Follow These Rules for Surviving Debt
Rule #1: Prioritize Debts Whose Non-Payment Immediately Harms Your Family
Non-payment of certain debts have sudden and dire consequences for your family. Either pay these debts first or talk to an attorney.
High priority debts are those which can impact where you live and your livelihood. Som examples of high priority debts include:
● Court Judgments. You have been sued on a debt and a court has ruled for the creditor. The creditor has rights to seize part of your wages, bank accounts, and even your home or other property.
● Criminal justice debt. In some cases, non-payment of debt arising from a criminal proceeding (such as fines, fees, and costs) can lead to immediate loss of your driver’s license, loss of income or assets, or even incarceration.
● Auto loans. Nonpayment of car loans or leases can result in a creditor repossessing your car after you miss only a few payments.
● Rent. Rent payments for your residence (or for the lot on which your manufactured home sits). Swift eviction can result if you do not keep up these payments.
● Utility bills. Non-payment of utility bills can lead to termination of gas, electric, water, and other utility service.
● Child support debts will not go away and can result in very serious problems, including prison, for non-payment.
Other debts become a high priority debts as those detailed above, and then must be addressed immediately. Most notable are:
● Home mortgage delinquencies. Miss a month or two and you are unlikely to face foreclosure, but if you get behind by enough months, you face loss of your home. In some states this can happen without a court hearing. There are ways to delay and fight foreclosure.
● Real estate taxes. If you do not have an escrow account with your mortgage lender you are responsible for paying your own property taxes. While non-payment of property taxes will not result in the immediate loss of your home, at some point your home will be subject to a tax sale.
● Federal student loans are not in default until you are nine months behind on payments, but then you risk seizure of your tax refund and your Social Security or other federal benefits, wage garnishment without a court order, and denial of new student loans and grants.
● Taxes owed to the IRS. Be aware the IRS can seize your bank account, part of your paycheck and federal benefits, and even your home.
Lower Priority Debts. Debts that are low priority should not be paid ahead of high priority debts. Some low priority debts include:
● Medical debt, such as payments due hospitals, doctors, other medical professionals, dentists, and ambulance companies. It is not likely to carry high interest. They cannot seize your home or garnish wages or take other benefits without a judgment.
● Credit card debt. You will not be subject to seizure of bank accounts, income, or property unless they obtain a judgment after suing you. Debt collection contacts can easily be stopped.
● Debt owed friends and relatives.
● Private student loans. These loans typically do not involve collateral, and special remedies available to the government to collect federal student loans do not apply to private student loans.
Rule #2: Do not allow a creditor to tell you how to prioritize paying debts.
Understand that debt collectors will call and write letters pressuring you to pay their debt first. However, if you neglect a high priority debt just because a low priority debt collector persistently calls you, it could have the effect of further imperiling your livelihood and your property. Decide for yourself with the advice of an attorney which debts are the highest priority.
Similar to the issue of debt collector contacts, do not let your credit report decide which are prioritized. Your credit report does not directly impact your income or your property. It effects your ability to obtain credit in the future.
If you feel obligated to pay a debt, that is different from determining which debts can have an effect of taking away your property.
Rule #3: Consider the long term, not just the short term.
If you cannot pay everything, try to delaying can sometimes allow you to bridge the gap to your next payment. We note that you must be careful and again, use the advice of counsel on any impact that delay could have.
These are difficult decisions. Once the choice is made, stop making payments on that debt in favor of other pressing items. It is not a good idea to continue paying a debt on property that you will eventually lose anyway. You can save the money to pay for alternative housing or transportation.
Rule #4: Do not be suckered in by scams and con-artists making false promises.
Many credit repair companies, debt management companies, banks, creditors, and scam artists target those in financial difficulty for some of the worst abuses. Scams to avoid, include:
● Debt elimination scams promise for a fee to eliminate your debts completely—these are all bogus.
● Debt settlement agencies charge high fees and rarely help you settle your debts with your creditors.
