4 Strategies if You Lose Your Debt Collection Lawsuit

What if you lose? You got sued.  Did your research. Presented your case.  And the judge said tough beans, you lose, time to pay the piper (or debt buyer). Now what you do? While I have said time and time again that almost none of the debt collection lawsuits filed by Midland Funding and the other debt buyers are legally sound, at the end of the day the final decision isn’t up to you or me. Anytime (and I mean anytime) you go before a court with a dispute there is a chance you will lose.  A judge gets to decide and sometimes even judges get it wrong.

The problem is, if a judge gets it wrong, it is going to have serious consequences for you.  Once a judgment is signed and entered the debt buyer can now create havoc in your financial world.  Wage garnishments, bank levies, and even liens on real estate are all going to be realities in the near future if you don’t take action.  So what do you do?  Here are four things you can do if you lose your debt collection lawsuit:

#1 – Appeal It!

Like I said, most of the lawsuits filed by Midland Funding, LVNV, LLC, Portfolio Recovery, and all the other debt buyers rarely can stand up to true legal scrutiny.  They file lawsuits based upon hearsay-laden affidavits and obtain judgments with witnesses who have no true knowledge of the facts.  If they win the lawsuit despite having wholly inadequate evidence, then you may be able to get a higher court to over rule your judge.  Most of the debt buyer lawsuits are filed in small-claims-type courts.  For instance, here in Arizona where I live, the overwhelming majority of their cases are filed in the justice courts – for cases where the amount in dispute is less than $10,000.

These cases are often heard by the local justice of the peace who may or may not be a lawyer and who may or may not have much legal training at all. When cases such as this are appealed they are sent up to be reviewed by a higher court judge who is usually a lawyer and has a strong background in the rules of evidence. Because the debt buyer’s cases don’t fair well under the true legal scrutiny, you may be able to get the court to reverse the judgment.

A word of caution! If you want to appeal your case you need to find out what the appellate procedure for your court is BEFORE you actually go to trial.  It may seem strange to worry about an appeal before you have even lost your case, but you need to do this.  I know many won’t, but they do so at their peril.  Here’s why. In many small-claims or justice courts you will need to ask them to record or transcribe your trial. Because judges can get it wrong, and because so many of these debt buyer cases are overturned on appeal, it is important that you have a clear record of the proceedings, just in case something goes wrong and you need to appeal.  Contact the court well before the trial and request that your trial be recorded or that a court reporter be present.

Next, once a judgment is entered against you there is a set amount of time by which you will need to provide notice to the court that you will be appealing the judgment.  If you miss this deadline, even by one day, you will have given up your right to appeal the case. Find out what this deadline is.  Depending on the court and the type of case it can vary greatly.  You may have anywhere from a handful of days up to 30 days by which to provide notice that you wish to appeal. If you miss the deadline, you are dead in the water.  Find it.  Write it down – before you even go to trial.

#2 – Ask the Court to Reconsider or Vacate the Judgment

If you believe the court just got it wrong, and you believe that the court made its decision without taking into consideration all of the evidence (or lack there of), you can ask the court to reconsider it’s ruling.  If new evidence pops up after the trial that wasn’t available before hand you can also ask the court to vacate the judgment and take into consideration the new evidence.

Both of these strategies are difficult at best, because if you think about it, what you are asking the judge to do is admit that they were wrong.  In looking back over my legal career, I don’t believe I have ever had a judge grant a motion to reconsider his/her ruling.  On the other hand, I have had a judge vacate a judgment when new evidence is found that is relevant to the court’s ruling.

Again a word of caution, if you decide to file a motion to reconsider or a motion to vacate the judgment, be aware that you still have the deadlines for an appeal that you have to meet and just because you are filing a new motion doesn’t mean you will get any extra time to file your notice of appeal if you choose to do so.

#3 – Settle the Debt

Settling a debt is an option from day one through the time when a judgment is entered.  Settling a debt is merely getting the debt buyer to agree to accept less than the full amount that is owed.  Once a judgment is entered you have less leverage to get a good deal on a settlement.  At this point they have already gone through (and paid for) the legal process and they have their judgment.  They can start garnishing your wages and bank accounts.  It will take a while, but they can get their money.

Still, garnishment is a long process.  Typically there is a state law that limits how much a debt buyer can garnish from your paycheck.  Because of this it may take months or even years for them to fully get paid.  If you can pay a large lump sum  right now, they will likely be willing to take much less to get their money NOW rather than get the full amount over the next few years.

#4 – Bankruptcy

If you really want to ruin their day, file bankruptcy.  The debt buyer has gone through the legal process, obtained a judgment, and are ready to start getting paid, and then you file for bankruptcy.  Bankruptcy not only stops all collection efforts, including any further legal proceedings on the debt and wage garnishments, it will completely eliminate the debt.  Gone.  Vanished.  No more.  Bankruptcy has some pretty harsh side effects, but when it comes to a straight up debt killer, nothing even comes close to a good ol’ fashion bankruptcy.

I view the litigation process as a type of funnel.  When the debt collection lawsuit starts there is a very wide opening with lots of options.  As the process goes further and further and ultimately a judgment is entered against you your options are fewer and fewer.  This all being said, if you have been sued by a debt buyer, there is still a good chance you can prevail in the initial trial or get the case overturned on appeal.

You can learn more about each of these four topics by listening to the podcast that accompanies this article.