How to Settle a Debt If You Get Sued

You can settle a debt after you get sued. In most cases that is how these lawsuits end. But the order matters: answer the lawsuit first, then negotiate.

Here is why, how the deadlines run in DC, Maryland and Virginia, and what a realistic settlement looks like.

Why should I answer the lawsuit if I owe the debt?

Because a default judgment takes away every option but two: pay in full or file bankruptcy.

If you do not respond in time, the court enters judgment for the full amount, plus interest, costs and often attorney’s fees. The creditor then garnishes wages or bank accounts. Nobody negotiates with a defendant they can already garnish.

Answering the case changes the math for the plaintiff. Now it has to prove the debt, respond to your requests for documents, and show up for trial. Most debt buyers would rather settle than do that work.

How long do I have to respond?

Not long.

In DC, you have 21 days after service to answer a Superior Court complaint. In Maryland district court, you file a notice of intention to defend within 15 days. In Virginia, a warrant in debt has a return date printed on it, and you have to appear that day.

Put the date on your calendar the day you are served. Everything below depends on meeting it.

Who is suing me?

Usually not the bank you borrowed from. Banks sell defaulted accounts to debt buyers for a fraction of the balance, and the debt buyer sues in its own name.

The same names appear on complaints across the DC region: Midland Credit Management, Portfolio Recovery Associates, LVNV Funding and a handful of others. They file in volume, with boilerplate complaints, and they count on most defendants not answering.

That business model is your leverage. A debt buyer that paid pennies on the dollar can settle for far less than the balance and still profit.

How do I verify the debt?

Before you negotiate, confirm the debt is yours and the number is right. Check the account against your records and your credit report. Then compare the complaint to what you find.

If the plaintiff is a debt buyer, ask for the chain of assignment from the original creditor and the account statements that support the amount. Some plaintiffs cannot produce them. A plaintiff that cannot prove its case will often dismiss rather than try it.

What does a realistic settlement look like?

It depends on who is suing and what you can offer.

Debt buyers often accept a lump sum well below the balance, and the longer the account has been in default, the deeper the discount tends to be. Original creditors settle too, but usually for a higher percentage. A lump sum gets a better number than a payment plan, because the plaintiff is paid and done.

The catch is cash. A 45 percent settlement on a $12,000 balance is $5,400 due within a week or two of the offer. If you do not have it, a payment plan is still possible, at a smaller discount.

And if you are carrying several accounts like this one, bankruptcy may cost less than settling them one at a time.

Should I call the plaintiff’s lawyer myself?

You can, but understand the position you are in.

The plaintiff’s lawyer will ask what you can pay today. Any admission you make is noted, and any offer you make sets the floor. If you do not know what this plaintiff typically accepts, you will not know whether the number you are offered is a good one.

A lawyer who handles these cases knows the plaintiffs, knows the ranges, and knows how to present your finances accurately without giving away your position. In most cases that knowledge pays for itself in the settlement.

What if the collector broke the law?

Threats of arrest, calls at all hours, misrepresenting the amount: these violate the Fair Debt Collection Practices Act, and a violation gives you a counterclaim. A counterclaim changes the negotiation, because now the plaintiff has something to lose.

Tell your lawyer everything the collector said and sent you before the lawsuit. Here is what collectors are not allowed to do.

What should I do right now?

Find the response deadline on the papers you were served. Then call me at (202) 448-5136 before that date with the complaint in hand.

I defend debt collection lawsuits in DC Superior Court and the general district courts of Arlington, Alexandria and Fairfax, and I settle most of them. The consultation is free.

Don’t let the deadline pass. After a default judgment there is nothing left to negotiate.