● Foreclosure rescue scams offer to save your house but end up stealing it.
● Reverse mortgages that do not meet federal “HECM” standards can get you into big trouble.
● Credit repair charge to clean up your credit record, but you can do it better yourself for free.
● Small loans such as payday, auto title, and installment loans have extraordinarily high interest rates. Walk away from any loan with a disclosed annual percentage rate (APR) more than 200%. Also watch out for loans that add charges for insurance. Auto title loans also put your car at risk.
Rule # 5: Determine if a bankruptcy is right for you.
Understanding when and if to file bankrupcty can be one more tool in your belt. Many people are reluctant to file bankruptcy because they feel a stigma attached to it. There is no stigma - fortune 500 companies file for bankruptcy often.
Bankruptcy is effective dealing with court judgments, stopping wage garnishment, bank seizures and enforcement of judgment liens. It protects household goods collateral. If bankruptcy discharges a debt whose non-payment led to suspension of your driver’s license, you get your license back.
Bankruptcy Costs. It is best to hire an attorney help you file bankruptcy. Sometimes you can find a legal services or other attorney who will not charge you. The bankruptcy court charges a filing fee of more than $300, but you can spread this fee out over several months and in some cases it can be waived.
Common Misconceptions. Despite what you might think, typically you lose little or no property in bankruptcy. Bankruptcy may not hurt and may even help your standing with creditors. Your reputation in the community is unlikely to suffer. Housing authorities, licensing departments, and other government agencies cannot discriminate against you for having filed for bankruptcy.
When to File Bankruptcy. Bankruptcy is not really a “last resort” for those in financial trouble. Legal rights can be lost by delaying a bankruptcy. Get early advice about bankruptcy if you are concerned about saving your home or your car or protecting your bank account or wages from seizure.
Rule # 6: Call a lawyer. Do not try to manage everything alone.
Lawyers and particularly lawyers that practice consumer protection, understand the law better than you do. While your attempts to protect yourself may be exemplary, obtaining an advice from a professional who understands the law is your best option. Always.
How To Talk to Debt Collectors (and what not to do)
-Always be professional. There is no reason to yell, swear or engage in conduct that would not be acceptable in a courtroom. The reason I say that is because debt collectors often record phone calls. Sometimes those phone calls are played in trial.
- Do not be pressured by a debt collector. Make your own choices about which debts to pay first based on what is best for you. The most common reasons most people cannot pay their bills are job loss, illness, divorce, or other unexpected events. And, creditors and collectors know this. The debt collector’s job is to try to convince you to pay their debt first. Your job, however, is to make the right choices for you and your family.
- Do not let a debt collector tell you what they can do. Just because they threaten you does not mean the threat is true or that they are being honest. Consulting with an attorney is the best way to find out your rights and protections. A debt collector is not necessarily going to tell you information that is helpful to you and prevents their ability to collect the debt.
- Do not give the debt collector your personal information. There is no need to give the debt collector your social security number or other private information on a call. Sometime they will claim it is necessary to verify who you are or pull up an account. However, if that information falls into the hands of a scam artist, the risk to you is too great.
- Investigate the collector. Do they really own debt that you must pay? Did they really obtain an assignment of a loan that you took out? Just because they are aware of a debt you took out with a different creditor does not mean it is their debt to collect.
- Send a "stop contact" or "cease" letter to the creditor. The simplest strategy to stop collection harassment is to write the collector a “stop contact” letter, also called a “cease” letter. Then the collector can only acknowledge the letter and notify you about legal steps the collector may take. Make sure the letter is sent certified mail return receipt requested so that you have proof of it being sent. Below is a sample letter:
[Your return address]
[Debt collector name]
[Debt collector address]
Re: [Account number for the debt, if you have it]
Dear [Debt collector name],
I am responding to your contact about an alleged debt you are attempting to collect. You contacted me by [phone/mail], on [date]. You identified the alleged debt as [any information they gave you about the debt].
