Failing to repay a debt doesn't make it go away. If a creditor is intent on collecting, it may choose to seek a judgment against you in civil court. If the creditor wins, it may be able to attach your wages or bank account to satisfy the debt. If you're concerned that you may be sued for an unpaid debt, learn how a creditor lawsuit works and how you can protect yourself and your assets.
Obtaining a Judgment
When a creditor decides to sue, it must notify you of the lawsuit in the form of a summons and complaint. The summons must tell you who is suing you, for what amount, the reason you are being sued and the date of your court hearing. You must provide an answer to the summons within the time frame specified by your state's law. If you do not answer the summons or you fail to appear in court, a default or summary judgment may be entered against you. If you choose to go to court, you must be able to prove you are not liable for the debt in order to avoid a judgment.
Once a judgment is entered, your creditor must file additional paperwork to enforce the court's order. Typically, the creditor must file a writ of garnishment with the court describing the property or wages it wish to attach. The creditor must serve you and your employer or your bank with a copy of the writ. Each state allows debtors a specific amount of time to challenge the garnishment order. If you are unable to reverse the order, your employer and banking institution are required to comply. Depending on the laws in your state, creditors may choose to pursue garnishment of your wages and bank account concurrently or independently. Creditors also can place a judgment lien against your home in attempt to force its sale, although this is less common.
Federal law allows you to claim certain types of income as exempt from garnishment. If you receive Supplemental Security Income, Social Security benefits, veteran's benefits, federal retirement or disability benefits, military survivor's benefits or federal student aid, creditors cannot garnish these types of income. Each state has different laws concerning what is exempt. Typically, you can exempt domestic support payments you receive, unemployment benefits and worker's compensation. You must file your exemption claim within the time frame specified on the garnishment order to protect your assets.
When you've been sued by a creditor, you have several options for reversing the judgment and avoiding garnishment. First, you can attempt to contact the creditor to arrange a payment plan or offer a settlement. You also can file a motion to have the judgment vacated if you missed the initial court date because you were never properly served notice of the lawsuit. You also may consider filing for bankruptcy protection. When you file a bankruptcy petition, the court places an automatic stay against your creditors, which prevents collection actions, including the enforcement of civil judgments.
- Federal Trade Commission: Creditors Seeking Federal Benefits in Your Bank Account? Understanding Your Rights
- U.S. Department of Labor: Fact Sheet #30 -- The Federal Wage Garnishment Law, Consumer Credit Protection Act's Title 3 (CCPA)
- Neighborhood Economic Development Advocacy Project: The Basics of Defending Creditor Lawsuits
- Pro Bono Net: Debtors' Rights in a Lawsuit
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