3 Ways to Stop a Debt Lawsuit Before It Crushes Your Credit

You opened the door and a process server handed you a lawsuit. Maybe it's from a credit card company. Maybe it's from a debt buyer you've never heard of. Either way, the clock is ticking.

You have between 21 and 30 days to respond, depending on your state. Miss that deadline and the creditor wins by default. They get a judgment. Your wages get garnished. Your bank account gets frozen. Your credit score craters for the next seven years.

But if you act now, you can stop this. You have three options: file an Answer, settle, or force arbitration. Each one changes your leverage. Here's how to pick the right move.

Option 1: File an Answer to Block a Default Judgment

The lawsuit arrives with two documents: a Summons and a Complaint. The Summons tells you when to respond. The Complaint lists what the creditor claims you owe.

If you ignore it, the creditor files for a default judgment. The court rubber-stamps it. Game over.

Your first move: file an Answer. This is a legal document that responds to each allegation in the Complaint. You're not arguing your case yet. You're just saying, "I'm here. Prove it."

What Goes in an Answer

Most Complaints list 10 to 20 numbered paragraphs. For each one, you either admit, deny, or say you lack enough information to respond. Your Answer mirrors that structure.

Example: The Complaint says, "Defendant opened a credit card account with ABC Bank on March 15, 2019." If you did, you admit it. If you didn't, you deny it. If you're not sure, you write, "Defendant lacks sufficient knowledge or information to form a belief."

You also raise affirmative defenses. These are legal reasons the debt might not be valid. Common ones include:

• Statute of limitations: The debt is too old to sue over. In most states, creditors have 3 to 6 years. If the last payment was outside that window, the case dies.
• Lack of standing: The plaintiff can't prove they own the debt. Debt buyers often lack the right paperwork.
• Failure to state a claim: The Complaint doesn't include enough detail to prove a valid case.
• Payment or satisfaction: You already paid some or all of the debt.

You don't need a lawyer to file an Answer, but you need precision. One missed deadline or formatting error and the court can reject your filing.

What Happens After You File

Once your Answer is on file, the creditor has to prove their case. They can't just win by showing up. They have to provide evidence: the original contract, account statements, a chain of title if the debt was sold.

Many debt buyers struggle here. They bought your debt in a portfolio of thousands. They often lack the original paperwork. If they can't prove it, you win.

Filing an Answer also gives you leverage to settle. The creditor now has to pay a lawyer to fight. That costs them $200 to $400 an hour. Suddenly, accepting 40 cents on the dollar looks smart.

If you're ready to file bankruptcy, don't skip the Answer. Filing bankruptcy automatically stays the lawsuit, but having an Answer on file protects you if there's any delay. Learn more about how bankruptcy stops lawsuits instantly.

Option 2: Settle Before the Court Date

Most debt lawsuits settle. Courts are backlogged. Creditors know trials are expensive. If you offer a reasonable amount, they'll often take it.

The key: negotiate before the judgment. Once the court rules against you, the creditor has no reason to settle. They can garnish your wages, seize your bank account, and collect the full amount plus interest and fees.

How Much to Offer

Start at 30% of the debt. If the lawsuit says you owe $5,000, offer $1,500. If they counter at 70%, meet them at 50%. Most cases settle between 40% and 60% of the original balance.

If you can't pay a lump sum, propose a payment plan. Offer $200 a month for 12 months instead of $2,400 upfront. Some creditors accept this. Others won't.

Get everything in writing before you pay. The settlement agreement should say:

• The exact amount you're paying
• That this payment satisfies the full debt
• That the creditor will dismiss the lawsuit with prejudice (meaning they can't refile)
• How the debt will be reported to credit bureaus (ideally "paid in full" or "settled," not "charged off")

Never send money without this document signed by both parties. Creditors have been known to take your payment, then continue the lawsuit for the remaining balance.

