How to Resolve a Debt Lawsuit: 4 Options That Actually Work

A process server handed you papers. You're being sued for debt. The court date is in three weeks, and the dollar amount makes your stomach drop.

Here's what matters: you have options, and most of them don't require a lawyer. About 90% of people who get sued for debt lose by default because they do nothing. If you respond, your odds flip dramatically.

Your Four Realistic Options

When you're sued for debt, you can take one of four paths. Each has different costs, timelines, and success rates.

1. File an Answer to the Lawsuit

This is your most important option, and it's less complicated than you think. An Answer is a legal document that responds to each claim the creditor makes against you. You file it with the court within 20-30 days (depending on your state) and mail a copy to the plaintiff's attorney.

Why this matters: Filing an Answer prevents a default judgment. Once you respond, the creditor has to prove their case. They need to show they own the debt, that you owe it, and that the amount is correct. Many debt buyers struggle with this.

In your Answer, you'll deny claims you disagree with and raise defenses like:

• The debt is past the statute of limitations
• You already paid the debt
• The amount claimed is incorrect
• The plaintiff doesn't own the debt or can't prove ownership
• You never received proper notice of the debt before being sued

Cost to file: $0-$400 depending on your court. Some states waive fees if you qualify based on income. Time required: 2-4 hours to prepare if you use a template or online tool.

After you file, the case enters discovery. The plaintiff's lawyer may send interrogatories (written questions) or request documents. You'll do the same. Many cases settle during this phase because creditors realize you're not backing down.

2. Negotiate a Settlement

Debt buyers typically purchase portfolios for 4-15 cents on the dollar. This means a $5,000 debt probably cost them $500. They'll often settle for 30-50% of what you allegedly owe because it's still profitable.

You can negotiate before or after filing your Answer. Start low. If they're suing for $5,000, offer $1,500. They'll counter. You'll go back and forth. Get everything in writing before you pay a dime.

Your settlement agreement must include:

• The exact amount you'll pay
• Payment schedule (lump sum or installments)
• A clause stating they'll dismiss the lawsuit with prejudice
• Confirmation they'll report the debt as settled to credit bureaus
• A deadline for them to file the dismissal

Never agree to a payment plan without a written contract. Never give them electronic access to your bank account. Send payments via cashier's check or money order, and keep copies of everything.

One critical point: If you settle for less than $600 below what you owed, the creditor may report the forgiven amount to the IRS as taxable income. You'll get a 1099-C form. Budget for this.

3. File a Motion to Compel Arbitration

Check your original credit card agreement. Many contracts from 2015 onward include mandatory arbitration clauses. This means disputes must be resolved through private arbitration, not court.

If your contract has this clause, you can file a motion to move the case out of court and into arbitration. The filing fee for arbitration is usually $200-$250 for the consumer, but can cost the creditor $3,000-$5,000 to initiate.

Why creditors hate this: It's expensive for them and removes their home-court advantage. Many debt buyers will dismiss the lawsuit rather than pay arbitration fees for a $3,000 debt.

The catch: You need to file this motion early, usually within your first response to the lawsuit. Courts view arbitration waivers as time-sensitive. Wait too long, and you lose the right to demand it.

Success rate varies by judge and jurisdiction, but in courts that respect arbitration clauses, this strategy works about 60-70% of the time to get the case dismissed or the debt settled for pennies.

4. File for Bankruptcy

If you're facing multiple lawsuits, if your debt exceeds your annual income, or if wage garnishment would leave you unable to pay rent, bankruptcy might be your most practical option.

Chapter 7 bankruptcy wipes out most unsecured debts (credit cards, medical bills, personal loans) in 3-4 months. You'll lose non-exempt assets, but most people keep their car, home equity up to a certain amount, and personal belongings. Cost: $335 filing fee plus $1,000-$2,000 for an attorney.

Chapter 13 bankruptcy creates a 3-5 year repayment plan based on your income. You keep your assets but make monthly payments to a trustee who distributes funds to creditors. At the end, remaining unsecured debt is discharged. Cost: $310 filing fee plus attorney fees.

