Debt Collectors Use Fear And Manipulation
Most collection threats are exactly that. Threats. Only a tiny percentage of collection agency threats result in the filing of a lawsuit. However, if you are served with a Summons and Complaint, consider it serious business. It will require your immediate attention and you should seek the advise of a legal professional immediately.
Mostly Empty Threats
Debt collectors collect debt through the use of fear and manipulation of the debtor. Most agencies earn their money by obtaining a percentage of whatever they collect from the debtor. This is known as a contingency arrangement.
If the collection agency is not successful, the debt may get sold or assigned to another collection agency. Again, collection threats should be put in context. Most of the times collectors hope to scare the debtor into paying something and they keep on you until you pay more. There are ways to stop collection harassment and often this should be your first priority.
On the practical side, in most cases, should the collection agency conclude you have no assets, liquid or otherwise, the agency will not incur the expense of a drawn out litigation since there will likely be no assets from which to satisfy the judgment. That does not mean however they won’t just file and serve a Summons and Complaint on you hoping that you default (by not filing and serving an Answer) so they can obtain a quick default judgment against you and then wait it out until you do have money. In either case, if you are served with a Summons and Complaint you should consider it serious business and you are advised to seek immediate legal counsel.
This article focuses on what you need to know when and if a collection agency takes formal legal action against you. But first you will need to learn some basic legal terminology and the basic rules of the game.
Basic Creditor-Debtor Terms
The collection lawsuit is called a Complaint and the collection agency is called the Creditor Plaintiff. If you are the one being sued, you are referred as the Debtor Defendant.
The actual Creditor (true owner of the debt) has likely assigned its legal interest in the debt to a collection agency. A busy collection agency gets assigned thousands of debts per month.
Assignment of Debt
The collection agency, as called the assignee of the claim is entitled to a percentage of the money they collect from the debtor. This percentage range depends mostly on the kind of debt and age of the debt. It is not unusual for collections agencies to recover 20% to 50%, or more depending on the debt. It common knowledge among collectors that the older the debt, the less likely it will be collected.
Consumer Law Protection
You will want to obtain professional advice to see if you qualify for debt protection under the consumer collection laws in your state. You will also want to determine if the collection agency has a lawful basis for suing you and whether you have a valid legal defense to the claims.
Developing A Debt Priority Strategy
Before doing anything, you learn your options. We recommend reading our article on how to manage and prioritize your debt. This will help you with developing a rational strategy in dealing with collection lawsuit threats. For example, after a complete review of your financial circumstances, it may be determined that filing for bankruptcy is your best option.
Once a Bankruptcy petition is filed and served an “Automatic Stay” goes into effect legally halting all collection efforts being made against you including the filing of a lawsuit. A creditor that knowingly violates the automatic stay can be held liable for serious fines and penalties.
But before you rush into filing for bankruptcy, you need to determine whether it is the best option for you given your current debt situation. Learn more about the bankruptcy option here.
Lets first examine some of the details concerning being served with a collection lawsuit and what you will need to do immediately to protect your rights
Should the collector file and serve a complaint on you and then agrees to settle with you – Don’t do it without getting everything in writing. Sadly, collectors are notorious for luring you into a settlement and while you you’re your guard down, proceed with taking a default judgment against you despite having previously reached an agreement with the debtor. Make sure to get everything in writing and inform the court in writing that a settlement has been reached and that you will be filing a non-appearance due to settlement of claim.