I’m a layman, not a lawyer. Legal information is not legal advice.
More than 90% of collection lawsuits end in an uncontested victory for the collection agency. That means that only about 10% of consumers fight collections lawsuits when they occur and even have a chance at a courtroom victory. When a collection agency obtains a default judgment, it gets more or less everything it asks for, but it doesn’t need to be that way!
Often when challenged, a debt collector, especially debt buyers, will not be able to show that they are the rightful owners of the debt. Also, sometimes there are procedural mishaps that work in your favor, such as the collector serving you with the lawsuit incorrectly.
Even if you technically owe the debt, it’s possible to attack the collector’s claim that they are the person who must be paid for the debt. This is especially true as debts age and move from the original creditor off to a debt buyer.
Reasons to Fight A Collections Lawsuit
If you win the case, great! As we all know, not every case is a winner. If you fight a debt collector in court, even if you lose, chances are good that the debt collector won’t get everything they ask for. Under those conditions, having fought and lost is almost always better than not fighting at all.
It’s always disheartening and financially painful to lose a lawsuit. It’s bad enough to lose a lawsuit and face financial justifiable penalties and pain in your pocketbook. It’s far worse when debt collectors not only lie to you, but lie like hell to the judge and misrepresent the debt amount you owe just to squeeze you for more money.
Usually, this happens when a debt collector engages in some unethical but “creative” accounting by slapping on interest charges in excess of what they’re contractually obligated to, or they “back date” late fees in a way that makes no sense. The net result is that you can end up paying far more to the collection agency than they’re actually entitled to if you would have just put up a good fight.
Believe it or not, you can negotiate a debt, even in the middle of a lawsuit. Once a lawsuit is filed, but before a judgment is obtained in the case, it’s still possible to negotiate the debt amount and pay less than what you owe. You’re at a disadvantage, because the original creditor has expended time, money, and other resources to sue you, but lots of lawsuits end in negotiated settlements.
Finally, if you’ve been abused by a debt collector and can show solid evidence to that effect, even if you lose the collections lawsuit, you can make the collection agency wish they picked an easier target. It won’t make you “not owe” a debt, but if you win the FDCPA lawsuit, it’s sometimes possible to extract more in damages (money) than the collection lawsuit that provoked it is worth. Now that is satisfying.
Also, it’s not just you. Fighting a lawsuit makes it more expensive for debt collectors to sue consumers. The more people who fight collection lawsuits, the more expensive it is for debt collectors to operate, and it forces them to be more selective about whom they sue!
None Of That Happened And You’re Stuck With A Default Judgement; Now What?
If you’re in the 90% who didn’t answer a collections lawsuit and are now suffering the unpleasant realities of a default judgment, all is not necessarily lost. Being subject to a default judgment subjects you to all kinds of nastiness…
Having a judgment on your credit is much worse than having a few delinquencies or an odd charge-off. True, it’s not as bad as having a bankruptcy, but nonetheless, having a judgment on your credit report will likely cause your once good credit to drop like a stone.
Having your wages garnished out from under you is the fear of every consumer on the wrong end of a collections situation. A collection agency can’t garnish your check until after they have a judgment. Once they have one, the threat of wage garnishment can become an unfortunate reality.
A Bank Account Levy
A bank account levy is when a creditor, with the permission of the court, “helps themselves” to the contents of your bank account. Depending upon the timing of the event and your exact situation, this can sometimes be worse than having a garnishment. Worse still, anyone who has a joint bank account they share with you — such as a parent or child — may find themselves subject to the levy as well. There are a few sources of income, such as social security, that are generally immune to bank account levy. In any event having a bank account levied is a painful experience.
How to Get a Judgement Vacated If You’re Already Experiencing a Garnishment or Levy
The good news is that it is often possible to get a judgment vacated, even this late in the process. There are rules for doing so, as you might imagine. At a high level, you need to remember a few things:
- Judges don’t like to overturn or vacate judgments once they’ve been handed down. I’m sure we all “get” that if every judgment could be appealed any number of ways forever, there would be no final judgments — lawsuits would just circle the proverbial drain forever without ever really going anywhere. So there are defined rules for when and how you can have a default judgment.
