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Pro se Debt Defense – Easier than you Think

Pro se (Self-Representation) in Debt Litigation – Easier than you Think and Sometimes Even Fun

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 Should You Represent Yourself in Debt Law?

Pro se defense (representing yourself) in debt cases is not as hard as many people fear. You can do it – and you may need to do it.

Although hiring a lawyer might be the “gold standard” of defense, lawyers are always expensive. If a debt collector is suing you, and you can’t afford a lawyer, you still have a chance. You CAN represent yourself. This is not complicated law, debt collectors are not innovative or particularly energetic, and the debt collection system is a “factory” approach. It isn’t designed to work against people who defend themselves intelligently. You can do it and win.

Okay – maybe debt defense isn’t always very fun. In fact, most of the time it isn’t exactly fun, but it is easier than you expect, and winning is great. Going from the threat of having to pay (somehow) $1,000 to $50,000 to some debt collector, to having them drop the case – or to settling with you for pennies on the dollar… that’s fun.

And it changes the way you look at debt and debt law forever.

Pro se legal representation means representing yourself rather than hiring a lawyer to do it for you. You have the right to do that in essentially any court proceeding, whether as defendant or plaintiff. And it doesn’t matter whether the matter is civil (for money) or criminal.

Some Think It’s Scary

Although many people fear the thought of representing themselves in court, pro se representation is not rare. According to National Center on State Courts in 1991-92, 71% of domestic relations (family law) cases had at least one unrepresented party, and in 18% of the cases both parties were pro se.  It is a growing trend in debt collection law as well as family law and other matters.

The right of self-representation has long been established in the United States. It predates even the ratification of the Constitution, as Section 35 of the Judiciary Act of 1789—enacted by the first Congress and signed by President Washington, states that, “in all the courts of the United States, the parties may plead and manage their own causes personally or by the assistance of counsel.” Most states have a similar constitution provision.

Will the Courts Protect You from Mistakes?

The California rules of Civil Procedure explicitly express a preference for resolution of every case on the merits, even if resolution requires excusing inadvertence by a pro se litigant that would otherwise result in a dismissal. The Judicial Council justifies this rule with the argument that “Judges are charged with ascertaining the truth, not just playing referee.” And the Council suggests “the court should take whatever measures may be reasonable and necessary to insure a fair trial.”

Although most states and the federal courts share this bias in favor of hearing courts on “their merits,” (based on what is actually fair), pro se litigants cannot rely on any special treatment. Some courts explicitly will not extend favorable treatment to non-professional litigants.

Pro Se Litigants Often Do Very Well

They may not need any extra help. According to Erica J. Hashimoto, an assistant professor at the Georgia School of Law, criminal defendants are “not necessarily ill-served” by the decision to represent themselves. In state court, pro se defendants charged with felonies probably fared much better than represented defendants. Of the 234 pro se defendants studied by Ms. Hashimoto, “just under 50 percent of them were convicted on any charge….for represented state court defendants, by contrast, a total of 75 percent were convicted of some charge.” And just 26 percent of the pro se defendants ended up with felony convictions, whereas 63 percent of represented defendants in Ms. Hashimoto’s study did. In federal court…the acquittal rate for pro se defendants is virtually identical to the acquittal rate for represented defendants.

Of course there could well be other important variables that the Hashimoto study did not include. It seems clear, however, that there is nothing like an “automatic penalty” for daring to represent yourself. And as I have pointed out many times elsewhere, there are certain types of cases and situations where pro se representation may actually be an advantage.

In debt collection cases, for example, the economic factors often outweigh legal issues, and a vigorous pro se defendant can gain a significant advantage by being able to take energetic steps in his or her favor that a lawyer—always on the clock—would pragmatically be unable to take.

Courts are not always favorable to self-represented people for various reasons. You face a headwind when it comes to the court taking what you say seriously, for example. But even with that bias, pro se plaintiffs have recorded some significant victories in civil courts.

