3 Ways to Kill a Debt Lawsuit Before It Kills Your Credit

You got served. Maybe someone knocked on your door claiming to deliver pizza. Maybe papers showed up certified mail. Either way, you're holding a Complaint and Summons, and the clock just started ticking.

Most people do nothing. That's the worst move you can make. Miss the deadline—usually 14 to 30 days depending on your state,and you lose by default judgment. The collector gets to garnish your wages, freeze your bank account, or slap a lien on your house. All without you saying a word in your defense.

But if you respond, your odds flip dramatically. Debt collectors win over 90% of lawsuits by default, according to research from the Consumer Financial Protection Bureau. When defendants actually show up and file an Answer, those win rates plummet. You don't need a lawyer to do this. You need a plan and 15 minutes.

What Happens If You Ignore a Debt Lawsuit

Default judgment is not a gentle warning. It's a legal sledgehammer. Once the court rules against you by default, the collector can:

• Garnish up to 25% of your disposable income
• Freeze and seize funds from your bank account
• Put a lien on your home that comes due when you sell or refinance
• Report the judgment to credit bureaus, tanking your score for up to seven years

Some states let collectors renew judgments for decades. In California, judgments last 10 years but can be renewed indefinitely. That $3,000 credit card bill can shadow you into retirement.

The good news: responding to the lawsuit stops this process cold. Even a basic Answer forces the collector to prove you owe the debt. Most can't. They bought your account for pennies on the dollar and lack the original contract, payment history, or proper chain of custody.

Step 1: File an Answer to Stop the Clock

Your Answer is a formal legal document that responds to each claim in the Complaint. It's not a letter. It's not a phone call to the lawyer's office. It's a structured response filed with the court.

Here's what goes in an Answer:

• Admissions and denials for each numbered paragraph in the Complaint
• Affirmative defenses like statute of limitations, lack of standing, or failure to state a claim
• Proof of service showing you sent a copy to the plaintiff's attorney

Most states require you to file within 20 to 30 days of being served. Oklahoma gives you only 20 days. California and Texas give you 30. Check your Summons for your exact deadline.

Once you file an Answer, the case moves to discovery. The collector has to turn over documents. You can demand the original credit agreement, account statements, and proof they own the debt. This is where cases fall apart. Debt buyers often lack this paperwork because they purchased a spreadsheet with your name on it, not a legal claim backed by evidence.

If you're unsure whether filing bankruptcy is the better option, check our bankruptcy screener to see if you qualify for Chapter 7 relief. Bankruptcy stops lawsuits instantly through the automatic stay and can wipe out unsecured debts completely.

Step 2: Demand Arbitration to Shift the Cost Burden

Many credit card agreements include arbitration clauses. These clauses let you force the dispute out of court and into private arbitration. Why does this matter? Because arbitration costs the collector $200 to $500 just to file, plus ongoing fees that can hit $10,000 or more.

Debt buyers hate arbitration. They make money suing hundreds of people at once in court. Arbitration forces them to fight you one-on-one at their own expense. Most will drop the case or offer a steep settlement rather than pay those fees.

To invoke arbitration, you file a Motion to Compel Arbitration with the court. This motion argues that the original credit agreement requires arbitration, and the court must honor that contract. If the judge grants your motion, the lawsuit gets dismissed or stayed, and the case moves to arbitration.

Check your original credit card agreement or cardholder terms. Look for language like "binding arbitration" or "disputes resolved through arbitration." If you don't have the agreement, request it from the collector during discovery. They're required to produce it if they're suing under that contract.

Arbitration isn't magic. You still have to respond to the arbitration claim once it's filed. But it levels the playing field and often prompts collectors to walk away rather than spend more money than the debt is worth.

Step 3: Settle Before Trial (If the Debt Is Valid)

If you actually owe the debt and the collector has solid documentation, settlement is your best exit. You can often negotiate a lump sum for 40% to 60% of the balance, sometimes less if the debt is old or the collector is a third-party buyer.

Here's how to negotiate a settlement that protects you:

• Never admit the debt is valid until you see proof. Make them send account statements, the original contract, and the chain of assignment.
• Offer a lump sum for less than the balance. Start at 30% and negotiate up if needed.
• Get everything in writing before you pay. The agreement must state the exact amount, confirm the debt will be marked "settled in full," and include a dismissal of the lawsuit.
• Never give them access to your bank account. Pay by money order or cashier's check, not by handing over your routing number.

Settlement wipes out the debt and stops the lawsuit. It may hurt your credit temporarily, but it's better than a judgment, which stays on your report longer and gives the collector enforcement powers.

If you're weighing settlement against bankruptcy, understand this: bankruptcy can eliminate the debt entirely without paying a dime. Credit card debt, medical bills, personal loans,all dischargeable. Visit our bankruptcy filing guide to see if Chapter 7 makes more sense than settling.

Which Defenses Actually Work in Debt Lawsuits

Not all defenses are created equal. Some stop the lawsuit in its tracks. Others just annoy the judge. Here are the defenses that win cases:

Statute of limitations: Every state sets a deadline for suing over unpaid debts. In California, it's four years. In Ohio, it's six. If the debt is older than your state's limit, the collector can't win. You have to raise this as an affirmative defense in your Answer.