Please stop all communication with me and with this address about this alleged debt.
Thank you for your cooperation.
Important: Even if debt collector stops contacting you because of the letter, you will still owe the debt.
Keep a copy of the letter and send the original by mail, return receipt requested. If a debt collector still continues to contact you, send another letter and once again keep a copy.
- Be wary of making small payments on old debts. Creditors can only collect debts for a certain amount of time. After that, they are barred from collection. If you make a payment, that restarts the clock on when they can collect.
- Keep records of all contacts. Hold onto all creditor letters, keep all phone records. If you have an app on your phone that records calls automatically, hold onto the call recordings. If the collector engages in harassing or illegal conduct, it is difficult to dispute whether they engaged in the conduct if there are recordings, records.
Credit Report - What You Need to Know
Knowing how a credit report works and how it affects a family is critical in allowing families to make the right choices in dealing with their debts and other obligations. This chapter explains how information gets into your credit report, what information is in your report, who sees it, and how it affects your life.
Your credit report is a record of how you have borrowed and repaid debts. Almost every adult American has a credit file with each of the three major national credit bureaus: Experian, Equifax, and TransUnion.
Each account includes a code that explains whether the account is current, thirty days past-due, sixty days past-due, or ninety days past-due, or if the account involves a repossession, charge off, turned over to a collection agency, or other collection activity. The report will also list under “inquiries” the names of creditors, employers, or insurers who have requested a copy of your credit report during the past year or two. It also includes creditors who have looked at your account to decide whether to send you an offer of new credit, but other creditors do not see this last item.
Many creditors will not even review all of this individual information in your account, but will only look at your credit score, which is a number that summarizes all the individual items in your credit report. There is no one scoring system that all credit bureaus and creditors use, but about 90% of the credit scores used by creditors are issued by FICO. A FICO credit score ranges from 350 to 900. FICO considers the following as detracting from your credit score:
● History of missed payments (about 35% of the score).
● High debt in comparison to your credit limits (about 30% of the score).
● Small number of years of credit history (about 15% of the score).
● Opening too many new accounts (about 10% of the score).
● All credit of the same type (about 10% of the score).
Consumers are rightfully concerned about their credit score, but you should not respond to debt collector pressures by paying overdue low priority debts ahead of high priority ones just because of these concerns. An overdue bill may damage your credit score but very often the damage has already happened by the time a debt collector is threatening you.
For credit card debt and other debt payable on a monthly basis, the creditor will report the status of the debt to credit bureaus every month. The biggest impact on your credit score will be when the debt is reported as 30 or 60 days overdue. When your account is referred to a collection agency, and the collection agency reports the debt to a credit bureau, your credit score will take a big hit. Continued non-payment after that will not change your score nearly as much. By the time you are being contacted by a debt collector, it is too late to do much about your credit score—rushing to pay the debt won’t really help your score.
As a result, worry about your credit score should not be a reason to pay a late bill. Responding to the collector’s pressure may not help your credit score, but it will put at risk payments on higher priority debts, whose non-payment will have far more serious consequences. Also, if you pay off a debt that was already reported by a collector, the collection item will show in your report as “paid,” but your credit report will still show that the debt was in collection. If you want that information removed, you must get the collector’s written agreement to delete it and not all collectors will agree to do so.
Typically, hospitals, doctors, and other medical providers will not report your debt to a credit reporting agency. It is only if and when a medical debt is turned over to a collection agency that many—but not all—collection agencies will report the overdue debt to a credit bureau. In addition, the three major credit bureaus have agreed not to include any report on medical debt if that debt has been outstanding for less than six months. Reporting of a medical debt over six months will hurt your credit score. But after that first report, continued non-payment to the collection agency will not affect your score much.
Most negative information stays on your credit report for seven years, and then the credit bureau must remove it from your report. Bankruptcies stay on your report for ten years from the date of filing.
