Can you be sued while in debt consolidation?

The short answer is YES, you can be sued even if you have a debt settlement or consolidation agency working for you. Unfortunately, the answer is “NO, you can be sued even if you are in a debt settlement plan. Upon receiving a “no contact” letter, creditors will respond internally to a series of questions about their account to decide how to react. If the balance owed on your account is large enough to justify court and legal costs, they will consider suing you so that they can proceed to garnish your wages.

In addition, with a monetary judgment in most states, the creditor can collect (take) cash from your bank account or place a lien against real property owned by you and perhaps even personal property (vehicle, collections, etc.) With a court assignment order, the creditor can also intercept and take your anticipated tax refund. In response to any demand, a debt consolidation company is unlikely to help you. Instead, they will say that they are “not lawyers” and will do nothing to protect their interests. A bankruptcy lawyer can protect your interests in the event of a lawsuit.

Filing for bankruptcy provides protection to the federal court from bankruptcy and many other advantages. A staple of late-night announcements from debt settlement companies is their reference to a vague and obscure new law that the current president has signed that makes it legal for him not to pay his debts. The debt collection agency then attempts to contact you to request full and immediate repayment of the debt. However, this doesn't stop them from involving their own lawyer and taking you to court to gain an additional advantage for you to pay your debt.

What this also means is that once the debt has been paid off, credit card companies can no longer sue you to collect it. Some marketers may even blatantly make the false claim that the current president of the United States recently signed legislation that gives consumers permission to stop paying their credit card debts. Automatic stay prevents creditors from taking steps to collect a debt while bankruptcy is pending (unless the creditor files a motion for relief of the stay, which must be specifically granted by the court). If you pay the debt without filing an Answer, the collector can go behind your back and request a judgment for failure to appear; then, the collector can lie, saying they never received the payment, and garnish your wages to collect the debt twice.

If you find yourself in a situation where you simply can't repay your debt; whether you've been laid off, suffered a drop in your salary, suddenly have to care for an elderly or sick family member, or for any other reason, bankruptcy can offer a much more comprehensive way to get out of debt than debt settlement private. For those who qualify for Chapter 7 bankruptcy, it is an option that can relieve debtors of all or most of their unsecured debts (credit cards, medical bills, or home guarantee lines on an already foreclosed home). As Money Fit education manager, author, speaker and financial educator, Todd Christensen develops financial education programs and provides credit and debt counseling for individuals and groups across the country. If you're one of the many struggling with debt due to COVID-19, it's best to develop a financial plan ahead of time.

Chapter 13 bankruptcy is another option individuals may have as an alternative to a debt settlement program. However, many times, and perhaps most of the time, debt consolidators cannot get all creditors to agree. If you file for bankruptcy without responding to the lawsuit, then the collector can win and take all of the debt from your wages even before you start filing for bankruptcy. Chapter 13 bankruptcy allows you to restructure unsecured debt into a three- to five-year repayment plan.


Evan Turomsha
Evan Turomsha

Award-winning twitter buff. Amateur web ninja. Total food maven. Typical travel fanatic. Certified beer geek.

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