Lack of standing: The collector must prove they own the debt. If they can't produce a valid assignment or bill of sale showing they bought your account from the original creditor, they lack standing to sue. Many debt buyers can't meet this burden.

Improper service: If you weren't properly served with the lawsuit,meaning the papers weren't delivered according to your state's rules,the court lacks jurisdiction. This is a strong defense if the collector claims you were served but you never received the papers.

Payment or discharge: If you already paid the debt or it was discharged in bankruptcy, the lawsuit is invalid. Provide proof in your Answer and move to dismiss.

Weak defenses include claiming you never had the account or that the debt is unfair. Courts don't care about fairness. They care about contracts and evidence. Stick to technical defenses that challenge the collector's proof.

What to Do If You're Too Broke to Settle

Settlement requires cash. If you don't have a lump sum to offer, you have two other options: payment plans or bankruptcy.

Some collectors will accept monthly payments to resolve the lawsuit. Get the agreement in writing. Make sure it includes a dismissal once you complete payments. Watch out for interest or fees that balloon the balance.

If your income is low and you have little or no assets, bankruptcy might be your cleanest exit. Chapter 7 bankruptcy costs around $300 to $350 in court fees and wipes out credit card debt, medical bills, and personal loans in 90 days. No settlement. No payment plan. Just a fresh start.

Chapter 7 requires you to pass the means test, which compares your income to your state's median. If you're below the median or your disposable income is too low to fund a Chapter 13 plan, you qualify. Most people with debt lawsuits do.

The automatic stay kicks in the moment you file. That stops the lawsuit, halts wage garnishments, and prevents the collector from contacting you. They can't even send a letter.

Bankruptcy does hit your credit. A Chapter 7 stays on your report for 10 years. But so does a judgment. The difference is bankruptcy ends the debt. A judgment doesn't. Collectors can renew judgments and chase you for decades.

How to File Your Answer Without a Lawyer

You don't need an attorney to file an Answer. You need the court's form or a template that matches your state's rules. Many courts publish Answer forms on their websites. If yours doesn't, use a reputable service that generates state-specific documents.

Once your Answer is drafted, you file it with the court and serve a copy on the plaintiff's attorney. Filing usually costs $50 to $200 depending on your county. Some courts waive fees if you're below the poverty line. Ask the clerk about fee waivers when you file.

Serving the plaintiff means mailing a copy of your Answer to the attorney listed in the Complaint. Use certified mail with return receipt. Keep the receipt as proof of service.

After filing, the collector may respond with discovery requests,interrogatories, requests for production, requests for admission. Answer these within the deadlines. If you ignore discovery, the court can sanction you or grant a default judgment anyway.

Discovery is tedious but not complicated. Interrogatories are written questions. Requests for production ask for documents. Requests for admission ask you to admit or deny specific facts. Answer honestly but don't volunteer information.

When to Walk Away and Let Them Get a Judgment

Sometimes fighting the lawsuit costs more than the debt is worth. If you're judgment-proof,meaning you have no income they can garnish and no assets they can seize,a judgment might not hurt you.

You're judgment-proof if:

• Your only income is Social Security, SSI, or disability benefits (protected from garnishment)
• You own no real estate
• You have less than $1,000 in your bank account
• You have no wages from a job

In this situation, the collector can't collect even if they win. They can get a judgment, but it's a piece of paper with no enforcement power. Judgments do damage your credit, but if your credit is already wrecked, the additional hit may not matter.

That said, your situation can change. If you get a job or inherit money later, the collector can come back and garnish those funds. Judgments last years. In some states, they last decades.

If you're judgment-proof now but expect your income to improve, filing bankruptcy is smarter. It eliminates the debt permanently instead of leaving a ticking time bomb on your record.

What Happens After You File an Answer

Filing an Answer doesn't end the lawsuit. It moves the case to the next phase: discovery and possibly a trial. Here's the typical timeline:

• Discovery (2-6 months): Both sides exchange documents and answer written questions. The collector may request account statements or payment records from you. You can request proof they own the debt and copies of the original contract.
• Settlement negotiations (ongoing): Most cases settle before trial. The collector may reach out with an offer, or you can initiate settlement talks.
• Motion practice (varies): Either side can file motions to dismiss, motions for summary judgment, or motions to compel arbitration. These can delay the case or end it outright.
• Trial (rare): If the case doesn't settle, you go to trial. Debt collection trials are usually bench trials, meaning a judge decides without a jury. The collector must prove you owe the debt, the amount is accurate, and they have standing to sue.

Most debt lawsuits settle or get dismissed before trial. Collectors bank on you doing nothing. When you show up and fight, they often cut their losses and move on to easier targets.

The Bottom Line

You have options when you're sued over a debt. File an Answer to stop default judgment. Demand arbitration if your contract allows it. Settle if the debt is valid and you have cash. Or file bankruptcy if you're drowning in debt you can't pay. None of these options are perfect, but all of them beat doing nothing and letting the collector steamroll you.