U.S. businesses have a mounting debt. Forbes estimates large companies with nonfinancial corporate debt account for 48% of the country’s GDP at $10 trillion. Small- to medium-sized businesses account for another $5.5 trillion, bringing the total to 74% of the U.S. GDP.
Adding to the problem is a weak economy heading into 2020. This leaves businesses struggling to maintain revenue while debt continues to pile up. There are 35 major bankruptcies in 2019 so far, and over two-thirds happened in retail.
Consumers aren’t faring any better – American consumers have $13.86 trillion worth of debt.
When faced with mounting debt, it’s inevitable that someone will come to collect. Many people are facing a debt collector threatening to serve papers. When courts get involved, debt collection gets serious.
What Does It Mean to Be Served?
Service of papers means a defendant is being notified of a legal action taken against them in court by a plaintiff. The actual “papers” being served are the initial complaint filed with the court, along with a summons to appear in court to respond. It’s rare that someone is served papers for a matter they’ve never heard about.
Creditors usually send several notices prior to filing a complaint with the court. In fact, the creditor will need to show the court its attempts at collecting the debt and its notice of intent to sue in order to prove its case. If the debt is not valid, it’s a simple matter to defend in court by asking for documentation of the debt.
There are two other conditions that must be met for a creditor to serve papers on a debtor.
Is It Within the Court’s Jurisdiction?
Courts can only enforce the laws in their jurisdiction. This makes things difficult in today’s online world, where ecommerce and virtual workers allow business to be conducted without geographic restrictions. The ability to sue a debtor depends on the whether they have a registered address in the court’s geographic jurisdiction.
Is There a Person at a Physical Address to Serve?
Even if the business is registered in the court’s jurisdiction, it may not have a physical address. It’s common for overseas companies to use generic industrial addresses, shared workspaces, or P.O. Boxes as business addresses. If a responsible adult over the age of 18 can’t be found at the address, the process server can’t complete the task.
Bikram Choudhury, founder of Bikram Yoga, famously avoided being served by California courts by leaving the country. Of course, ignoring a process server doesn’t make the debt or lawsuit go away. In fact, in Choudhury’s case, the judge issued a bench warrant that will be served if he enters the country again.
What Happens If You Ignore a Debt Collector?
It’s possible to avoid being served. Searching the internet comes up with a variety of crazy lengths people have gone to avoid a process server. The practice is so common that it’s a common Hollywood trope, culminating in the movie Serving Sara, in which a process server must disguise himself like a secret agent to serve papers.
Real life isn’t as dramatic as fiction, but process servers do regularly deal with resistant people. As mentioned above, avoiding being served doesn’t negate the lawsuit – it’ll only delay it. The court will still hear the case and, with only one-party present, it’ll almost definitely rule in favor of the plaintiff and issue a court order.
Ignoring a process server can cause the court to garnish wages, place a lien against any property, and freeze any accounts. Jail time for debt wasn’t always an option, but it’s become more widespread in the U.S. in recent years. In fact, the ACLU reports it’s now a common practice.
The ability to imprison someone for a debt is determined by individual state laws. Many allow prison time in exchange for paying off criminal debt, child support, and other types of debt. It’s important to accept service to mount a defense against a debt collector.
How to Know If You’re Being Served
When a complaint is filed, the court issues a summons to the defendant, along with a copy of the complaint. Other parties may also receive subpoenas if further testimony or documentation is needed. When this happens, a civil case number is assigned, and several copies of the complaint is created: one for the plaintiff, one for the defendant, one for the judge, and one for the clerk.
Once the judge signs off that the complaint is valid, the plaintiff generally has four options for serving papers to the defendant.
1. Sheriff or Process Service
The plaintiff can opt to have the court serve papers. This is usually done through the county sheriff’s office. Even if a third-party process server is used, the papers are still registered with the sheriff in case they come across the defendant first.
2. Service by Publication
Some states allow for service by publication in a specific list of widely circulated local media outlets. This is typically used as a backup in the event papers couldn’t be served in person. As a last resort, the summons will be published with the assumption that word will get to the interested party. This allows for service when all other options fail.
3. Registered Mail
A court summons, complaint, or subpoena may also be sent via registered mail. Registered mail is the highest level of tracking the U.S. Postal Service offers. Whereas certified mail requires a signature, it only sends tracking notification to the sender. With registered mail, the post office creates a full paper trail of every time it changes hands within its own organization.
4. Self-Service
The final way to serve papers is self-service. This means the plaintiff agrees to either personally deliver the papers to the defendant or hire a third-party process server. It is up to the plaintiff to show proof of self service.
Once served, the defendant must appear in court to respond.
Handling Debt Collectors
Ideally, debt can be settled outside of court. Negotiating with creditors outside of court saves everybody the time, money, and effort of a civil lawsuit. Refinancing, debt restructuring, and other tactics can help forgive outstanding obligations. In the worst case scenario, both people and businesses can file for bankruptcy protection from the court.
If a debt does end up in court, it’s time to seek legal assistance. Debt attorneys can evaluate the information to determine legal defenses against the debt’s validity. Common legal defenses include:
1. Challenging the Right to Sue and Burden of Proof
Debts are often sold, so it may not be the original creditor filing the claim. Distressed homeowners who successfully fought foreclosure lawsuits stemming from the 2010 U.S. foreclosure crisis commonly used this defense. It was found some mortgage lenders used a process dubbed “robo-signing” to falsify many county records. Without a valid paper trail, courts found in favor of the defendants and dismissed the cases.
2. Statute of Limitations
Some debts are simply too old to collect. Each state has different laws regarded how old of a debt can be collected on in court. It’s typically in the four- to six-year range. If the debt is outside the statute of limitations, the court will dismiss the claim.
3. Serve a Countersuit
Debtors who believe the debt is invalid can file a counterclaim against the plaintiff. In this case, the same judge will hear both claims at the same time and issue individual judgments for each. It’s possible for both claims to be found true. In this case, they may cancel each other out.
4. File for Bankruptcy
If the debt is valid and the debtor can’t pay, bankruptcy is the answer. This means the party is insolvent, and the court reviews financial paperwork to verify this. Creditors can’t continue collection efforts while the bankruptcy is in process, and this can buy time to generate enough revenue to cover outstanding debts before the court gets involved.
Whatever happens, ignoring service of papers is never a good idea. If in default, the debtor should be prepared for any consequences that may arise. Sometimes people are individually held responsible for business debts. Debtors with court judgements against them have trouble securing credit, obtaining employment, and even end up in jail.