3 Strategies for Defending Low Value Debt Collection Lawsuits

Getting sued – no matter how large or small the amount being sued for – can be a very stressful situation. Surprisingly, some debt buyers like Midland Funding and Portfolio Recovery Associates will file lawsuits to recover amounts as low as $1,000.  I have even seen a handful of cases where the amount sought is less than $1,000.

And while $1,000 is nothing to sneeze at, when it comes to filing a civil lawsuit it is a relatively low amount in light of all the work and that is required to file a debt collection lawsuit.

It is also a relatively low amount to justify hiring a consumer lawyer to defend you.  So what should you do?  I would like to offer three strategies for dealing with debt collection lawsuits where the amount being sued for is less than $2,500.

#1 – Settle the Debt

Settling a debt simply means that you are offering to pay the plaintiff/creditor an amount less than what they are claiming is owed.  Most often it is done in the form a lump sum payment but sometimes the creditor will agree to take payments over time.

A typical settlement will be in the 30% – 50% range.  Much more than that and you may as well take your chances at trial.

But let’s say you are being sued for $1,500.  In my experience you should be able to offer a settlement of $500-$800 to make the case go away.

#2 – Hire a Lawyer to Fight the Debt Collection Lawsuit

A second option is to fight the lawsuit.  For lawsuits less than $2,500 I almost always recommend you try and settle the debt before fighting it.  The reason is my legal fee for most debt buyer collection lawsuits is about $1,500.  It doesn’t make much sense to pay me $1,500 to avoid paying $1,500 to the creditor.

I have had people tell me “I would rather give you $1,500 than pay the creditor a cent”.  While my wife and six kids are grateful for the offer, in the end, these lawsuits are about money, and when it comes to you, your goal should be to pay as close to zero as possible.  It is never about the principle or the bad behavior of the creditor.  It is about paying as little as possible.

But there are times when the debt buyer/plaintiff will not accept anything less than the full amount (or something really close to the full amount) as a settlement on the account.  If that is the case you may as well roll the dice and fight the lawsuit.  While I can never guarantee any specific outcome I can tell people that I have won more of these lawsuits than lost.

Debt collection lawsuits, particularly those filed by debt buyers like Midland Funding, Portfolio Recovery, or CACH, LLC are very winnable lawsuits.

#3- Bankruptcy

Bankruptcy will stop the lawsuit and eliminate the underlying debt.  Bankruptcy has its own baggage to be sure, but nothing is as powerful as the strong arm of the federal law when it comes to eliminating debt.

Here is my test to help you determine whether you should file for bankruptcy or whether you should flight the debt collection lawsuit:  were you considering bankruptcy prior to being served with the debt collection lawsuit?

If not, then I wouldn’t file (usually); if you were considering bankruptcy but nervous about pulling that trigger, then you may want to make the jump and file your case.

When it comes to dealing with debt collection lawsuits – particularly low-dollar lawsuits, you have options.  Admittedly the options are not alway great, but options nonetheless.