Senior Legal Line Q&A: What should I do if I'm being sued over a debt?

Dear Senior Legal Line:

I live on my Social Security retirement income and a small monthly spousal maintenance award. Ever since I was served with a lawsuit about a credit card, I cannot sleep. I have not used that card for 5 years. It said that I must answer the complaint – do I have to? I do not dispute the debt, I used the card, but I just cannot pay it what with my housing, medicine, food, and other survival expenses. What should I do?

Sincerely,

Louisa

Dear Louisa,

You have more options than you realize. The short answer is that because your income appears protected from collection under state and/or federal law, you do not have to worry. Unless you have assets at risk of collection, your best option is to do nothing.

First, many of our clients worry that they will get in trouble with the court if they do not submit an Answer or do not show up to court. You will not get in trouble. A debt lawsuit is a conflict between two people or entities. It is not a criminal trial, where if you do not show up, an arrest warrant is issued for you. A civil lawsuit is basically where a judge is the referee and decider of who wins the dispute between two people. If one person does not show up for the dispute, the one that does wins by default. That is why the judgment the creditor or collection agency wins is called a default judgment.

Let the creditor get the default judgment. The main reasons to fight a lawsuit is if you have a legal defense or disagree with some aspect of it. You do not have a legal defense because the debt is still ripe to sue on because it is not beyond the 6-year statute of limitations and there is no indication of other legal defenses. You agree that you used the card and owe the debt. The creditor is not obligated to try to settle the debt with you or accept a payment plan, so when you send them a letter at this point in the process to ask for these things, the creditor will treat your letter as your Answer and this will sweep you into the court process of pretrial conferences and discovery, which will do nothing but add to your stress.

The judgment is good for 10 years and can be renewed for another 10 years. Because your financial situation is not likely to change to non-exempt sources, the judgment will just sit there because you have nothing to collect it from. The judgment will automatically become a judgment lien on any real estate that you own in the county in which you were sued; your house will have a on it. If your home is your homestead, it cannot be foreclosed to pay the lien. Also, if you sell your homestead, the sales proceeds remain exempt for one year after the sale. See Minn. Stat. §§ 510.01 and 510.07.  One vehicle up to a certain equity limit is also protected – also typically judgment creditors do not want cars.

Do not use credit knowing that you cannot pay it back. Keep watch on future mail so that you do not miss any court orders for you to disclose your financial situation (this is good to fill out also because it shows the judgment creditor that your income and assets are protected sources). It may not look like important mail, if you miss it, the judgment creditor may go back to court to ask that you be brought in to say why you did not fill it in and return it.

Both your income sources are protected under federal and state law. Social Security benefits are protected under both federal and state law and remain so when deposited in your bank account. 42 USC § 407(a); Minn. Stat. § 571.72, Subd. 8(7). You should have your Social Security directly deposited so that you do not have to do anything to show that it is Social Security; the bank will protect it because it shows the deposit coming from the US Treasury. Spousal maintenance income is also protected from collection for unsecured debt by state law. It is treated as earnings; if the spousal maintenance is less than 40 times the federal minimum wage, then it is exempt from collection. Minn. Stat. §§ 571.921(a)(3), 571.922(2). If your spousal maintenance is less than $380 per week, it is exempt from collection.

Furthermore, if you receive benefits from the county based on need, all your income is protected. Government benefits based on need include Medical Assistance, Energy Assistance, food support, and many others, as defined by Minnesota Statutes § 550.37 subd. 14.  Thus, even if some of your income sources were not exempt, receipt of government assistance based on need protects it from collection.

Of course, bankruptcy is an option, but it will cost you a filing fee and attorney’s fees to file, typically around $1500. Bankruptcy is complex and requires careful paperwork. Because your income and assets are protected from collection by other laws, you do not need to file for bankruptcy. Bankruptcy is good to discharge debt and to temporarily stay all other proceedings, neither of which are needed in your situation. To find out more about bankruptcy, speak to a bankruptcy lawyer.

This column is written by the Senior Citizens’ Law Project. It is not meant to give complete answers to individual questions. If you are 60 years of age or older and live within the Minnesota Arrowhead Region, you may contact us with questions for legal help by writing to:  Senior Citizens’ Law Project, Legal Aid Service of Northeastern Minnesota, 302 Ordean Bldg., Duluth, MN 55802. Please include a phone number and return address. To view previous