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Have you been sued by a debt collector like Portfolio Recovery Associates or Midland Funding? Across the country, debt collection lawsuits are being filed against people who owe small sums to credit card companies or others who have extended credit to consumer debtors. When faced with these lawsuits, you have three primary choices: fight back, settle, or file bankruptcy.

Many of these lawsuits are for several thousand dollars, but sometimes a lawsuit is filed over a debt that is less than $1,000.

Debt collectors are hoping that you’ll do nothing and that they’ll get a default judgment against you. That’s the end result for most of these debt collection lawsuits. And with their judgment, the debt collector can garnish your bank account or your paycheck. They can also put a lien on any real property you own.

In Kentucky, a judgment creditor can garnish up to 25% of your take home pay until the judgment is paid off. It is never a good choice to simply hope that the problem goes away because the consequences. Brackney Law Office represents Kentuckians facing these kinds of lawsuits, and our “attack plan” usually involves one of three approaches.

Option #1 – Fight Back

Many of the lawsuits brought by debt collectors are bad lawsuits without the necessary facts, law, or evidence to prove the case. So why would they file the lawsuit in the first place?

Remember that most of these lawsuits result in a default judgment, so it usually isn’t necessary for the debt collector to prove its case. There are a lot of different ways to attack a complaint – too many to cover in this post.

In order to fight back you’ll either need to hire an attorney who understands the court system and the laws that are available to protect consumers from scurrilous lawsuits. The problem is that it simply doesn’t make sense to hire (and pay) a lawyer when the debt itself is only $1,000 itself. While I try and keep my fees affordable, my bill can easily exceed the amount of a small lawsuit.

Another option is to fight back pro se. That’s just a lawyer’s way of saying “do-it-yourself.” And you can DIY! With the right research and commitment, you can fight back against the debt collector and their lawsuit.

Option #2 – Settle

For a number of reasons, you may want to settle the debt for less than what is owed. It could be your best option and debt collectors like settlement because it doesn’t cost them additional legal fees and it results in you paying them money.

Debt collectors typically accept settlement offers that involve either a lump-sum payment or a stream of payments over time (or a hybrid of the two). The amount that they’ll settle for varies on several factors, but there are a few things you can use as leverage when attempting to settle.

Depending on your overall financial picture, it’s also important to realize that there may be tax consequences of settling for less than what is owed. For example, if you owe $5,000 and settle for $2,000, then the IRS may “impute” income to you of the amount that was forgiven ($3,000). That means you could owe taxes on $3,000 of “income” that you never actually received. Typically, a debt collector won’t tell you this important piece of information.

It’s also important to know that debt settlement will appear on your credit report, but that mark can still have fewer negative consequences then a judgment or a bankruptcy.

Option #3 — Bankruptcy

For many individuals, there isn’t one debt collector. There are several. A successful settlement with one creditor doesn’t resolve the other debts and it can be extremely stressful if you are navigating multiple lawsuits.

That’s why the fresh start of bankruptcy exists. In bankruptcy, all of your debts are part of your case and most debtors walk away with a fresh start. There are two kinds of bankruptcy for the average consumer, Chapter 7 and Chapter 13, and each works differently.

It’s important to understand all of your options. At Brackney Law Office, we help each of our Clients understand their bankruptcy and non-bankruptcy options and explain the pros, the cons, and the costs of each of those options.

If you are thinking about filing bankruptcy or have questions about whether a bankruptcy is right for you or your family, it is recommended that you seek the counsel of a bankruptcy attorney so that you’ll better understand your bankruptcy and non-bankruptcy options as well as the pros, the cons, and the costs of each.

To get started or if you have questions, call Brackney Law Office, PLLC at (859) 559-4648 or complete this online form.