You’ve missed a few payments on a debt and you’ve gotten notice that you’re in default. Now you’re worried about a lawsuit. How does a debt collection lawsuit work in New Jersey?
Receipt of Notice
You’ll know your creditor has filed a lawsuit against you when you receive a summons and a complaint. The complaint is an official legal document listing the claims against you. The summons tells you that you’ve been sued, tells you where to send your answer, and gives the time and place of the hearing.
Generally, the summons and complaint must be delivered in person. If the plaintiff’s attorney or court official can’t reach you in person, they may mail the documents to your home by registered certified mail. If you won’t take receipt of the documents,
they may be sent to your home via regular mail. N.J. Rules of Court 4:4-3.
Answer
You don’t have to file an answer if you’ve been sued. However, failing to file an answer may lead the court to enter default judgment against you. 4:4-2. The answer is an official legal document in which you state your defense to each claim listed on the complaint and either admit, deny, or say that you have no knowledge about the allegations of facts upon which the complaint relies. 4:5-3. You may not give a general denial of the whole complaint – you must address each claim specifically.
Id. In New Jersey, you must submit your answer within 35 days after service of the summons. 4:6-1. The court will not accept a late answer – file late and you may be subject to default judgment.
Defenses to a Collection Lawsuit
The creditor has to prove that you personally owe a particular debt to them. If they can’t prove it, they’re out of luck. Even if they do have some evidence, you can use a number of defenses. Generally, you must show either that you don’t owe the money, that the plaintiff didn’t prove its case, or that the judicial process wasn’t correctly observed.
First, you may show that you no longer owe the money. If you’ve already paid off part or all of the debt, you can show proof of payment as a defense to the lawsuit. If you’ve filed for bankruptcy and the debt was discharged, you can also show proof of your bankruptcy discharge.
You may be able to prove that you never owed the money at all. Perhaps you were a victim of identity theft and didn’t incur the debt for which you’re being sued. You may also be a victim of mistaken identity, where the creditor confuses you for someone else. That usually happens because you and the person who actually incurred the debt have the same name or other identifying information.
You may also dispute the amount of the debt. As above, the creditor must prove that you owe what they say you owe. They have to justify the interest charges and collection fees, as well. You can also escape liability if the statute of limitations has run on the debt. In New Jersey, the
statute of limitations for debt collection is 6 years. If you defaulted more than 6 years ago, the creditor can no longer sue you for collection.
If the party suing you is not the originating creditor, you may be able to prove that they don’t have the right to sue you. You can force them to show proof that they purchased your debt from the original creditor. Without a document showing the sale of your specific debt from the original creditor to the debt buyer, the debt buyer can’t sue you and the court will dismiss the case.
Finally, the process of a lawsuit is governed by very specific rules. You must receive service in the correct way, the documents must all be prepared in the correct way, and appropriate evidence must be provided in a particular way. Failure on the part of your creditor to adhere to the process may be grounds for dismissal of your case.
You’ll need to include whatever defenses you’re going to raise in court in your answer. If you fail to include them, you may lose the right to raise them later on in your case.
Between the Summons and the Hearing
You’ll prepare for your day in court by collecting all the evidence you need to defend yourself. Your attorney will help you obtain documentation from the creditor (they have to show you everything they’re going to use in court) and make sure that your evidence is properly delivered to them.
In addition to gathering evidence, your creditor may make a Motion for Summary Judgment. They can make that motion 35 days after service of the original complaint. To obtain summary judgment, the creditor must show that there is no question about the facts of the case so that you’re guilty as a matter of law. If you don’t dispute that you owe a debt of a certain amount to that creditor, then the court may grant summary judgment.
To fight a motion for summary judgment, you and your lawyer will generally prepare evidence to show that there is a question of fact in the case.
You may also make a cross-claim against the creditor. You may have a claim against the creditor for unfair debt collection practices or other wrongs. You should always keep a record of any communication regarding your debt and alert your attorney if you feel you have been mistreated. She will determine whether you have a claim that you can back up and she’ll file the necessary motion in court.
Appearance at the Hearing
The time and place of your hearing will be listed on the original complaint. The
location of your hearing depends on the amount of your debt. If it’s $3,000 or less, your suit will go to New Jersey’s Small Claims Section of the civil court system. The Small Claims court has the least formal proceedings and cases are usually over in a couple of hours. If you’re being sued for between $3,001 and $15,000, your case will go to the Special Civil Part of the court system. For suits claiming over $15,000 must be filed in the Law Division of the Superior Court. Those two courts have more formal processes and your case will take longer.
The hearing will be scheduled for a couple of months after service of the complaint to give you time to prepare an answer and for both parties to gather their evidence and move for summary judgment.
At the hearing, both sides will present their evidence surrounding the debt itself. That will include records of the original debt, any payments you’ve made, any relevant bankruptcy records, and records of sale or assignation of the debt. Both sides will also address any issues raised in the answer regarding the judicial process, such as whether you were served correctly.
Most hearings take several hours. A very complex case may take longer, but consumer debts are typically straightforward.
Judgment
At the end of the hearing, the judge will enter a judgment. She’ll determine whether the case was brought within the statute of limitations and the judicial process was observed correctly. If not, she’ll dismiss the case. That doesn’t mean you’re home free – the creditor will simply correct the error and file again. If there’s no reason to dismiss the case, she’ll determine whether you owe the creditor anything and, if so, how much.
If you feel the outcome of the case was incorrect, you may appeal it to a higher court. Appeals cases are time-consuming and expensive, however, and there’s no guarantee that you’ll get a different outcome.
Settlement
At any time after the service of the original complaint, you may be able to reach a settlement with your creditor. They may agree to accept a lump sum payment of less than the total amount of your debt. Lawsuits are time-consuming and expensive and the creditor doesn’t want to go to court any more than you do. Either you or the creditor may offer a settlement; you’ll have to negotiate to find an agreement that suits both parties. Always consult an attorney before you accept any settlement agreement.
Bankruptcy
If you're facing judgments from creditors, you may consider filing for bankruptcy. When you file for bankruptcy, whether under
Chapter 7 or
Chapter 13, you get the protection of the
automatic stay. The automatic stay forces creditors to stop all collection actions: foreclosures, repossessions, bank levies,
wage garnishments, and more. If you file for bankruptcy, creditors can't sue you. They also have to stop any collection suits already in progress. At the end of the bankruptcy process, you'll receive a discharge of your remaining unsecured debt. Most debtors only pay pennies on the dollar for their debts.
Filing for bankruptcy will affect all of your finances, not just a single debt. It's a serious decision and one that should be made with the advice of an experienced bankruptcy attorney.
The First Step
Don’t let creditors intimidate you into ignoring the lawsuit – they want a default judgment because it’s easier and cheaper for them. Up to 95% of collection suits end in default judgments because defendants simply don’t contest the claim. If a creditor sues you, the burden is on them to prove that you owe the money.
If you’ve received a complaint and summons or believe that a creditor is going to sue you for collection, it’s time to start preparing. Gather all of the documents relating to the debt in question and records of any communication between you and the creditor. Take advantage of a free consultation with a local New Jersey attorney to discuss your potential defenses and other options.
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