When to Drop a Debt Settlement Lawsuit

Sometimes, bringing a lawsuit against debtors can spur negotiations and allow a creditor to collect debt that would otherwise be unrecoverable. When a debtor is unwilling to pay, creditors have limited options available to them. Debt settlement lawsuit can sometimes be the only way to collect even a small portion of debt owed. However, a lawsuit can be time consuming and expensive and there is no guarantee that a creditor will end up coming out ahead on the process. Therefore, there are certain times when it makes financial sense to drop a debt settlement lawsuit

When the Consumer is Willing to Negotiate

When the debtor is willing to negotiate, it is almost always advisable to drop a debt settlement lawsuit in favor of negotiating the debt. Debt settlement lawsuits are costly and expensive. Attorney's fees and court fees can eat into the recovery, and often when a debtor is faced with the possibility of wage garnishment and replevin actions (the seizure of property), the debtor will be forced into bankruptcy. If a debtor is forced into bankruptcy, creditors often recover nothing, or a very small amount of the debt owed. Therefore, it is almost always advantageous to settle a debt with a debtor or debtor's attorney and to create a voluntary debt repayment plan.

You should not drop the suit until a formal written payment agreement is reached and signed. If you file a motion to drop the suit and the case is dismissed with prejudice, depending on the jurisdiction you may be unable to sue again due to double jeopardy clauses or similar provisions in the law.

When the Consumer is Insolvent and the Debt is Unsecured

Unsecured debt is very difficult to collect on. Even under stricter bankruptcy laws that require many debtors to repay a portion of their debts, creditor's with unsecured debt are paid last and usually not paid much at all. If a debtor is truly insolvent and can demonstrate this by their financial records, it is advisable to drop a lawsuit since even if you win, damages are not recoverable. If a consumer fails the means test and/or has a median income below the poverty level for a family of that size, the consumer is eligible for Chapter 7 bankruptcy, which means that the debt will be even more impossible to collect on.

It is especially important to be aware of any other outstanding claims on the debtor's assets. Student loan debt and tax debt is not dischargeable in bankruptcy, and is paid first in bankruptcy proceedings. If a debtor has a great deal of outstanding claims on assets and property, it is unlikely that damages will be recoverable even if you win the case.

Secured debt is easier to collect on, because it is possible to seize the asset in an action for replevin or to satisfy a judgment.

When You Cannot Meet Your Burden of Proof

Creditors have the responsibility of demonstrating that the consumer owes the debt and that they have the right to collector. A creditor who is unable to show that they own the debt, and/or that the borrower actually owes the debt, should drop the lawsuit in the discovery phase in order to avoid an expensive and unwinnable trial.

Finding Legal Help

A qualified attorney can provide you with information on when to drop a debt settlement lawsuit. Bringing a lawsuit can be expensive and time consuming, and it is only worthwhile if you truly believe you can collect damages from a debtor. Otherwise, negotiation and settlement is your best course of action.