The moment you file bankruptcy, an automatic stay goes into effect. All lawsuits, collection calls, and garnishments stop immediately. The creditor suing you must cease all collection activity or face sanctions.

Your credit takes a hit—Chapter 7 stays on your report for 10 years, Chapter 13 for 7 years,but if you're already facing judgments and garnishments, your credit is likely damaged anyway. Many people see their scores improve within 12-18 months post-bankruptcy because their debt-to-income ratio drops to zero.

If bankruptcy makes sense for your situation, you can start the process by filing for bankruptcy online with our free screening tool.

What Happens If You Do Nothing

Ignoring the lawsuit is the worst choice. Here's the timeline:

Within 30 days of the deadline to respond, the creditor files for default judgment. The judge grants it because you didn't show up. Now they have a legal judgment against you for the full amount plus court costs and interest.

With a judgment, they can:

• Garnish up to 25% of your wages
• Freeze and drain your bank account
• Place a lien on your property
• Renew the judgment for 10-20 years in most states

A $3,000 credit card debt can balloon to $8,000 after fees, interest, and legal costs. You'll pay it eventually through garnishment, but on their terms, not yours.

How to Choose Your Best Option

Run through this decision tree:

If the debt is past your state's statute of limitations: File an Answer raising this as an affirmative defense. The case should be dismissed. Statutes of limitations range from 3-10 years depending on your state and debt type.

If you can't afford to pay anything: File an Answer to buy time, then explore bankruptcy. Chapter 7 might eliminate the debt entirely if you qualify based on income.

If you can pay 30-50% in a lump sum: Negotiate a settlement. Get the agreement in writing before you pay.

If your credit card agreement has an arbitration clause: File a Motion to Compel Arbitration. This works best for debts under $5,000 where the arbitration fees exceed what the creditor would recover.

If you're employed and facing multiple lawsuits: Consider Chapter 13 bankruptcy. The repayment plan stops all lawsuits and gives you a manageable monthly payment.

The First 48 Hours: What to Do Right Now

Start by reading every page of the lawsuit. Note the deadline to respond,it's usually printed on the summons in bold text. Calculate backward from your court date. Most states give you 20-30 days to file an Answer.

Second, request debt validation. Send a letter to the plaintiff's attorney demanding proof they own the debt and that the amount is accurate. Use certified mail with return receipt. This doesn't stop the clock on your Answer deadline, but it forces them to produce evidence.

Third, gather your records. Find the original credit card agreement, any payment records, and correspondence about the debt. If you don't have these, request them in your validation letter.

Fourth, check your state's statute of limitations for the debt type (usually 3-6 years for credit cards). If the last payment was made beyond that window, you have a complete defense.

Finally, decide which of the four options fits your situation and take action before the deadline. File an Answer, start settlement negotiations, prepare your arbitration motion, or see if you qualify for bankruptcy.

Common Mistakes That Cost You Money

Don't admit you owe the debt in writing. In your Answer, deny or state you lack sufficient information to admit or deny. Make them prove it.

Don't agree to a payment plan over the phone without a written settlement agreement. Verbal promises mean nothing. They can take your payment and still pursue the judgment.

Don't wait until the last minute to file your Answer. Courts are strict about deadlines. If you file one day late, you lose.

Don't use your rent money to settle a debt. If settling would leave you unable to pay essential bills, that's a sign bankruptcy might be the better path.

Don't ignore the lawsuit hoping it goes away. It won't. It will become a judgment, and judgments are much harder to fight.

What Winning Actually Looks Like

Winning doesn't always mean the debt disappears. It means you resolve the lawsuit on terms you can live with.

Maybe you settle for $2,000 on a $5,000 debt and avoid a judgment. Maybe you file for arbitration and they dismiss the case. Maybe you file bankruptcy and wipe out $30,000 across five creditors. Maybe you fight the lawsuit, the creditor can't prove their case, and the judge dismisses it with prejudice.

All of these are wins. They're better than a default judgment, wage garnishment, and years of financial stress.

You don't need a law degree or thousands of dollars to defend yourself. You need accurate information, a willingness to fight back, and the discipline to meet deadlines. If you do that, you're already ahead of 90% of people in your situation.