The sooner you try to overturn a judgment, the better. In most states, in most situations, there is a finite amount of time you have to file a motion in order to get a judgment vacated. How this works in your case will depend upon the particulars of your specific situation.
Courts favor litigating cases on their merits. All other things being equal, a court would much rather litigate a case based upon the evidence and the competing claims of both parties than for any other reason. To get a default judgment vacated, it’s critical to have what is called a meritorious defense — basically a reason why you might win if the case is litigated on its merits. You don’t have to have enough evidence that it’s a “slam dunk” situation on your end, you just have to have enough to challenge the the collection agency’s claims.
If you weren’t served and you can prove it, there is typically no time limit to getting a judgment vacated, and the judge is likely to be extremely pissed-off at the debt collection agency for previously lying to him in open court. Getting served incorrectly or not getting served at all can happen by simple mistake or due to factors beyond everyone’s control. But occasionally, unethical debt collectors opt to try to screw you over with the highly illegal practice of “gutter service.” Gutter service is when someone sues you, they have your current address, and they “serve” you at an incorrect address on purpose. Judges hate this. Sadly, the practice of “gutter service” has been around practically forever, and isn’t likely going away soon.
How to Get a Judgment Vacated: The Actual Process At A High Level
There are lots of legal situations most people can handle themselves without too much trouble: if you have a default judgment against you that you’re attempting to overturn, this is NOT one of those times. To get the ball rolling on vacating the judgment, you need to have your attorney file a motion to set aside a default judgment.
The rules for setting aside a default judgment are covered in the rules of civil procedure, specifically Rule 60: Relief from a Judgment or Order. There are Federal rules of civil procedure, and each state has their own rules, typically patterned closely on the Federal rules. To illustrate, the Federal rules look like this:
(b) Grounds for Relief from a Final Judgment, Order, or Proceeding. On motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or proceeding for the following reasons:
(1) mistake, inadvertence, surprise, or excusable neglect;
(2) newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b);
(3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
(4) the judgment is void;
(5) the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
(6) any other reason that justifies relief.
— Federal Rules of Civil Procedure, Rule 60: Relief from a Judgment or Order
This seems really wide open, but don’t get the idea vacating a default judgment will be in any way a cake walk; it’s an uphill battle. In all probability, if you attempt to vacate a default judgment, your lawyer will rely on one of a few strategies:
Attack the service of process. Everybody makes mistakes, and lawyers, judges, and legal officials are no different. Sometimes it’s possible to show a defect in the service of process. In most states, it’s permissible to serve any adult regularly living at your place of residence. This means that if the process server showed up while your house was being remodeled and handed the papers off to your contractor while you were away, this is improper service. The contractor is an adult, but he isn’t someone who lives permanently in your home.
Similarly, sometimes process servers “serve” the wrong person through good old fashioned human error. Perhaps they share the same or similar name and were served by mistake. Perhaps someone with a confusingly similar address was mistakenly “served” in your place. These things happen, and there are well established ways of addressing situations like this.
Not every state requires a litigant be served in person: often certified mail — which requires a signed receipt — is sufficient. Perhaps you were out of town (and have the receipts to prove it) when you were allegedly “served” by certified mail. Or perhaps you were at the hospital due to a car accident that occurred across town 10 minutes before you allegedly signed for the court papers at home. You get the idea: you were supposedly in one place signing for court papers, but you have a paper trail showing you to be elsewhere at the time.
Attack the debt collector’s claim on the debt. In order to file a lawsuit against someone, you have to have something called “standing” — sometimes called locus standi in legal Latin. That is, you have to be able to show enough of a connection to the dispute to merit the court hearing your case.
When a debt goes unsettled, often the original creditor will sell the debt to a debt buyer. Sometimes the debt buyer won’t be able to collect on the debt and will sell it. Debt can change hands repeatedly and make the chain of custody between the original creditor and the current “owner” of the debt murky and therefore call into question the validity of the debt collector’s standing to sue you. No ownership, no standing; no standing, no lawsuit; no lawsuit, no judgment: it’s that simple.
