debt-collection-lawsuit-300x196If you have been sued by a creditor or a collection agency on a debt that you owe, one way to resolve it is a settlement.  Settlements are generally good for both parties, or at least less painful for both parties.  The creditor gets some of the money it is owed, and you hopefully are able to pay less than the total amount of the debt.  Both sides avoid the attorneys fees and expenses of the lawsuit, and you avoid a judgment on your credit report and possible garnishments of your bank accounts and paychecks.  If the amount is significant, which will vary from person to person, it is almost always worth the money to hire a lawyer to work out the agreement.  It assures everything is handled correctly.  If the amount is relatively small, it is certainly possible you might contact the lawyer for the creditor and work out a settlement on your own.  However, there are still some pitfalls to this approach.

The biggest potential problem is the lawsuit itself.  Contacting the lawyer for the creditor or collector, discussing a settlement, or even coming to an agreement on a settlement, does not stop the lawsuit and does not change the deadlines.  In most courts, including Georgia, you have about 30 days to respond to a lawsuit with an appropriate answer or motion.  It is very common for people to agree on a settlement amount or even a payment plan and they are later surprised to find that a default judgment has been entered against them.  The reason is that they assumed that the settlement would take care of the lawsuit or the lawyer would just give up the lawsuit.   That usually is not the case, unless that is expressly discussed and is part of the settlement agreement.  In the meantime, you have to meet the deadlines or agree on an extension that is filed with the court!

If you reach a firm settlement agreement, which always should be in writing, the judgment does not mean the settlement is not valid or that the lawyer was just trying to con you.  The lawyer was just doing the best job for his or her client, and getting some “back up” should you not pay the settlement amount.  After all, it is reasonable that they would not want to have to start all over with a new lawsuit if you don’t pay as agreed.  If you agree on one lump sum payment, and you make that payment before judgment is entered, of course that is different and the case should be dismissed.

One common resolution that often works for both parties where the settlement involves a long term payment plan is a consent judgment that is held by the creditor’s lawyer and not filed in court.  For example, if you are sued for $10,000, you might agree on a settlement amount of $5,000, paid in ten monthly installments of $500 each.  As a condition of accepting half of what they are owed and as a way to exert some pressure on you to make the payments, they might ask for a consent judgment for the full $10,000.  The judgment will not be filed unless you default on the settlement payments.

One final note, though it is certainly not the only other issue that can arise.  If you have been sued and want to settle the debt, the appropriate person to contact is the lawyer who filed the lawsuit.  Do not try to go back to the original creditor thinking you can somehow beat the system or get a better deal.   As you are doing that, your time will run in the lawsuit and a judgment will be entered.  At best, you will just be sent to the lawyer.

As always, even if you think you can handle it yourself (and you might be right), it always helps to call a lawyer or two to get a little free advice.  Search for lawyers who handle collections cases, or contact Bankruptcy lawyers in your area as they either handle these cases or know who does.

Scott Riddle is a Bankruptcy and Foreclosure lawyer in Atlanta, Georgia.  The best way to contact us is by phone at 404-815-0164. You can also email, or contact us through the contact page.