Editorial Policy

Check credit reports if you believe creditor might sue

Erica Sandberg

June 12, 2015

QHi Erica,

Should a person pull his credit report if he fears a creditor is looking for him in order to sue? –Mick

ADear Mick,

Absolutely. Consumer credit reports contain the clues necessary to predict whether you’re on the brink of a lawsuit.

Here’s why.

The information that is listed on a credit report comes from your activity with credit cards, loans and other debts. Your creditors then send a detailed summary to the credit reporting agencies. If the data is positive, such as accounts that you’ve kept in good standing by paying them on time or in full, you have nothing to worry about. A creditor would have no reason to take you to court because you’ve upheld your end of the contract. Ask Erica

On the other hand, if you see that your files are showing accounts that are past due by at least a few months, are already in default or have been sold to third-party collectors — especially if the balances are large — it’s a sign that you need to take immediate action to prevent a lawsuit.

So yes, if you’re at all worried that bad debts might be appearing on your reports, pull them from AnnualCreditReport.com. In fact, do so anyway at least once per year. They’re free, and if you get one from each agency every four months, you’ll enjoy a steady stream of current information.

In the event you spot a lawsuit-inducing problem, assess your financial and legal situation before reaching out to the creditor.

Your financial situation

If your accounts are still with the original creditor but are delinquent, review your budget to determine if you can resume payments, and if possible, add extra each month. That plan should put you back on track, thus avoiding the dangerous lawsuit zone.

However, if the debt is now with a collection agency, and it’s within the statute of limitations  for your state, figure out if you can come up with enough cash to pay it in full or with a reasonable settlement offer. Remember, the creditor just wants the money. If you send it, it has no cause to drag you to court.

Need some handholding? No problem. Contact a nonprofit credit counseling organization, such as the Financial Counseling Association of America or the National Foundation for Credit Counseling. These organizations will go over your earnings, assets, expenses and debt. After that, they’ll provide you with a plan of action you can take to deal with your creditors outside the courtroom.

Your legal situation

Not everyone is at risk of a lawsuit. If you have no income or property that can be attached and probably won’t for many years, you’re what’s described as “judgment proof.” You can still be sued, but even if that happens and you lose the case, the creditor won’t get anything. It would be a waste of its time and resources. If that’s true for you, politely point that out, and if you can, offer good faith payments in increments you can afford. When you legitimately owe money, the right thing to do is pay it, but if you really can’t, getting indignant is not the proper response.

Another way to avoid a lawsuit is with a bankruptcy, either Chapter 13, which is a repayment plan for qualified income earners, or Chapter 7, which might be right for people who do not have the means to pay their obligations. Both will stop legal action in its tracks with an automatic stay soon after filing.

Now to the word “fear.” Most people are afraid of the unknown. But when you inform yourself by checking your statements, reading your reports, understanding what can happen if you have credit troubles and learning how to alleviate those credit issues, you’ll feel confident and powerful.

Got a question for Erica? Send her an email.