Debt settlement is a tiring process and it’s not something you achieve overnight. It takes months and sometimes years to become debt-free through settlement. Now, people usually opt for it as a last resort when they are struck with a financial crisis. During such difficult times, it becomes really difficult to deal with the stress of debt settlement and this is where debt settlement companies come in handy. Hiring a settlement company can be your best investment if you’ve finally made up your mind to regain full financial control by settling your debt. However, what you must know here is that whether you negotiate with your creditor yourself or hire a settlement company, the results are never guaranteed. In a nutshell, you will always be at the risk of getting sued even if you involve a professional to settle your debt with your creditor.
What Do Debt Settlement Companies Do?
Without a doubt, a professional debt settlement company increases your chances of a successful debt settlement negotiation especially because these companies have more experience and just the right expertise you need to seamlessly negotiate with your lenders. A settlement company will negotiate with your creditor to reduce your debt and in return you’ll have to pay the creditor a lump sum of the total debt. Now, what happens is that during the process, you are encouraged to stop making any payments to the creditor to show delinquency. This is exactly where the problem begins.
Getting Sued With A Debt Settlement Company
Yes, it’s true that you can get sued even if you work with a debt settlement company. Creditors are under no obligation to accept any settlement offer. They can reject it however they like. On the other hand, debt settlement companies usually advise their customers to stop making any payments to the creditor and that’s where the risk lies. Creditors can sue you and take legal action against you when you stop the payments as they try to recover as much of their amount as possible.
You can be sued especially if;
- You’ve stopped making your payments
- Your creditor doesn’t agree on the settlement
- You owe a significant amount to your creditor
- Your creditor has a policy of taking legal action to recover unpaid balance
Reasons Behind Legal Actions During A Debt Settlement
In order to push the creditors towards negotiation, deliberate non-payments are considered important for a successful debt settlement. But the delay in payments can backfire anytime.
- Your debt and interest can increase due to late payments
- Creditors can charge off your account and sell it to collections
- Collection agencies use aggressive tactics to recover the loan amount
In case a creditor takes a legal action against you and wins the argument, he can freeze your bank account, garnish your wages and even seize your property.
How To Protect Yourself Against A Lawsuit In A Debt Settlement?
In order to protect your financing and legal well being, it’s important that you take necessary measures before entering into a debt settlement negotiation. Here’s what you must do;
1-Know Your Rights
Every creditor out there is obliged to follow fair debt collection practices. This means that before taking any legal action, your creditor has to send you a proper notice. On the other hand, you as a borrower have all the rights to dispute a debt in case you find any errors in it.
2-Work With An Attorney Or A Financial Advisor
As said earlier, debt settlement should be your last resort. Before taking any such steps, it’s important that you work with an attorney or a financial advisor to ensure that this is the right move for you to make. An advisor can help by evaluating your situation and determining if any other option like debt management or credit counseling can come in handy to you.
3-Always Respond To Lawsuits Immediately
Ignoring or neglecting a lawsuit can make things worse for you. You should never ignore the summons and make sure to be present in order to protect your rights. If possible, try to negotiate on a resolution.
4-Always Work With A Reputable Company
Unfortunately, there are multiple settlement companies out there waiting to take advantage of your vulnerability. It’s important that before you choose a company to work with, ensure that it’s accredited by organizations like the American Fair Credit Council (AFCC). Moreover, you can check for reviews and complaints on the Better Business Bureau (BBB). Companies like Mountains Debt Relief have just the right kind of expertise that you need to win your settlement case.
Red Flags To Look For When Hiring A Debt Settlement Company
As said earlier, there are several scam companies out there that’ll make unrealistic promises and guarantee you that they can settle your debt for pennies. You have to be very careful when choosing a company to work with. Here are some red flags of scam settlement companies;
Upfront Fees: Under the FTC rules, no debt relief company can charge you any fee upfront. In case of a debt settlement, you should only pay once your debt has been settled with your creditor. If a company is asking for a fee before starting the negotiation then it’s best to avoid working with them.
Not Explaining The Risk Of Lawsuit: Every debt relief company must brief the customer regarding the risks associated with debt settlement, especially lawsuits. In case a company isn’t informing you about the legal actions that can be taken against you during the process then it’s a red flag and you have to avoid the company.
Guaranteed Outcomes: Debt settlement is never guaranteed. Even if you want to negotiate with your creditor yourself, you don’t know the outcome. Not all creditors agree on settling the debt which is why if a company is making promises and guaranteeing specific outcomes then they definitely aren’t worth working with.
Encouraging You To Ignore Communications With Your Creditor: Even if you hire a debt settlement company, you still need to stay in touch with your creditor regarding the negotiation. If a company is encouraging you to stop your communication with the creditor then they definitely are hiding something from you.
What Happens When You Are Sued During A Debt Settlement?
1-You’ll Receive A Court Summons With Complaint
If your creditor decides to file a lawsuit against you in the civil court, you’ll be served with legal papers that include a summons along with a complaint that explains why you are being sued. You have a deadline of 20 to 30 days to respond to the summons and ignoring it will cause damage beyond repair. For example, if you don’t respond to the summons timely, the court may make a judgement in the favor of your creditor.
2-It’s Necessary To File An Answer
In case you want to negotiate the case or contest the lawsuit then you must file an answer with the court. You can even dispute the debt, raise defences and even ask for proof that the creditor has the right to file the lawsuit.
3-Settlement Is Still On The List
Even after a lawsuit, you can still negotiate a debt settlement with your creditor. In fact, some lawsuits help speed up the settlement process. Here are a few options, you can consider;
- Agreeing on a payment plan
- Paying a lump sum of the total loan
- Dismissing the case when the debt is settled
4-In Case You Lose The Case
Working with an attorney is quite important when you are dealing with a lawsuit from your creditor. In case you lose, your creditor can garnish your wage, seize your property or freeze your bank accounts.
Final Thoughts
Debt settlement can sometimes work wonders for someone drowning in debt but yes, it does come with some risks and lawsuits are one of them. In order to make informed decisions, it’s important that you first understand the potential legal risks involved in the settlement process along with your rights. In case you are sued, you should involve a consumer protection attorney to explore the options you have.
FAQs
Q1. Will A Debt Settlement Company Represent Me In Court?
No, debt settlement companies aren’t law firms and they can’t represent you in the court. In case your creditor takes legal action against you, you need to hire an attorney.
Q2. What Happens If I Ignore A Debt Lawsuit?
In case you ignore your lawsuit, the court will probably issue a default judgement against you. In other words, your creditor will have legal rights to garnish your wage or seize your property.
Q3. How Long Do I Have To Respond To A Debt Lawsuit?
Depending on your state, you’ll have around 20 to 30 days to respond to a debt lawsuit. Your summons will have the deadlines mentioned.