While your credit report will affect you in a surprising number of situations, it will not affect many other aspects of your life. You can expect that your report will be viewed by the following:
● Creditors when you apply for credit. A low score can mean you will be denied credit or pay a higher interest rate.
● Employers in most states to evaluate you for hiring, promotions, and other employment purposes.
● Government agencies trying to collect child support and when considering your eligibility for public assistance.
● Insurance companies using special credit scores for homeowners and auto insurance.
● Landlords when deciding whether to rent an apartment to you.
● Utilities are more commonly reviewing your credit score to determine whether to charge you a security deposit—not as to whether to provide you service.
Your credit report should not be a problem in the following situations:
● Your application for federal student loans and grants. Except for parents, graduate students, and professional school students applying for PLUS loans or anyone applying for a private student loan.
● Your credit report will not damage your friends or relations, and need not even affect your spouse. For example, a creditor is not allowed to look at your credit record if your spouse, child, or parent applies for credit and they are not relying on your income or assets.
● Your reputation in the community. No one can obtain your credit record for curiosity, gossip, or to determine your reputation. Your credit record is just between you and creditors—your neighbors and friends should never see it.
● Divorce, child custody, immigration, and other legal proceedings. Your credit report shouldn’t be used in proceedings such as applications for citizenship or to register to vote.
When you have unpaid bills damaging your credit score, the last thing you want is inaccurate information in your credit file making matters worse. It is amazingly common to find incorrect information in your credit file, and you can take steps to correct this information.
After reviewing the report you received from each of the three major credit bureaus, send a written dispute to each credit bureau that has reported incorrect information. The credit bureau by law must investigate the entry and correct the mistakes. You can also dispute the error with the creditor that supplied the incorrect information to the credit bureau, but you should always make sure you dispute it also with the credit bureau in order to preserve your legal rights. Even if the credit bureau told you they are making the correction, after a period of time obtain another credit report to see if the correction was actually made or whether it has popped up again.
If your debt is in fact delinquent, you can try to improve your credit report by entering into an agreement with the creditor to pay all or some of the debt, up front or in installments. But you should get the creditor’s written agreement to inform the credit bureau to delete any reference to the debt ever being delinquent—otherwise the fact that you were previously delinquent will stay on your report. Another option is for the creditor to agree not to affirm the debt after you dispute it with the credit bureau. The bureau must remove the information if the creditor who supplied it does not affirm it is correct.
Rebuilding Your Credit
Do Not Rush Into New Credit Just to Build Your Credit Score. It is tempting to rebuild credit by getting new credit and making timely payments. You should not start trying to get new credit during times of financial difficulty simply to improve your credit report. This is likely to take your attention away from paying high priority debts first. Definitely do not obtain credit from a creditor advertising “easy credit” or “no credit history required.” Many of these offers are rip-offs from lenders preying on consumers who fear that they cannot get traditional forms of credit. One of the most important steps you can take to cope with a bad credit history is to avoid getting deeper in debt during the bad times.
Once you get back on track, each year your older debt problems will have less of an impact on your ability to obtain credit. Seven years will come around sooner than you might think, and then there will be no record of those past problems at all. If your financial problems are behind you, your credit record problems will not go away immediately. Be patient. Your credit profile will improve over time.
Establish New Credit Accounts (with Caution). You can improve your credit by getting new credit and paying it back on time. But be careful. Avoid causing yourself more problems by getting unaffordable high-rate credit. One way to avoid this trap is to wait until you are offered a credit card with reasonable terms. You may get credit card offers even though you have a negative credit history, but these offers may be for expensive subprime cards that offer little credit and charge high fees.
Collection Lawsuits: What to Expect and What You Can Do
Debt collectors have to pay fees and costs to sue you. Will they do it?
If you are in default on a debt, the creditor can sue you to collect the money owed. Sometimes a creditor will be hesitant to sue because of costs associated with litigation.
