If you’ve been sued by a creditor but can’t afford to defend you may want to consider your options.
Here’s an assessment of your alternatives, at various stages of the litigation.
Stage 1: The Lawsuit Was Recently Filed.
At this point, you have a decision to make: Whether to fight the creditor or not. For many, this isn’t even a real choice. If if you have some resources, you may not have enough to carry the fight to the end. While this clearly impacts your likelihood of success in the creditor suit, it also presents a window of opportunity for quick resolution. Your adversary may be prepared to spend substantial sums to obtain a judgment against you. But a creditor may question the wisdom of this if you cannot afford to actually pay the judgment. If the defendant (you) lacks the assets or income to pay, then the more the more the creditor spends on litigation, the less it will ultimately recover. If the creditor understands this, it may be willing to take a reduced settlement that bypasses its cost of litigation. In the background of negotiations with any creditor is always the possibility that the judgment will push the debtor into bankruptcy. This can be an opportunity for early settlement.
Stage 2: Creditor Has Obtained a Default Judgment.
If you failed to defend the suit, the creditor may have obtained a default judgment. At this point, you generally have a similar set of options:
- Attempt to overturn the default judgment. This may be possible, especially if you were never aware of the lawsuit (i.e. you never served). However, even if you overturn the default, you may still need to defend the actual suit. If the creditor’ claims have actual merit, you may end up back in the exact same spot, having lost the underlying lawsuit.
- Pay the judgment. If you have the means, this is always an option.
- Negotiate. If you can’t pay the full judgment, you may again wish to either negotiate with the creditor. If overturning the judgment is not possible, or not worth the time and expense, then you may wish to involve bankruptcy counsel. The mere possibility of a bankruptcy filing may bring the creditor to the negotiating table.
- File bankruptcy. If a creditor won’t budge, bankruptcy can halt all collection activity and allow for a structured payment of the obligation. In certain circumstances, all or some of the judgment may be discharged (i.e. wiped out).
Stage 3: The Plaintiff Now Holds a Judgment, and is Trying to Collect.
A judgment holder may record an abstract of the judgment with one or more counties. This then attaches the judgment lien to any current or future real property you hold in those counties. The judgment holder may similarly record an abstract of the judgment with the Secretary of State, in an attempt to create a judicial lien against your personal property. Beyond this, a judgment holder may also garnish wages, or even seize bank accounts.
In any instance where a judgment creditor has managed to attach a lien to your property, it is important to act quickly. That creditor may force the sale of the asset in order to satisfy the judgment. If you act quickly, it may also be possible to strip all or a portion of that judgment lien from your assets. But, as usual, each situation is unique, and advice of counsel essential.