If you are like many (actually most) of the people who get sued by a debt buyer you likely didn’t respond to the lawsuit and now are faced with the unpleasant reality that a default judgment has been entered against you. In fact, statistics show that more than 90% of people who are sued by debt buyers don’t file a response with the court. The danger of allowing a default judgment against you is once this occurs the debt buyer can garnish your wages and your bank accounts.
So what exactly is a default judgment? After you are served with a lawsuit you have a certain amount of time to respond (usually 20-30 days depending on your jurisdiction). If you don’t submit a written answer to the lawsuit the court can enter a default judgment giving the debt buyer everything they are asking for.
Sometimes people get served with a lawsuit and don’t know what to do, so they do nothing. Other times the debt buyer gets permission to serve a person through the mail and mails the complaint and summons to the wrong address. I meet with people ever week who are getting their wages and bank accounts garnished and didn’t even know a judgment had been entered against them.
So, if a default judgment has been entered against you, what do you do now? You have a few options. First, you can ask the court to set aside the default judgment and give you an opportunity to contest it. Next, you can settle the debt with the debt buyer for an amount less than what the default judgment is for. And finally you can eliminate the default judgment completely by filing for bankruptcy.
If you believe that the default judgment shouldn’t have been entered against you or that there was some other sort of error you can ask the court to set the judgment aside and let you fight the lawsuit. However, just any old reason won’t do. There are certain basis on which a court can set aside a default judgment.
The first place you need to look is the Rules of Civil Procedure for your state. Most state’s rules are based upon the Federal Rules of Civil Procedure. Look at Rule 60 which is likely entitled “relief from judgment or order" or something similar. Rule 60 provides six reasons that a court can set aside a default judgment:
(1) Mistake, inadvertence, surprise, or excusable neglect;
(2) Newly discovered evidence which by due diligence could not have been discovered in the prior proceeding;
(4) The judgment is void;
(5) The judgment has been satisfied, released, or discharged;
(6) Any other reason justifying release from the judgment.
Regardless of the reason you are asking the court to set aside the judgment, you need to act quickly. The longer you wait to ask the court to set aside the judgment the less likely you will be successful.
Whether you are successful or not largely will depend on the specific facts of your case. It is also important to understand that if you were simply negligent in failing to respond (i.e., I forgot, didn’t get around to it, didn’t feel it was necessary – all bad excuses) you will likely not be successful in getting the default judgment set aside.
Setting aside a judgment can be a difficult process. Many judges do not like to undo what has already been done. However if there are serious problems such as you didn’t get served properly with the lawsuit or if you can show that they have sued the wrong party, you have a good shot at getting the court to reconsider.
If you don’t have a good reason to have the judgment set aside or if you ask the court to set aside the default judgment and are not successful then you many want to see if you can settle the judgment. Once a judgment has been entered you have lost much of the leverage you would have had in settling the debt. At this point the debt buyer or creditor has taken the time to go through the legal process and will be less likely to settle for a low amount.
In settling a debt you need to establish a budget of what you are able to do either in a lump sum or on a monthly basis. If you can afford to pay a large portion of the debt in a one time lump sum payment you will be able to settle it for less than if you are wanting the debt buyer to accept payments over time. Alternatively, if you are going to need to pay the judgment off in payments you will likely end up paying most of the judgment amount.
When I meet with clients over debt buyer lawsuits I will ask them if there are other debt issues. If this lawsuit you are now dealing with is just the tip of the debt iceberg you may want to consider bankruptcy. A chapter 7 bankruptcy will eliminate not only the judgment but most of your other debts as well. No one wants to file for bankruptcy, but many times it is the only real option for dealing with your debt problems.
I don’t mean to sugarcoat it. If you have a judgment entered against you it can be difficult to get the court to set it aside. Difficult, but not impossible. The best option is to avoid the default judgment from being entered in the first place by drafting and filing an Answer to the lawsuit.