Debt Collectors Are Bringing More Lawsuits — What to Do If You’re Served

Along with groceries, rent, and other bills, debt is becoming costlier. It is also becoming more likely to lead to legal action. As inflation continues to strain household budgets and Americans pile up record amounts of consumer debt to cover everyday needs, debt collectors are taking more people to court than they have in years.

A recent report from The Pew Research Center found that debt collection lawsuits began rising sharply, with filings climbing well above pre-pandemic levels in many states. For many households, that means the mailbox may hold something more alarming than a late notice: a court summons.

If that happens, the most important thing is not to panic, but also not to ignore it. Being served with a debt collection lawsuit does not automatically mean the collector will prevail, and there are steps you can take to protect your rights and avoid making a difficult situation worse.

Here is what experts recommend if you are served with a debt collection lawsuit.

Why You, and Why Now?

“We’ve noticed a real uptick in these lawsuits over the last several months, often for lower balances than we’d seen previously, sometimes for just a few hundred dollars,” said Michael McAuliffe, president and founder of Family Credit Management, a national nonprofit debt management and counseling organization.

So why would someone be sued over what seems like a small amount?

“It’s often not the original credit card company,” McAuliffe said, “but a third-party collector they’ve either placed the debt with or sold it to, sometimes more than once by the time the lawsuit shows up. Some firms use lawsuits as part of their standard collection arsenal.”

Do Not Ignore the Summons

McAuliffe said the biggest mistake people make after receiving a summons is setting it aside out of fear and hoping it goes away.

“Receiving a summons is overwhelming and upsetting,” he said, “but if you don’t respond by the deadline, often 20-30 days, the court will almost always rule against you automatically. Once a default judgment is entered, the creditor has more extreme, but completely legal, tools to collect like wage garnishment, a bank levy or even a lien against property in some cases.”

Even a basic written response, which your summons should explain how to submit, can help you avoid those consequences.

Check That the Debt Is Valid

Before doing anything else, verify the debt as soon as you are notified of the lawsuit. Make sure the amount is correct and that the debt is actually yours.

McAuliffe said unethical collectors sometimes sue after a state’s statute of limitations has expired, so it is important to check the laws in your state to confirm the lawsuit is legitimate.

After You Respond, Explore Your Options

If the debt checks out, you need to move quickly to review your options.

“You can reach out to a certified nonprofit credit counseling agency to discuss repayment options,” McAuliffe said, “but remember that contacting a counselor does not pause the lawsuit and doesn’t mean you don’t need to respond. But the good news is, even after a lawsuit is filed, some creditors will still be open to negotiation a repayment agreement or settlement, but the longer you wait, the harder this becomes.”

A lawsuit can be intimidating, but many creditors are willing to work with people who show they are ready to communicate and cooperate. Responding promptly and responsibly gives you your best chance of reaching a settlement.

The Bottom Line

A lawsuit does not guarantee the worst outcome, but ignoring the summons can. Act quickly and carefully to stay ahead of the process.

“To keep yourself from getting overwhelmed and avoiding the situation all together, just remember, a lawsuit isn’t the end of the world, it just means you need to stay calm and take action,” McAuliffe said. “The earlier you act, the more options you have and the more control you can take.”