The following may indicate that a collector will not sue:
● If your home or car is collateral on a loan, the creditor is more likely to foreclose or repossess than sue. A lawsuit is slow, expensive, and may not even succeed in recovering money from the defendant. Home mortgage and auto lenders instead will seize their collateral and sell it.
● Many collectors rarely sue on debts under $1,000 and some don’t sue unless a debt is much higher than that.
● If you dispute the debt and threaten to raise a reasonable defense. The collector not only has to factor in the value of your claim, but also the time and expense to resolve the case.
Can You Win the Lawsuit?
It depends. In some cases, you may be able to successfully defend against a suit. You will lose any lawsuit if you do not respond to the lawsuit properly. If you do respond properly within time deadlines, and raise reasonable defenses, you have a good chance of winning or of the creditor dropping the lawsuit. The stronger your defenses, the better your chances.
Collectors also pay little attention when they file lawsuits to collect on consumer debt. Their paperwork is often sloppy or incomplete. Pointing out these errors can throw the lawsuit out. Whether brought by the debt buyer or original creditor, trying a case may cost the collector more than they could ever recover and just by contesting the case you can lead them to dropping the lawsuit.
How to Respond to a Collector’s Lawsuit
CONSULT WITH AN ATTORNEY. The best way to find out whether you can defeat the suit is to speak to an attorney to find out your legal rights. Respond promptly. Do not ignore the suit. There are deadlines in place that require you to answer within a certain period of time or the debt collector will automatically win.
Common Defenses to Raise
The facts of each case are different, and each state has its own laws. Here are some common defenses:
The Lawsuit Was Brought in the Wrong Court. If you are not sued in the county where you live or where you signed the contract with the creditor, the action is illegal because it was brought in the wrong court.
The Collector Has Not Proved It Owns the Debt. The collector has the burden to prove not only that you owe the money, but that you owe the money to this collector. If it cannot do so, you should win the case.
Many collection cases are not brought by the company to which you first owed the debt (such as a credit card issuer), but by someone who has allegedly bought the debt, called “a debt buyer.” Ask that the debt buyer prove that your debt has been properly transferred to it. Amazingly, debt buyers often do not have that proof. It may produce a document indicating it bought thousands of accounts and state that the list of those accounts, including yours, is on a computer tape. This is meaningless until the debt buyer produces the computer tape and shows that your account is one of the accounts on that computer tape.
The Collector Has Not Presented Your Credit Contract in Court. Collectors often sue you based upon a contract you entered into with the creditor and then ask the court to make you pay not just the amount owed, but also interest, late charges, and attorney fees—all as provided for in the contract. To recover on the contract like this, the collector must produce the contract. Make sure the collector produces in court the actual contract you agreed to, and not some standard form agreement with no evidence that it was the one you entered into with the creditor. If the collector cannot do so, it may lose the right to collect attorney fees, late charges, and interest, and may even lose the right to recover on the debt.
If the collector cannot produce the actual contract, it may sue for money on some other theory. For example, it may say that it sent a statement of how much you owed and you did not object. An attorney will be helpful in advising you whether that theory is valid, but this theory should not allow the collector to recover attorney fees and interest based upon a contract, because no contract has been proved.
The Debt Is Too Old to Be Collected. Some debts are so old that they cannot be collected in court (in legalese, this referred to as “that the statute of limitations has run”). If you do not raise this with the court, the collector will win, even if the debt is too old. There is no one simple rule as to when a debt is too old to collect in court. The time period varies by state and even by the type of lawsuit being brought. The time period might be as short as three or four years, but it can be five or more years. On a very old debt, it is risky to make a partial payment or say in writing that you owe the debt, because this can start the time period running all over again.
Someone Else Incurred the Debt or You Are Only an Authorized User. You are only liable for your debts and not for someone else’s (unless you are a co-signer or otherwise guaranteed payment.) This means that you are not liable if someone forged your name or used your credit card without your authority (under federal law, you may be liable only up to $50). You are not liable if you are only an authorized user on a credit card. You are not liable for the debts of a family member who passed away (although the debts may be deducted from any inheritance you receive). You may not even be liable for your spouse’s debts, depending on state law.
