Try to Compromise
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If you feel that perhaps the plaintiff is partly right but that you are being sued for too much, your best bet is to try to work out a compromise settlement. One good approach is to call or write the plaintiff and make a settlement offer. How much to offer depends on the relative merits of your case as compared to the plaintiff's, and whether the plaintiff is asking for a reasonable or inflated amount. Assuming the plaintiff has a pretty strong legal position (you probably are legally liable) and is asking the court for an amount that's reasonable, a good starting point is to make an initial offer to pay about half of the request. Remember, even with a strong case, the plaintiff may be motivated to accept your offer if for no other reason than to save the time and trouble it takes to prepare for and appear in court. More likely, your initial offer will set in motion a little dance of offer and counteroffer, ending with the plaintiff accepting a compromise–maybe between 65% and 80% of the original demand. Obviously, if the plaintiff is asking for way too much, or you are not sure that a judge would find that you are liable in the first place, you'll want to offer less or fight the case. Any settlement you make should be set down in writing. (See Chapter 6 for more on how to negotiate.)
Don't rely on being judgment-proof. Some defendants who have no money are tempted not to show up and defend a case in small claims court because they figure that, even if they lose, the plaintiff can't collect. If you have a decent defense, this is not a good idea. Judgments are good for anywhere from five to 20 years, depending on the state (see Chapter 24) and can be renewed, if necessary. Hopefully, you'll get a job or otherwise put a few dollars together sometime in the future and, if so, you probably won't want them immediately taken away to satisfy a small claims judgment that you believe shouldn't have been entered in the first place. So wake up and defend yourself while you can. One possible exception to this "always fight back if you have a decent case" advice is if you plan to declare Chapter 7 bankruptcy. Bankruptcy wipes out most debts, including small claims judgments.
More information on personal bankruptcy. See How to File for Chapter 7 Bankruptcy, by Stephen Elias, Albin Renauer, and Robin Leonard(Nolo).