sometimes they do. Collectors may stop trying if your debt is small, old, or already disputed, as mentioned above. And if the collectors aren’t able to prove anything with reliable paperwork, their case could lose steam before they can even get it going.

But don't count on collectors giving up. It's better to know your rights and take action.

Statute of limitations and time-barred debt

Every state has time limits for debt collection lawsuits. This is called the statute of limitations (SOL). If you want to know your specific state’s SOL for debt, you will want to ask a lawyer who knows the rules in your area. Typically, the timeline falls between the listed windows below, but a lawyer will be able to tell you more details.

• Credit cards - Usually 3-6 years
• Personal loans - Often 3-6 years
• Auto loans - Typically 4-6 years

After this time passes, the debt becomes "time-barred." Creditors can still try to collect, but they can't successfully sue you.

Warning about old debts

Be careful with old debts. In some states, making a payment or admitting you owe money can restart the SOL. Always check the debt's age before paying anything.

How to find out your debt's age

The statute of limitations usually starts from your last payment date, your last purchase or charge, or when you broke the loan agreement. Ask debt collectors to prove when this happened. Get everything in writing.

What to do if you are sued by collections

​​​If someone sues you, they must serve you with legal papers. This includes a summons and complaint. To avoid a default judgment, you must respond before the given deadline. Default judgments are the result of the court automatically ruling in favor of the collection agency, giving them the legal power to freeze bank accounts, garnish your wages, or even place a lien on your property.

What these papers contain

A summons is the official notice that you’re being sued, while the complaint contains the details about what the loan company claims that you owe. These papers will also include a deadline within which you must respond. This window of time typically ranges between 20-30 days.

Risks of ignoring the lawsuit

If you don't respond, the court will likely enter a "default judgment." This means that the creditor automatically wins the lawsuit against you. Once they’ve won, they can garnish your wages if this is allowed in your state, and even freeze your bank account (once again, only where allowed). All this time, the interest on your unpaid loan will keep adding up.

How to respond

You must file an "answer" with the court. In your answer, you should:

• Admit or deny each claim they make
• List any defenses you have (like the debt being too old)
• File it before the deadline
• Send a copy to the other side

Can your debt amount go up in court?

​​​Yes, court cases can make small debts much bigger. Court costs, legal fees, attorney fees and interest can all add up. If you are found to be in default, interest will resume accruing. And as we mentioned earlier, ignoring the lawsuit can lead to a default judgment, making you liable for the full amount.

What gets added

Pre-judgment interest will be added, starting from when you stopped paying your debt. Post-judgment interest will also be added to your debt amount; this is the interest that you owe after the loan company wins the lawsuit. You will need to pay court costs such as filing fees and service costs. You may even be required to pay the loan company’s attorney fees.

Example of debt growth

A $2,000 credit card debt could become $4,000 or more after years of interest, court costs and attorney fees. This is why settling before trial often makes sense.

What to do if you are sued by a debt collection company

You have the right to make creditors prove their case.

Debt validation rights

Within 30 days of first contact, you can ask collectors to prove who you originally owed money to and to prove the exact amount owed. The collectors must also have proof of their right to collect, including copies of original documents.

Common defenses

You could have a strong defense if you can prove one or more of these details:

• Wrong person - It's not your debt
• Wrong amount - They're asking for too much
• Statute of limitations - The debt is too old
• Already paid - You settled or paid it off
• Not the owner - They can't prove they bought your debt

Gathering evidence

Collect documents that support your defense. This includes bank statements that show payments, settlement letters, correspondence with creditors, and original loan agreements.  

What to do if a debt collector sues you (step-by-step)

Step 1: Read everything carefully

Verify the debt is even yours, since even loan companies can make mistakes! Read every page of the lawsuit papers. Mark your answer deadline on every calendar you keep, and note down the court name and case number. Remember not to panic! You have time to respond.

Step 2: Organize your information

Request debt validation while you still can. Gather your records such as contracts, statements, payments, etc. Research and ask your lawyer about your state’s statute of limitations. Review all your paperwork to double-check whether you really owe the money and what amount is owed.

Step 3: File your answer

To file your answer, you need to respond to each numbered claim that was listed in the complaint that you received. Include applicable defenses in your response. File your answer with the court clerk and send a copy to the creditor’s lawyer. Keep proof that you filed on time.

Step 4: Plan your strategy

Now it’s time to decide whether you will settle or fight. If you choose to fight, request documents and avoid phone calls that could hurt your case. Keep proof of all communication in writing.

Step 5: Prepare for court

Organize your documents and evidence and practice explaining your side of the fight. When arriving at court, get there early and dress professionally. Always address the judge respectfully to keep up a good impression. Bring extra copies of paperwork for everyone. Organize your evidence and documents.

