I have talked about counterclaims often throughout this site, and counterclaims are very important if you can make them for the reasons discussed below. Things have gotten a little more complicated in this area recently, however. It used to be that almost everyone who might sue you was a “debt collector” under the Fair Debt Collection Practices Act. Two big things have happened to change that.
First, many of the banks are no longer selling debts but are bringing their own lawsuits as plaintiffs. This makes sense as a way to preserve evidence – although they still often do not have what they need to win.
And second, the Supreme Court has ruled that debt buyers are not necessarily “debt collectors” under the Fair Debt Collection Practices Act. The FDCPA has historically been the easiest source of counterclaims. If you can argue that the company suing you has debt collection as its “principle business” (as opposed to making and servicing loans or selling stuff, for example), you can still sue them under the FDCPA. Likewise, there are sometimes state law claims you can make. If you were defrauded, for example, you might be able to counterclaim for fraud against a debt collector.
With those limitations in mind, our original article and video are below.
The Importance of Counterclaims
If you are being sued by a debt collector, the best defense can be a good offense. It is important to file a counterclaim if you can both because it takes the fun out of the suit for the debt collector and because it allows you to hold the debt collector in the lawsuit long enough to force it to dismiss its claims against you “with prejudice.”
In many jurisdictions, the party bringing a lawsuit retains the option to dismiss it at any time up to trial without consequence or even without the need for permission. This can mean in debt cases that the debt collector files suit, and after you have hired a lawyer and filed an answer, the debt collector is free to drop the suit, possibly for later refiling. In any event, when the suit is dismissed “without prejudice,” you are left without a convenient way to force the debt collector to stop reporting the debt to the credit bureaus, so it continues to harm your credit report.
The solution to these problems is filing a counterclaim – that holds the debt collector in the law suit until you have negotiated a resolution to the issues.