Navigating a Creditor Lawsuit: The Prove Debt Ownership Defense

Being sued by a debt collector often focuses on one specific legal issue: can they actually verify debt ownership? As a professor of consumer bankruptcy law and a published author, I’m here to tell you that being served with a summons is not the end of the road. It is the beginning of the legal process where you have significant options and power.

It’s vital to understand your legal rights so you can protect your assets, whether that involves a dismissal of the case, a motion to force the company to prove debt ownership, negotiating a strategic settlement, or utilizing bankruptcy as a tool. Consider this your roadmap to navigating the litigation process and stopping wage garnishment.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways In Proving Debt Ownership

• Debt Defense via Discovery: The most effective defense is forcing the plaintiff to prove debt ownership through a “Motion for Production,” requiring them to show a valid contract and an unbroken “Chain of Title” from the original creditor.
• Targeting Hearsay Evidence: Many debt buyers rely on generic affidavits; by challenging these under the “Business Records Exception,” you can often get their evidence excluded, leading to a potential dismissal.
• Strategic Settlement to Buy Time: If ownership is proven, the focus shifts to negotiating a stipulated settlement or a low-cost payment plan to delay a final judgment and protect your bank account.
• Avoiding Wage Garnishment: By litigating your case, you buy time, preventing the creditor from obtaining the “Writ of Garnishment” that allows them to seize a portion of your paycheck.
• The Bankruptcy Tool: When a court judgment is imminent, filing for bankruptcy invokes the federal Automatic Stay, which instantly freezes all state court collection actions and provides a permanent resolution to the debt.
• The Supremacy Clause Advantage: Under Article VI, Clause 2 of the Constitution, the federal bankruptcy stay overrides state-level collection laws.

Calling The Debt Collector’s Bluff: The Power of Proving Ownership

When a debt collector, sometimes the third or fourth buyer of that debt, sues you, their biggest challenge is often proving they legally own your specific debt. Many buy “as-is” debt portfolios that are often poorly documented accounts. Your first move isn’t to admit fault, but to demand proof.

For this reason, you can never ignore a default. Failing to respond to the petition or complaint promptly would result in the debt collector getting a default judgment against you, so whatever claims they made on the petition will be automatically granted by the court. How serious is this?

For example, maybe you do owe the debt, but the balance is $5,000. But an error by the debt collector listed the debt as $15,000 in the petition. If the debt collector gets a default judgment against you, guess what? You owe $15,000!

You can learn more about filing an answer, even when filing for bankruptcy, in this prior article.

Your First Line of Defense: The Motion for Request of Production

After you’ve filed your Answer to the lawsuit, you can go on the offensive. This involves the Discovery process, which is when both sides exchange relevant information. If you are looking to file for bankruptcy, but can’t do so immediately, going through Discovery provides you much needed time!

Request for Production of Documents: You can send a formal request to the debt collector, demanding specific documents that prove their case. The most critical items you’ll ask for are:

The Original Contract: The credit agreement from the original creditor.

Full Account Statements: From the original creditor, showing the last payment, charges, and balance.

The Chain of Assignment: Every document, such as the Bill of Sale or Assignment Agreement showing how the debt was transferred from the original creditor, through any other debt collectors, all the way to the current plaintiff. This needs to include a specific schedule of accounts showing your name and account number.

Reaching a Settlement to Buy Time

If the debt collector manages to produce the required documentation, don’t assume the game is over. At this stage, your goal shifts from disputing the debt to buying time.

Litigation is a slow process, and time is your most valuable asset. If you know that a Chapter 7 or Chapter 13 filing is in your future, you can use the settlement process to prevent a wage garnishment while you prepare your bankruptcy petition.

The “Stipulated Settlement” Delay Tactic

A debt collector’s primary goal is to get paid with the least amount of effort. By engaging in settlement talks, you can often delay the entry of a formal judgment.

Negotiate a Payment Plan: Even if you only intend to make one or two payments before filing for bankruptcy, setting up a plan can halt the litigation process.

Avoid the “Final Judgment”: Ensure the settlement agreement includes a stay of proceedings. As long as you are “negotiating” or “complying” with a temporary plan, the creditor typically won’t move for a Final Judgment or a Writ of Garnishment.

The High Costs of Litigation: Many debt buyers will settle for significantly less (30–50% of the balance) just to avoid the cost of a trial. If you can settle for a low lump sum, you might avoid bankruptcy altogether. But if the debt is too large, then reaching a “settlement” is simply the clock you are using to reach your bankruptcy filing date.

Professor’s Note: Creditors, who don’t have your best interests in mind, might say that you can’t wipe out a judgment or stipulated agreement. That is 100% false!

The Ultimate Shield Against Wage Garnishment: Bankruptcy and the Automatic Stay

If settlement talks fail or the creditor is being aggressive in pushing the case forward, it’s time to pull the “emergency brake.” This is where bankruptcy law provides its most powerful protection for consumers.

Stopping Garnishment in its Tracks

In many states, once a creditor wins a judgment, they can immediately move to garnish up to 25% of your disposable income. This can be financially devastating.

However, the moment you file for bankruptcy, a federal injunction called the Automatic Stay 11 U.S.C. §362 goes into effect.

Immediate Protection: The automatic stay legally prohibits creditors from continuing any collection activity, including phone calls, lawsuits, and most importantly, wage garnishments.

The Supremacy Clause: The Power of Federal Bankruptcy Law: Federal bankruptcy law trumps state court judgments. Even if a judge has already signed a garnishment order, the bankruptcy filing freezes it. This is known as the Supremacy Clause (Article VI, Clause 2).

If a creditor takes money after you file for bankruptcy, you can file a motion to have the funds returned, although my experience is that creditors rarely dispute this, as it could lead to sanctions from the bankruptcy judge.

Summary Checklist for Debt Collection Lawsuits

Step To Take	Actions	Goals
1. Discovery	Demand the “Chain of Title” and Bill of Sale.	Force them to prove they own the debt; delays the trial and final judgment.
2. Motion to Compel	File if they provide generic or incomplete records.	Buy more time.
3. Settlement Talk	Offer a low-payment plan or “Stipulated Dismissal.”	Prevent a Final Judgment from being entered.
4. Bankruptcy Filing	File your petition before the garnishment order is served.	Invokes the Automatic Stay and wipes out the debt permanently.

The Professor’s Final Thought

If you are facing a lawsuit, don’t wait until your paycheck is about to get garnished! Take action immediately. I’ll call this the hurry up approach, then take it slow. Use the litigation process to your advantage, challenge the ownership of the debt, and keep your options open with a potential bankruptcy filing.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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