You Have Already Paid, Settled, or Discharged the Debt in Bankruptcy. Virtually all debts are eliminated by a bankruptcy and this is a defense to the lawsuit, as is that you have already paid the debt, paid more than the collector claims, or if you already settled the debt with the collector or the original creditor. Present whatever evidence you can to support your claim.
Common Counterclaims to Raise
A defense is a reason you do not owe the money being sought. A counterclaim is a reason why the person suing owes you money. If your counterclaims are large enough, they wipe out everything you owe and even allow you to recover money from the collector. These claims often are available even if your claim relates not to the collector’s conduct, but that of the seller or original creditor.
Sale of the goods or services. Many debts arise from the purchase of goods or services. Anything unfair, deceptive, or defective in the sale may lead to a counterclaim (other than when purchased with a credit card). The same is true if warranties are not honored or if goods or services are not delivered. Counterclaims may exist even if the car or other goods are sold “as is.”
Credit terms. Anything that you find to be outrageous, unfair, or deceptive about the credit terms may form the basis of a valid claim. High-pressure tactics should also be challenged. In addition several laws, including the federal Truth in Lending Act, state installment sales laws, and other state credit legislation, create requirements as to what the creditor must tell you about a loan. These laws are technical in nature and you may need the assistance of a lawyer.
Special Rights If You Are Active Duty Military
If you are sued while you are on active duty with the military, or within the first ninety days after you get off active duty, you can ask the court for a postponement or “stay” of the case. The lawsuit will not be dropped, but the case will not move ahead while the stay is in effect. Once the stay ends, you have to defend the case.
To request a stay, send a letter to the court explaining how your military duties prevent you from appearing in court, when you will be able to appear, and include a statement from your commanding officer that your current military duties prevent you from appearing in court and that military leave is not authorized for you. Once the court gets this letter, it must order a stay for at least ninety days. If you need more time, ask for it in the original letter, or send a second letter that includes the same information as the initial request. If the court refuses to give you a longer stay, it has to appoint a lawyer to represent you. A JAG Corps attorney may be able to help you ask for a stay.
Courts also have authority to stay enforcement of judgments, including orders for attachment and garnishment, against servicemembers. A court may stay collection of a judgment if it finds that military service impairs the servicemember’s ability to comply with an order to pay the debt.
Going to Court
Attend All Court Proceedings and Respond to All Papers You Receive. Attend all hearings that are scheduled in your case. If you don’t show up, a default judgment will be entered against you even if you filed an answer or appearance earlier. If you cannot attend, send someone else to ask for a delay (usually called a “continuance”) and explain the reasons why you could not attend the hearing that day (such as illness, family emergency, preexisting and unavoidable work conflict, or unusual transportation problems). In small claims court, you usually only have to go to court once to resolve the case.
Whenever possible, let the collector or the collector’s attorney know in advance if you have a good reason for not attending the hearing. Often, they will agree to a delay in the case. If a delay is agreed to, you should put it in writing in the form of a letter confirming the agreement.
Summary Judgment. In more formal courts, either side can ask for a judgment before the trial even begins if there are no important facts in dispute. This is usually called a “motion for summary judgment.” If you receive a copy of a motion for summary judgment, you must respond to it or the collector may automatically win the case. Describe all facts that you dispute that relate to whether this collector has the right to obtain a court order against you for the debt. Most courts require the disputed facts to be stated in affidavits signed under oath by people who have first-hand knowledge of the facts. When you file a response, always send a copy to the collector’s lawyer.
Preparing for a Court Hearing. At the hearing both sides tell their story to a judge or magistrate. In many small claims courts, the hearing is informal. Usually, the collector first explains why it is suing. Make sure the collector gives the judge a copy of the credit contract as well as the accounting records showing any missed payments. If the collector is not the original creditor to whom you owed the money, make sure the collector shows sufficient paperwork that it in fact is the current owner of the debt.