Often, debt collectors who allegedly “own” the debt can’t produce copies of original invoices and such. Instead, they’ll resort to simulated invoices that just look like an original invoice but aren’t.
Accuse the debt collector of some sort of fraud upon the court. Most consumers are used to the idea that debt collectors lie. Most judges won’t stand for it in their courtroom. Unfortunately, some debt collectors have become so accustomed to lying that they think they can lie to a judge and get away with it. Sadly, in the case of a default judgment that never gets contested, they’re right.
What often happens in a case like this is that a debt collector will attempt to apply far more interest than the original contract that created the debt actually permits. Debt collectors have amazing ways to “fudge the numbers” with respect to how much debt is actually involved. In more complex cases, a collection agency might apply “late fees” on a car payment, for example, that don’t jive with when the consumer actually owned the car! Sometimes a collector will go so far as to claim a payment was made on an old debt that wasn’t actually made, in an attempt to collect on a debt that far exceeds the statute of limitations.
This isn’t an exhaustive list, but these are common tactics a consumer protection lawyer will use to defend against the validity of a judgment so as to get it overturned.
You Need The Right Kind of Lawyer
Overturning a default judgment isn’t something you can do on your own. You need the right kind of lawyer. You need a consumer protection attorney( also somewhat less correctly know as a credit attorney). Most bankruptcy lawyers will also take consumer protection cases.
If you’re dead broke, it’s still possible to hire a consumer protection attorney in many cases. Most lawyers in the consumer protection space are more than willing to work on contingency.
Basically, a lawyer working for you on contingency is agreeing to work on a pure commission basis: they only get paid if they win your case. Of course, a lawyer working under such conditions will likely only be willing to work for you if he thinks you have a good chance of winning in court.
Getting All Of Your Ducks In A Row
If you’re going to try to overturn a default judgment, you’re going to want to have as much evidence as possible to present neatly to any attorney who might take your case. Every case has its proverbial “warts,” but being able to present the facts in an easy to follow manner will show you’re on the ball about the situation and not just blindly expecting your lawyer to work miracles.
Additionally, if you have evidence of FDCPA violations on the part of the collector, you’ll want to present them too — after the lawyer has digested the facts in relation to the default judgment. This gives the lawyer — working on contingency — two possible revenue streams in the case. Even if he loses one, he might win the other. Neatly and systematically showing both sides of the case might get an attorney to agree to take your case faster than he otherwise would.
What Happens If You Fight The Default Judgment And Still Lose Or Can’t Fight It At All?
Even if you can’t get the judgment set aside ,there are still other options available. Every option has its advantages and disadvantages.
Settle the judgment for a lesser amount. Once a judgment has been entered against you, a lot of your leverage to negotiate a settlement vanishes in a puff of smoke. But it is still possible to negotiate with the creditor to accept a lesser amount; even at this late stage. This is heavily dependent upon a number of factors.
- First, the debt collector has to want to work with you. If they won’t work with you, at this point you can’t really make them.
- Second, you typically need a substantial portion of the debt amount as a lump sum payment. If you can pay 75 — 80% of the debt amount right away, the collector might entertain a settlement.
- Third, absent a large lump sum payment, a collector might agree to a significant “down payment” and an aggressive 6 — 12 month repayment schedule.
- Fourth, don’t bet on a collector being willing to agree to delete a judgment. It’s technically possible, but real life examples are vanishingly rare.
Filing for bankruptcy. This is rarely the correct response to a collections lawsuit or judgment. A bankruptcy will tarnish your credit for at least 10 years and will cause all kinds of hassle besides. So how do you know when to file bankruptcy?
As a rule of thumb, you’re not likely a candidate for bankruptcy unless your debt obligations meet or exceed 40 — 50% of your annual income or you’re in a situation where you can see the “vultures circling” and this is just the start of several collections lawsuits.