"What Exactly Is a Creditor Lawsuit and Do I Have Options Besides Bankruptcy?"

March 12, 2012

iStock_000018620563XSmall.jpgAt the Law Office of Linda C. Garrett, a Solano County, California-based Consumer, Bankruptcy and Family-law practice, I receive many calls from distressed individuals regarding creditor lawsuits--pending and completed. The typical caller usually calls me a day or two after having been personally served with a Summons and Complaint from their creditor or after receiving a wage-garnishment order or notice of bank levy. My caller is usually in a panic and fearful that the creditor will garnish his wages and/or levy his bank accounts.

The purpose of this Blog Post is to educate the reader that not only do they have many legal rights, but many options as well!

Phone Calls Start with Caller Asking Many Questions

Typical questions include:

1. How do I defend myself against the lawsuit?

2. Should I file bankruptcy now to stop the creditor from collecting after he has received a judgment against me?

3. How can I defend myself if I can't afford an attorney?

4. Is there any way to challenge the lawsuit?

5. What ways can a creditor collect on a judgment?

6. I have read the paperwork, but still don't understand what it all means. I am confused.

7. How do I file an Answer to the Complaint?

8. How do I prepare an Answer to the Complaint?

9. Is there any way to stop a bank levy?

10. Is there any way to stop the wage garnishment besides bankruptcy?

Any time a person's financial welfare is threatened, fear and panic surface to the forefront. Being served with a Summons & Complaint causes a person to feel threatened. People who feel threatened are almost always in a panic-stricken state, invariably making expensive and poor choices as a result.

The purpose of this blog post is to provide general information and options in connection with creditor lawsuits and enforcement judgments. (link to second page)

First, let's start with deconstructing the anatomy of a creditor's lawsuit.

The Basics

Before a creditor can collect on money owed to him, he must first file a lawsuit in the state and county that the debtor resides. (If not in the debtor's state or county--then in the state identified in a contract.) To start the legal process, the creditor files two documents, a Summons and Complaint. The summons is a legal document that gives the debtor notice that a lawsuit has been filed and that gives notice that the defendant (debtor) has 30 days to file a response--else risk losing his or her legal rights. The Complaint is the document that outlines the "cause of action". The complaint identifies who the parties are, the reason for the lawsuit and the amount owed by the alleged debtor.

In accordance with the law, the creditor's legal counsel it required to personally serve the alleged debtor with the Summons, Complaint and any other paperwork in connection with filing the Summons & Complaint.

Assuming the judgment-debtor has not filed an Answer to the Complaint; or, if they did file an Answer, but lost at trial, the judge will then issue a judgment in favor of the creditor. The judgment will identify the amount of money the judgment-creditor is allowed to collect from the judgment-debtor. With the Judgment entered with the Court Clerk (after expiration of the 30 days of right to appeal by the judgement-debtor), the judgment creditor is now in a position to collect money from the judgment-debtor.

A major problem, ,unfortunately, is that for many debtors, the first time they learn about the lawsuit is when the judgment creditor is attempting to collect on the debt via a wage garnishment or bank levy.

For many who learn of the lawsuit (or bank levy or wage garnishment), it is not uncommon for the individual to then run to bankruptcy court and file for bankruptcy. While a legitimate option to solve the problem, it should not be the first option.

Alternatives to Bankruptcy

Some alternative options to bankruptcy include the following

1. Defending against the lawsuit

2. Negotiating a settlement with the creditor

3. Filling out and submitting a timely Claim of Exemption form--if the judgment creditor has already procured a judgment against the debtor.

4. If they never received any paperwork before receipt of the notice of wage garnishment or bank levy, file a motion to set aside the default and judgment.

To Defend or Not Defend Against the Lawsuit--that is the Question

A difficult decision that a debtor needs to promptly make, after he has been served with the Summons and Complaint, is to determine whether or not it is in his best interest to defend against the lawsuit. Some questions the debtor needs to consider are as follows: 1) Is there a mistake in identity? 2) is the debt more than four (4) years old--from date of default? 3) is the amount claimed to be owed incorrect? If the answer is "yes" to any of these questions, then there is strong motivation for the alleged debtor (Defendant) to defend himself. In addition to considering these questions, the debtor needs to weigh the pros and cons of defending against the lawsuit. For example, is it worth for the debtor to stress for several months, incur lost time away from work, family, friends, etc. to defend against a $1,000 lawsuit? For some, the answer is yes; and for others, the answer is no. This is a personal decision. The point here is to make an informed decision before jumping in or doing nothing.

Alternatives To Responding to a Lawsuit

Debt settlement is an alternative to a trial or filing a response ("Answer") to the lawsuit. A debt settlement is something that is negotiated between the debtor and the creditor or the creditor's lawyer. Many companies heavily advertise on TV that they will negotiate the consumer's debt on the condition that the (desperate and frightened) debtor pays the company large sums of money over a period of time in order to build up the funds to negotiate settlement. Almost all attorneys, including myself, strongly discourage hiring such a company. Why? These companies charge hefty non-refundable fees; also, the debtor can negotiate directly with the creditor--for free!

If the debtor is too fearful or intimated by the creditor to negotiate settlement, it is then recommended the debtor hire an experienced and licensed attorney to negotiate on the debtor's behalf. One of the benefits of hiring an experienced attorney is that he or she will be able to negotiate a better settlement than if the debtor negotiated on his own behalf or hired a non-attorney agency to negotiate on his behalf.

How Can We Help?

If you or someone you know was served with a Summons & Complaint, I am available to provide a comprehensive consultation for that individual. During the paid consultation, I will do the following:

1. Explain the legal significance of the legal paperwork;

2. Provide a general overview of the litigation process;

3. Identify and explain important dates and deadlines;

3. Explain the pros and cons of defending against the lawsuit and not defending against the lawsuit;

4. Help the debtor understand his various options--to include the pros and cons in connection with filing bankruptcy; and, finally;

5. Evaluating the debtor's risk for bank levies and/or wage garnishment.

Contact me to set up a consultation.