When Settling Doesn't Make Sense

If the debt is past the statute of limitations, don't settle. Offer them nothing. File your Answer and raise the statute of limitations as a defense. The case should be dismissed.

If you're judgment-proof—meaning you have no wages to garnish, no bank account, no property,settling might not help. The creditor can't collect anyway. But the statute of limitations on enforcing a judgment is often 10 to 20 years, so be careful. If your financial situation improves, they can come back.

If you're planning to file bankruptcy soon, don't settle. Bankruptcy wipes out the debt entirely. Paying even a settlement amount wastes money you could use for filing fees or exempt assets. Check if bankruptcy is the right move for your situation.

Option 3: Force Arbitration to Move the Fight Out of Court

Buried in your original credit card agreement, there's often an arbitration clause. It says disputes go to arbitration, not court. If that clause exists, you can file a Motion to Compel Arbitration. This moves the case out of the public court system and into private arbitration.

Why does this help you? Because arbitration costs the creditor $2,000 to $5,000 upfront. The arbitration company charges filing fees, hearing fees, and arbitrator fees. You, the consumer, pay nothing or close to it. The creditor pays the rest.

Once you file the motion, the creditor has to decide: pay thousands to arbitrate a $5,000 debt, or settle for pennies on the dollar?

Most settle.

How to Check if You Have an Arbitration Clause

Pull your original credit card agreement. If you don't have it, call the creditor or check their website. Most banks archive old agreements. Look for a section titled "Dispute Resolution" or "Arbitration."

If the clause is there, file your Motion to Compel Arbitration along with your Answer. The motion should cite the clause, attach a copy of the agreement, and ask the court to stay or dismiss the lawsuit pending arbitration.

Some creditors fight back. They argue the clause doesn't apply, or that you waived it by not acting sooner. Courts usually side with consumers here, but outcomes vary by judge.

What Happens in Arbitration

If the court grants your motion, the case moves to an arbitration company like JAMS or AAA. The creditor pays the fees. You participate by phone or video. The arbitrator hears both sides and issues a decision.

But most cases never get that far. The creditor looks at the cost and offers to settle. You get a better deal than you would have in court.

What Not to Do When You're Sued for Debt

Don't ignore the lawsuit. Default judgments are automatic. You lose every right to fight back.

Don't admit the debt is valid just because you remember owing it. The creditor still has to prove they own it, that the amount is correct, and that they followed the rules.

Don't talk to the creditor's lawyer without a plan. They will ask you questions designed to get admissions. Stick to written communication until you know your strategy.

Don't pay the debt in full without negotiating. If they sued you, they already wrote off the account. They don't expect full payment. You're leaving money on the table.

How to Find Your Court Deadline

Your Summons lists the deadline to respond. It's usually 20 to 30 days from the date you were served, not the date the lawsuit was filed.

Some states require you to file by a specific date. Others require you to file within a certain number of days. If the deadline falls on a weekend or holiday, it usually moves to the next business day.

If you miss the deadline, you can sometimes file a motion to set aside the default judgment. You'll need a good reason: you were hospitalized, you were out of the country, the process server lied about delivering the papers. Courts are skeptical, but it's possible.

When to Hire a Lawyer

If the debt is over $10,000, hire a lawyer. The stakes are high enough to justify the cost.

If you're not sure the debt is yours,maybe you're a victim of identity theft or the creditor sued the wrong person,hire a lawyer.

If the creditor is a well-funded original creditor like Chase or Capital One, not a debt buyer, hire a lawyer. They have legal teams. You need one too.

If you can't afford a lawyer, look for legal aid in your area. Many nonprofits offer free or low-cost help with debt lawsuits. Search "legal aid" plus your city or county.

The Bottom Line

You have options. File an Answer to stop a default judgment. Settle before the court date to cut the debt in half. Force arbitration to make the creditor pay up or back off. Any of these moves puts you in control. But you have to act before the deadline. Once the court enters a judgment, your leverage is gone.