This article is intended to describe the general legal process and events that may occur in a creditor lawsuit against a debtor. Each state has its own laws that may vary from this description. Debtors should seek the advice of an attorney when named in a lawsuit. As a general rule, creditors will not sue to collect debts below $1,000. The creditor must be able to physically locate the debtor before filing suit because courts require that the debtor must have prior knowledge of the legal action. The creditor will serve the debtor the complaint and summons issued by the court. Debtors must sign for the documents to acknowledge their awareness of the proceeding against them.
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The creditor and attorney will assess what assets, if any, can be gained from the lawsuit. If the debtor doesn't have any assets, property, or current income, the creditor may still proceed if they feel the debtor will attain assets in the near future. If debtors have no non-protected assets, they can be declared judgment proof, and creditors will cease further actions. If the creditor has reason to believe that the debtor will file bankruptcy, a lawsuit may not be necessary. Judgments, as well as the original debt, can be discharged through bankruptcy, so that the time, money, and efforts of the creditor to obtain a judgment will have been wasted.
If a creditor files a lawsuit and wins, the unsecured debt becomes legally secured by an award of judgment. Judgments can be enforced to seize the debtor's assets, property, and any income they have or may acquire in the future. Before filing the lawsuit, the creditor and attorney will determine:
The odds of winningThe expected assets, property, or income that can be seizedThe attorney fees and court filing costs to proceedWhether the lawsuit will influence the debtor to file bankruptcyThe verified location of the debtorThe Filing
The legal process begins when an attorney files a complaint or petition on behalf of the creditor with the appropriate county court clerk. Courts require that lawsuits be filed in the state and county in which the debtor has substantial connections; therefore, the complaint is typically filed with the court in the county in which the debtor resides. If the attorney files a suit in a county that is unreasonably inconvenient to the debtor, the debtor can file a motion for a change of venue to transfer the action to their county. Most creditor lawsuits are presented in civil court and not small claims court.
The complaint document filed to the court must identify:
· The Plaintiff - the creditor and/or the collection agency
· The Defendant - the debtor and/or the co-signers of the debt
· The Date of the Complaint - required for procedural time-limits
· The County Court - the location and designation of the proceedings
· The Amount of the Lawsuit - how much the attorney is seeking
· The Basis of the Lawsuit - the facts and reason for the complaint
After the complaint has been filed with the court, the attorney must serve the debtor with the documents summoning him or her to court. In most civil courts, the documents must be served and signed for by either the debtor or someone over the age of 18 residing at the home or business of the debtor. If the documents are signed for by someone other than the debtor, a copy of the complaint must be mailed to the debtor.
The debtor has 20-30 days, depending on the jurisdiction, to respond to the summons. If the debtor decides to challenge the lawsuit, he or she must respond to the plaintiffs within that time. The debtor usually responds by filing an "answer" document with the court or by appearing in court if requested by the creditor or court. If no response is made to the summons within the allowed time, or if the debtor fails to go to court to dispute the lawsuit, plaintiffs can petition the court for a default judgment and the amount they seek is usually granted.
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