Individuals and businesses owed money by others have the right to collect on those debts. Collection activity often begins with written notices sent in the mail, emails and phone calls. If the people who owe money are not quick to respond and make arrangements or payments, then creditors may need to become more aggressive.
Frequently, businesses owed money may decide to file debt-related lawsuits. When that happens, a debtor who owes money is at risk of major consequences.
What can creditors ask from the courts?
A creditor lawsuit related to a debt can result in several negative outcomes for the debtor. The courts review financial records and validate that the debt is legitimate. They also review any evidence supplied by the debtor regarding payments that they made or other issues that might affect their financial obligations.
Provided that the debt is valid and that the debtor has fallen behind on their financial obligations or failed to establish payment arrangements, the courts may grant a judgment in favor of the creditor. The creditor can then use that judgment to pursue financial relief.
They may ask to garnish the debtor’s wages. That process allows the creditor to intercept a portion of their disposable income before the debtor receives their paycheck. Creditors can also potentially place liens against private property and can then take action against that collateral property if they do not receive payment.
How can people address debt lawsuits?
Typically, the courts have to look at the validity of a debt and not the reasoning behind the failure to pay. Those responding to creditor lawsuits usually cannot avoid financial responsibility by proving that they lost a job or experienced other sources of financial hardship.
They need to defend against the lawsuit by showing that the creditor did something illegal or that the debt is somehow invalid. If they cannot do that, then they may want to prevent the lawsuit from proceeding.
A timely bankruptcy filing initiated after a creditor serves a debtor with lawsuit paperwork can prevent the lawsuit from going to trial. The courts usually provide an automatic stay to those filing for personal bankruptcy. That stay prevents collection activity. Typically, creditors have to dismiss pending lawsuits until the filer resolves their bankruptcy case.
Personal bankruptcy can prevent a judgment that worsens an individual’s financial circumstances. Taking appropriate actions in response to a creditor lawsuit can help people regain control of their finances.
