5 Exempt Income and Assets
Along with defenses and counterclaims, you can file a declaration of exempt income and assets, either within the Answer or as a separate pleading. This is a statement that your income and assets are exempt from court judgments and garnishments, and thus the creditor will be unable to collect the debt. Exempt income includes Social Security benefits and Supplemental Security Income; exempt assets include your principal residence, retirement accounts and certain possessions such as tools and books. Each state has a different schedule of exempt assets, while Social Security and SSI payments are federal benefits and thus exempt everywhere.
4 Defenses and Counterclaims
Your Answer can include defenses, such as the very effective claim (if true) that the statute of limitations has run on the debt, or that you are not the proper defendant in the lawsuit. You can also make counterclaims: the plaintiff creditor has used abusive practices banned by the Fair Debt Collection Practices Act, for example, or the creditor sold you defective goods, or overcharged you according to the terms of a written contract. Defenses and counterclaims in an Answer are an effective negotiating tool if you're still willing and able to arrange a partial repayment.
3 File an Answer
If you can't come to a repayment agreement with the creditor, you must file an Answer. This is a court pleading in which you make a written response, point by point, to each of the numbered statements in the creditor's Complaint. You have the right to simply "Admit" or "Deny" each assertion without any explanation or argument. If you deny the existence of the debt, or dispute its amount or validity, then you have the right to argue over that point in court. If you admit any of the statements in the Complaint, then you may not dispute these points later. At this point, engaging an attorney to assist you is a good idea. If you don't file an Answer, you still can file a Notice of Appearance in the case, to prevent a default judgment against you without a hearing.
2 Negotiate a Payment Plan
If you're facing a lawsuit over a valid debt, contact the creditor to work out regular repayments. Most will negotiate a repayment schedule, and even drop the balance, rather than spend the money required to go to court and enforce any judgment. Negotiating a repayment is also preferable from your side, but even if you come to an agreement, you should still file an answer to the complaint within the deadline.
1 Research the Claim
On receiving a complaint, your first step is to verify the debt. Check account statements, if you have any, from the original creditor, and make sure you are the legal debtor. Each state has a statute of limitations on debt; the length of time varies with the type of debt (written contract, oral contract, promissory note and open-ended account). Credit cards are open-ended accounts; the deadline for a lawsuit on this kind of debt is three years in Alabama, for example, and 10 in Iowa. If your debt has passed the SOL in your state, then the lawsuit is invalid.