You then present your response. Be as prepared as much as possible, preferably with the advice of an attorney. Here are some tips to help you prepare:
● Bring all relevant documents. This is usually your only chance to present documents, and courts pay a lot of attention to written documents. Try to have extra copies available, because the court and the collector will keep copies of the documents you present.
● Bring witnesses if there are any. Witness testimony may be important, especially if the witnesses are not friends or relatives. For example, if the dispute is about an item which does not work properly, a mechanic or another witness can testify from their own experience in using that item.
● Do not rely on written statements of your witnesses because the court usually will not allow them into evidence. Have the witnesses attend the trial.
● Consider going to court beforehand to get a feel for where the courtroom is, how the court works, how people dress, when to stand, how to tell when your case is called, where you sit during the hearing, whether a microphone is used and how to use it, the judge’s personality, whether an interpreter is available, etc.
● Take a companion to the actual hearing if possible to offer emotional support, to give you feedback and other help, keep track of your documents, and offer a second opinion if you must respond on the spot to a settlement offer.
● Prepare a written chronological report of events in advance, as well as a checklist of points to make and documents to give to the court, and bring these with you. Judges may be impatient if you are disorganized. Mention all of your defenses and counterclaims.
● Assume that the judge has not read any of the documents already presented to the court and does not know the facts of the case. Start at the beginning and tell your story in a clear and organized fashion in the order it happened.
● Do not be afraid to be forceful, but do not make personal attacks on individuals, including lawyers, witnesses, or the judge. A display of anger will usually hurt you more than it helps.
Be Wary of Deals You May Be Asked to Make in the Court’s Hallway
The collector’s attorney will not want to try the case and often will collar you in the courtroom hallway and try to work out a deal. The collector’s attorney is only looking out for the collector’s interest and not yours. No matter what the collector’s attorney tells you, he is not there to help you and may be taking unfair advantage of you or even misrepresenting things to you.
In return for giving up your right to go to court and force the collector to try the case, expect a substantial reduction in the amount you owe. The more defenses you have, the greater the reduction. Also think about other settlement terms. You might ask the collector to help you clean up your credit record, by agreeing in writing that it will no longer report that you owe the money and that the collector will tell the original creditor to do the same.
If you reach an informal agreement with the collector, still go to court to file an appearance and answer. The safest course is to file a copy of the written agreement with the court clerk to be entered into the court record. No deal should include a judgment being entered against you unless you have no defense and the settlement is for only a fraction of the debt owed. A judgment being entered against you is a very dangerous thing—this can lead to your bank account being frozen and the amount owed whisked out of your account in no time.
If you are not represented by an attorney, you may need help to determine if a settlement is fair and reasonable. Never agree to anything you do not understand or which you think is unfair. Whenever possible, wait until you see the terms of the settlement in writing before you agree.
Undoing a Default Judgment
Not filing a written answer or appearance within the specified time, or by failing to attend the hearing, or by missing other deadlines may lose you the opportunity to raise your defenses. This is usually called a “default.” Try never to lose by default.
If a default has been entered against you, you may be able to still get another chance to be heard by asking the court to “set aside” the default. A default can be set aside only for specific reasons and most often only within a short time after the judgment has been entered into the court records.
To set aside the default, act immediately, presenting reasons why you did not respond to the court case, such as that you never knew about the case or that there were unavoidable circumstances that made you unable to answer within the required time. In some courts, you will also have to tell the court briefly about your defenses or counterclaims so that the court will know that you have a chance to get a different result if the default is lifted. Usually, a request to “remove,” “lift,” or “set aside” a default has to be made to the court in writing. A copy of your request should be mailed to the collector’s lawyer.
It is difficult to set aside a default. You can avoid the problem by instead responding on time to all deadlines.