Often a creditor will try to collect a debt by suing you. If you have any good reasons why you think you don't owe the money, this is the time you must raise them.
Why defend a suit if I am "judgment-proof"?
It is important that you take action to protect yourself immediately even it you are unemployed, have no money, and believe you have nothing to lose.
Some debtors are "judgment-proof". What little property they have is "exempt" from collection under state law. But most debtors don't remain judgment-proof forever. As soon as a debtor gets a job, a creditor with a judgment will be able to "garnish" up to 25% of the debtor's wages to collect the court judgment.
If you are sued, you should immediately consult a lawyer who specializes in consumer rights. Your attorney should at least be able to buy some time - and might be able to negotiate a settlement or repayment plan with the creditor.
What defenses might I have to a debt collection lawsuit?
First, if the debt is pretty old, it might be barred by the "statute of limitations". For example, in California a creditor must file suit on a written contract within four years of breach and on an oral contract within two years of breach. But you might have lost your statute of limitations defense if you have acknowledged the debt in writing after enforcement is barred by the statute of limitations or paid any portion of the debt after enforcement is barred by the statute of limitations.
Second, the interest rate on the debt might be "usurious" - in excess of your state's limit on interest rates.
Third, you might have made payments on the debt that were not credited to your account. If so, copies of your receipts and cancelled checks can be used to prove your payment.
Finally, the property you bought on time might be defective - entitling you to "offset" the debt with the cost of repair. This may be a good defense if the seller made express representations about the quality of the goods that are not true, or even if the seller said nothing - if the goods are not fit for ordinary use or for a specific purpose that the seller knew about.
What if I am sued in small claims court?
If you are sued in small claims court, you are not allowed to hire a lawyer to represent you at the hearing. If you wish, though, you may consult with a lawyer before the hearing to find out your legal rights.
In some communities, there are free small claims court advisors. Call the clerk of the small claims court to find out about this.
Can I be sued for my spouse's debts?
Sometimes.
Certainly. There are many types of agreements you might be able to make with your creditors to alleviate your financial problems.
For example, if you have temporary financial difficulties, you might ask the creditor to take less than the full monthly payment (perhaps interest only) for a limited period of time.
If the size of the payment is a problem, you might be able to arrange with the creditor to reduce the amount of the monthly payment and extend the term of the loan.
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