When your creditor is having trouble collecting payments from you or communicating with you, they may hire or sell your debt to a debt collection agency.
A debt collection agency is a company that is hired to retrieve funds that were not repaid. They often act as a middleman between the lender and the borrower. These agencies can also buy an unpaid debt from a creditor, which gives them the right to collect the debt from you.
Debt collection agencies may file a lawsuit and take you to court when they cannot get in touch with you, or remain unsuccessful in recovering the debt you owe. But before they decide to take legal actions, they are required to send you a warning letter, usually in the form of a default notice. If you still fail to comply with the given timeframe, the agency can escalate this to court.
Here are some of the things you need to know when faced with this problem and several ways to prevent it:
Respond to the lawsuit or debt claim
This is the most critical action you should take when getting sued by debt collection agencies. Ignoring this claim opens up new methods of collection for them. It may be garnishing wages, directly taking money from your bank account, or placing a lien on your property, depending on the state law. In worst-case scenarios, your debt may double or triple as they might add attorney’s costs, court costs, or interests.
Hire an attorney
Consulting an attorney may help you explore your options or determine the next steps you have to take in defending yourself from a lawsuit. This is also applicable to debt collection lawsuits. The plus side here is that when your attorney thinks that the debt collection agency has overstepped the bounds or has done something illegally, you may not pay attorney fees because the court will order the agency to pay them for you.
Know the statute of limitations of a debt in your state
The statute of limitations tells you how long the maximum time the parties involved have to initiate legal proceedings from the date of an alleged offense, in this case, your debt. The statue of limitations on debt will vary from state to state. Typically this is four to six years. If the statute of limitations expires, the debt collection agency will not be able to sue you anymore. However, this does not eliminate your outstanding debt. You are still fully responsible for the debt you owe. Meaning it will stay on your credit report.
Challenge the debt collection agency’s right to sue
Another action you can take is to challenge their right to sue by asking for documentation during a hearing or through writing. Examples of these documentations are the credit agreement you signed and all the paperwork’s chain of custody. Some documents may also tell that your debt is already past the statute of limitations.
Prevention is better than cure
Don’t let a debt collect double, triple or more the amount you owe by not responding. You should communicate with your creditor or lender. They may be able to offer you alternative solutions that will ease you from further financial obligations. Along with this, the debt collection agency may be willing to work with your situation if your lender puts in a word for you. They could develop a more affordable repayment plan that is appropriate for your financial condition.