Yes, you can be sued even though you live in a different state, if there was sufficient connection to the state in which they are suing--that is, for example, the person or business who loaned you the money is in that state. If there is no real connection to the state in which you are sued, you may be able to get the suit dismissed for lack of jurisdiction; also, you should check that state's small claims court rules (you can probably find them on the court website)--some small claims courts can only handle cases where all the parties live in state (or sometimes even in that county!), though in that case, if you get the matter dismissed on that ground, they could just refile in regular state court, which could handle the lawsuit, so long as the sufficient connection exists with the state.Assuming that the court they brought the matter in can handle a case against an out-of-state defendant and there is enough connection to that state to support jurisdiction, then if you cannot settle the case ahead of time and it goes to trial, you would have to appear or else you lose the case, either by default or through not being able to provide testimony to refute their evidence.