What are the Odds You Will Be Sued by a Debt Collector or Creditor?
Always, when negotiating with creditors and debt collectors, one needs to assess the risk that they will be sued if negotiating efforts fail. You need to assess your risk of being sued before you decide to stop paying a creditor or delay paying a creditor or collector in hopes of getting them to agree to a reduced settlement or alternate repayment plan. Use the following facts to help you assess your risk of being sued:
Lawsuits are a very expensive, slow process. The court system is so clogged that it takes months for a case to be heard (the average is 16 months). In addition, an out-of-state creditor is required to sue you in a court in your home state. This means he must hire a local collection attorney who expects payment regardless of whether or not he ever collects from you. The creditor risks not recovering the $2,000 or more he pays the collection attorney to sue you. Your creditor will chose a vast array of other options before he will resort to a lawsuit, so most threats of suit can be safely ignored. For example, if the debt is secured, your creditor will generally repossess the collateral. If it is unsecured, he might offer you a reduced settlement or new payment arrangement to get you paying again.
Big creditors don't sue over small debts. The collection letter claims that you will be sued for the $284.37 you owe the XYZ Credit Card Company, but the odds that they will sue are extremely small. A creditor isn't going to risk not recovering the $2,000 it must pay to a collection attorney to sue you over a $285.00 debt. That's why credit card companies (and other big unsecured creditors) write off millions each year in uncollectible debt and simply pass on the cost of this to consumers in the form of higher interest rates and fees.
A general rule of thumb is that if you owe less than $1,000 the odds that you will be sued are very low, particularly if you're creditor is a large corporation. In fact, many big creditors won't sue over amounts much larger than $1,000. When you consider that the time, effort, and manpower involved in suing someone often exceeds $5,000, then you understand why many of them won't sue.
Of course, on the other hand, if you owe the locally-owned small business down the street $284.37, they might very well take you to court. A small, locally owned business person is much more likely to sue you than a big corporation because he is uninformed about debt collection and needs the money more than a big company. Of course, most attorneys, even small town attorneys, don't waste their time on cases involving small amounts. If a small creditor sues you, it will likely be in small claims court.
Creditors don't sue those who stand up for themselves. If you claim that you don't owe the debt for one reason or another and can offer proof that you don't, the odds that you will be sued are reduced significantly regardless of how much you owe or how much they threaten to sue. The average creditor's attorney isn't willing to go after a debtor who is putting up a legitimate fight even if the amount of money owed is significant. So, when someone claims you owe a debt, send them a certified letter telling them why you don't think you owe the debt along with copies of any proof you have. Your odds of being sued will go down tremendously.
A good example of this type of situation occurs when a couple divorces. If the divorce decree states that the wife has the responsibility of paying of the XYZ credit card, then it is unlikely that XYZ will sue the husband when the wife doesn't pay, even though he is legally still responsible for the debt. Why? Because if he is sued, he will appear in court with the divorce decree claiming he no longer has a duty to pay the debt, and the judge might take pity on him and the creditor might lose.
Is the collection letter you received from a creditor or collector unusually harsh? If so, this is a sure sign of a bluff. When a debt collector or creditor thinks that they can't collect a debt, they will send out a very scary letter to try and get you to pay. If you received a letter that seems much too strong for the amount of debt you owe, it probably means that the one thing they won't do is sue you. The strong letter is a tactic used to try and scare you into paying in full as quickly as possible since they know they can't collect from you.
Creditors don't sue those who are judgment proof: Most people would pay their debts if they had the money, so most accounts that fall in to the hands of debt collectors are owed by those who are considered "judgment proof". A person who is judgment proof has few assets and the debt is unsecured, so there is no money to be had anywhere. You can't get blood out of a turnip is the most appropriate adage. If a creditor is convinced you're broke, he will probably not sue. The biggest threat to you if you have no physical assets is a wage garnishment.
How old is the debt? Regardless of what a creditor or collector tells you, they do not sue over old debt. "Old" debt refers to debt that is more than four years old. In fact, there are statutes of limitation in every state that regulate the collection of old debt. Sometimes, old uncollectible accounts are purchased by collection agencies which then start sending out collection letters to debtors who thought the accounts had been written off years ago. If you receive such a letter regarding old debt, review your state's laws on collecting old debt and assess your risk of being sued over it. Odds are high that you can ignore their letters completely. It's easy to fight back in this situation -- write them back immediately and ask them to (see debt sample 2a). They are required to send you documentation proving you owe the debt and are prevented from inserting a negative notation regarding the debt on your credit report. Once they receive such a request from you, chances are high that you won't hear from them again.