Step 6: After the decision

If you win:

Congratulations on the victory! Be sure to get your dismissal papers from the court. Update your credit reports to reflect your current debt status. As always, keep all paperwork for your records.

If you lose:

Make certain that you understand your options for paying the debt and any interest and fees. Speak to your lawyer to know your state’s exemption laws. If there are grounds for appeal, take this option into consideration.

When and how to negotiate or settle

Settlement can save money and end the stress.

Best times to negotiate

There are benefits to negotiating at various times throughout the lawsuit process. If you attempt to negotiate before the lawsuit, you will have more leverage on your side. Waiting until after you have filed your answer could show that you are serious about fighting the lawsuit. If you negotiate before the trial begins, this helps avoid uncertainty for both sides. Consider your options and choose the best time that works for you to begin negotiating a settlement.

Realistic settlement amounts

Settlement amounts depend on the age of the debt (older debts settle for less). Settlement amounts also depend on whether the debt buyer is collecting, since they often take less. If you can prove that your situation is a unique difficulty resulting in your late payment, the settlement may also cost you less.

Expect to pay:

• 10-30% for very old debts
• 40-60% for recent debts
• 70-90% from original creditors

Safe settlement practices

Get the agreement in writing first. Never give automatic bank access. Pay by traceable method (money order, certified check) so you can prove that the payments were made. Get "paid in full" language from the recipient of your payment. Keep all paperwork for your personal records.

Do you have to pay collections?

When you should consider paying

Consider paying collections if your debt is valid and recent. If you have the money available and paying will improve your credit, you should certainly think about paying. It is usually good to avoid a lawsuit when possible.

When you might not have to pay

If you don’t owe the money or you have already paid or settled your debt, fight back! The same goes for if the collector can’t prove that you owe the money or the debt is past your state’s statute of limitations.

Factors to consider

• Credit impact - Will paying help or hurt?
• Lawsuit risk - How likely are they to sue?
• Verification - Can they prove you owe it?
• Financial situation - Can you afford to pay?

Being sued by a collection agency vs. original creditor

​​​The strategy changes depending on who's suing you. If you are sued over a debt, the identity of the plaintiff is a critical detail that affects the burden of proof, your legal protections, and your defense strategy. Ask a lawyer for help determining your best course of action depending on who is suing you.

Debt buyers and collection agencies

Being sued by a collection agency often means they may lack original documents. Collection agencies might struggle to show that they own your debt. If they bought your debt for cheap, they can settle low.

Original creditors

Original creditors usually have better records with complete payment history, as well as proof of clear ownership. The upside is that original creditors may prefer to settle the debt versus take it to court, to avoid expensive court costs.

Questions to ask debt buyers

• Who was the original creditor?
• When did you buy this debt?
• How much did you pay for it?
• Do you have the original signed agreement?
• Can you prove the payment history?

After the case - what happens next?

If you win, collect official dismissal papers and keep them handy. Stop collection activities and dispute inaccurate credit reporting.

However, if a judgment is entered against you, it’s time to talk to a lawyer to make sure you understand your state’s collection rules. Learn about income and asset exemptions. Check out your options for payment plans. As always, keep payment agreements and other important communications in writing.

When to get legal help

Signs you need a lawyer now

You want to talk to a lawyer if your answer deadline is approaching quickly. Lawyers can help explain an unclear statute of limitations or help you learn if you were improperly served. Debts that involve identity theft usually require the help of a lawyer. If your debt is large, over $5,000, you want to get a lawyer involved just to be sure you do everything properly.

Lawyers can spot technical defenses you might miss. They can work to stop creditor harassment and violations, as well as negotiate better settlement terms. Lawyers know how to handle court procedures correctly, thereby preventing costly mistakes.

Get professional help with debt collection issues

A LegalShield lawyer can help you with these complex legal issues at a fraction of the fees that other lawyers charge by the hour. LegalShield also gives you the option of contacting your provider law firm online, receiving valuable legal help with just a few taps of our app on your phone.

Dealing with debt collectors and potential lawsuits can be overwhelming. That's where LegalShield comes in. LegalShield Members get access to lawyers who understand consumer finance law and debt collection rights.

Whether you're facing collection calls, dealing with inaccurate credit reports, or need help responding to a lawsuit, LegalShield attorneys can guide you through the process. They can review your situation, explain your options, and help protect your rights under federal and state consumer protection laws.

Don't face debt collectors alone. Reach out to an independent associate today to learn how affordable legal protection can help you take control of your financial situation and protect your rights.

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