Understanding the Debt Negotiation & Collection Process - Part 3

(Disclaimer: The author of this piece is not a lawyer. This does not constitute legal advice real or implied. Moreover, this article deals with the legal process in general terms, and the information provided here may vary depending on your state and county. If you want information about your specific situation, please contact an attorney licensed in your state.)

Throughout the debt negotiation process, you will likely hear threats from the collectors and creditors that you will be sued. Many of these threats are idle and meant to prompt full payment of the outstanding debt, but in accordance with the FDCPA, if a collector threatens legal action, they must have the intent to do so, but as with much of the FDCPA, many collectors violate this provision.

Step 1: Notification by mail – Like collection agencies, law firms are legally obligated to notify you by mail that they’re handling your account. As with the initial letter from a collection agency, you must also be notified of 2 things: 1) your right to dispute the validity of the debt within 30 days and 2) the letter is a communication from a debt collector and any information you provide them will be used for that purpose.

Debt Validation: Attorneys are legally obligated to give you the right to dispute the validity of the debt under the FDCPA. The reason for this is ensure that attorneys are not pursuing you for a debt that you do not owe. During the time the debt is being validated, all collections activity must cease. What constitutes legitimate validation of the debt has not yet been determined---it can be as little as a letter saying, “Yes, you do in fact owe this amount to us.”

In-State vs. Out-of-State Legal Collection: If the law firm that is collecting your debt is not licensed in the state you live in, they cannot file a lawsuit against you to collect the outstanding balance. Most law firms are only licensed in the states they are located in, or they may mention what additional states they are licensed in on the letterhead of the notification you receive initially.

Step 2: Notification of Summons and Complaint – When a law firm does intend to obtain a judgment against you, you will be notified either in mail or by service processor (sometimes a sheriff) that you have been summoned to appear in court. Along with the summons, you will receive a Complaint, which is simply a legal document with information about why you are being sued, how much you owe, etc. Follow this link for a list of some legal debt settlement and negotiation terms.

Step 3: Filing an Answer – In many counties, you will have 20 days to file an Answer with the court. You will be notified of the deadline in the documents served on you in the summons. An Answer is a formal response stating your defense to the lawsuit. If you do not file an Answer in time, the creditor is entitled to a default judgment (a ruling that the creditor is in fact entitled to the full balance owed). By filing an Answer, you are able to delay the legal process and buy time in order to accumulate more funds for settlement or set up a favorable payment arrangement with the creditor.

Step 4: Executing the Judgment - Assuming the creditor did in fact win a judgment, the next phase for the creditor is to figure out how to use it to collect money from the debtor. Depending on what state you live in, the creditor may garnish your wages, levy your bank account, or put a lien on your home or vehicle.