What Should You Do When You are Sued for a Debt?

Getting sued is stressful. A sense of panic can set in after the process server or sheriff knocks on your door and hands you or someone in your home an envelope full of legal papers, or just leaves the envelope on your doorstep.

But does a lawsuit mean you need to file bankruptcy right away to stop the lawsuit? Not necessarily. Even if you do end up filing for bankruptcy relief, you may not need to rush into anything IF you take the right steps to handle the lawsuit after you are served. While advice will differ depending on the specifics of the lawsuit and your overall financial situation, there are a few things you should know about how lawsuits over debts are handled.

In Minnesota, you have a short window of time to "Answer" the Complaint in writing. The deadlines for this will normally be spelled out on the first few pages of the legal documents. In Minnesota, your Summons should state that you have 20 days to respond. The clock starts running the day you are served. But be aware that this time frame can be shortened if you send your written response by mail, fax, or by any means other than by hand delivery. Pro tip: don't bother calling the lawyers who sued you. If you do call, they are likely to be friendly and supportive and willing to "work something out", but this is often just a stalling tactic to prevent you from asserting your rights by serving a written response.

It is critical that you Answer the lawsuit on time! If you do Answer in time some really good things happen. Well, good in the context of a bad situation. First, you will have to be notified by mail when anything further happens with the lawsuit (if you don't answer you will likely not be notified when the judgment is entered against you). Second, you will buy yourself time -- often an extra six months or more -- to figure out a way to deal with things while the lawsuit proceeds, potentially delaying any garnishments.

People can and do successfully Answer Complaints without a lawyer's assistance. But you should contact a lawyer or at least a free legal aid service quickly to make sure your are handling things correctly. Even if you don't think you want to go to court you still have the right to Answer the lawsuit to make the creditor prove its case and verify the amount it claims you owe.

If a judgment is entered against you, it's time to get serious about solutions, perhaps even bankruptcy. But you should know that If you do end up discharging the debt - in bankruptcy or otherwise - there is a procedure that will remove the record of a Minnesota judgment from your credit reports. We can help you with this process as part of a credit cleanup service.

Whether or not you end up filing bankruptcy, my office routinely advises folks about how best to handle a lawsuit. Feel free to call me if you are ever sued over a debt so we can guide you. Just don't delay!

About the author: Dan Cooke

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Life After Bankruptcy - What's in Store for a Recent Filer?

What will your life be like after filing for bankruptcy protection? You've probably heard the words "fresh start" before. But what do those words mean when it comes to the nuts and bolts of living with a recent bankruptcy on your credit reports?

Here are some of the changes you can expect.

YOUR CREDIT SCORE WILL IMPROVE

Perhaps the thing that surprises people most is the improvement in their credit scores. According to a recently-published statistical analysis by the Federal Reserve Bank of New York, bankruptcy filers saw an improvement in their scores in the first year after filing. This is largely because filers have a much better debt-to-income ratio after their old debts are eliminated.

Things can get better even faster if you take steps to clean up your credit after bankruptcy.

SOME DEBTS MAY LINGER

With some exceptions, your student loans and income tax debts will not be discharged. And you will still be obliged to pay any domestic support obligations. BUT, you will undoubtedly have more money to devote to those payments after a bankruptcy discharge because the bankruptcy will take care of the other debts that have now been eliminated from your ledger. You won't have to worry about the other bill collectors and you can often arrange for reasonable payment plans on any non-discharged debts.

ALL THOSE UNPLEASANT CALLS AND LETTERS STOP

Once your bankruptcy is filed, your creditors and bill collectors are all notified and must immediately stop calling. Any wage garnishments stop any any lawsuits go away. And your mailbox is no longer something to fear.

YOU WILL HAVE AN OPPORTUNITY TO SAVE FOR THE FUTURE

If you've been working hard to pay your debts, you're going to suddenly have some extra cash flow. My advice? Save it. The best way to avoid going back into debt is to put away something each month - ideally in both a short-term savings account and in a retirement account of some kind (set up an IRA if you aren't eligible for an employee plan). A recent bankruptcy filing can clear the way for you to gain a better sense of financial freedom by creating a rainy-day fund.

About the author: Dan Cooke

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How to Fight Payday Loan Collection Scams

Scammers claiming to represent payday loan companies have been very active this year. State Attorney General offices across the country have ramped up their investigations and prosecutions of these scams. As I wrote in my last blog post, even folks who do not have an outstanding payday loan are being targeted.

But what can you do to fight back if you are victimized? First, contact local law enforcement. You pay taxes to support law enforcement efforts and they need all the help they can get to track down these criminals. Minnesota residents can start by reporting any suspicious calls or emails to the Minnesota Attorney General.

Second, if a scammer is calling you it's usually because they've stolen information from a private database containing information about payday loans. This means that you have been the victim of a form of identity theft. The FTC has information for what you can do when this happens to protect yourself. 

Third, do not give the scammers any more personal information. They will often use subtle tricks to try and pry details out of you about where you work or bank. You obviously should not give away any of this information. But before you hang up, you can ask the scammer to provide "written proof" of the debt in question. Federal collection laws require legitimate collectors to stop calling and to provide written documentation about the debt if you ask. You would be required to give them a current address to do this, but it is a way to determine with certainty whether the call is from a scammer. A legitimate collector would follow the rules and deliver the information. A scammer will not. If they push back against your request, you can let them know that you plan to report their violations to your State Attorney General and the FTC. This would probably convince them to cross you off of their list as a potential target.

Finally, if anyone calling threatens you, hang up and call the police. Even if you think you still may have a lingering payday loan out there somewhere, you cannot be put in jail or punished criminally for failing to pay a debt. Someone who threatens you with criminal sanctions for failing to pay a debt is not only misleading you, they may themselves be committing a crime.

About the author: Dan Cooke

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