Most members of Your Legal Leg Up, for example, either win their cases outright or reach very satisfying agreements.

Pro Se Representation in Debt Collection Cases

As pointed out above, defendants in debt collection cases have some significant economic advantages in conducting their cases. They also have fewer of the disadvantages that many other types of cases have. This may simply be because debt collection cases tend to be document-intensive rather than witness-intensive. In the somewhat unusual case which actually goes to trial, the evidentiary questions are pretty basic: can the debt collector produce enough evidence? And is their evidence  “admissible” under the rules? That is, do the rules let the court consider it?

You almost never need to call a witness in debt cases.

This basic legal simplicity, the fact that debt defendants obviously did not seek out and initiate the suit, and the general economic difference between typical debt defendants and plaintiffs often seem to create a favorable impression on the judges.

Protect Your Rights

If debt collectors are contacting you, you need to be alert to protect your rights. These calls are often a prelude to their suing you. You might consider membership with our site, which gets you our ecourses for free, plus gives you many other benefits.Check out some of our e-courses. Or consider our prepaid legal plan to protect you from future possible litigation. With that, if a debt collector sues you, you’ll get a lawyer to defend you for free.

 

What if I Really (Think) I Owe the Money?

What If I Really Do Owe the Money?

Or Think I Do?

Think you owe

What if a debt collector sues you for a debt and think you really owe the money? Should you defend yourself from the suit?

Debt collectors often sue the wrong people and usually overcharge. If you don’t defend, you run the risk of having to pay twice. And if you do defend yourself, you probably won’t have to pay at all. If that bothers you, give the money to somebody who really needs it.

Most People Debt Collectors Sue May Actually Owe Someone Some Money

 

If a debt collector is suing you, you probably think you owe them the money. Or think you owe someone the money, although it’s surprising how often people who do NOT owe anybody any money get sued. If that’s you – you still need to fight the case, it won’t go away by itself. But if you actually do owe somebody the money for which you are being sued, you still need to be careful.

And you should still defend yourself as well as you can.

You must make the debt collector prove every part of its case. This includes not only that you owe the money, but that you owe it to them. And exactly how much you supposedly owe. That’s because old debts get sold – often more than once – and if you don’t make the debt collector prove it owns the debt, you may pay the wrong person. And then you might have to pay again if the person that actually owns the debt sues you.

In addition, most people do not owe what the debt collectors are trying to collect. They routinely add fees and interest they should not, and consumer protections agencies and organizations say that almost all debt collection suits include extra charges. Many of them are for far more than is owed.

The Good News

The good news about debt collectors is that they usually CANNOT prove their cases if you make put them to the test. The whole process by which they get these debts is so sloppy and careless that they usually cannot find or obtain the proof that they need to win their case. IF you defend yourself.

Get Help

If you would like us to take a look at your case and give you a sort of roadmap to what you need to do and how, take a look at our Personalized Evaluation product. If a debt collector is suing you and you know you want to defend yourself without spending a lot of money on lawyers, then get out Debt Defense System.

Protect Your Rights

If debt collectors are harassing you, you need to be alert to protect your rights. These calls are often a prelude to their suing you. You might consider membership with our site, which gets you our ecourses for free, plus gives you many other benefits.Check out some of our e-courses. Or consider our prepaid legal plan to protect you from future possible litigation. With that, if they do sue you, you’ll get a lawyer to defend you for free.

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Platinum Debt Defense System

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How to Answer the Petition When You’re Sued for Debt

How to Answer the Petition When You’re Sued for Debt

When you’re sued for debt, one of the first things you have to do is write and file an Answer. This is your formal response to the lawsuit. You could lose the case very easily usually automatically –  until you do. Luckily, it isn’t hard, and this video and article  will show you how. For more detailed information and help on fighting and winning your suit against the debt collector, get the Debt Defense System.

 

Answering a petition in a debt law case is actually very simple. Keeping in mind that it is up to the plaintiff to prove its case if you deny a part of the petition, there is little incentive to admit anything.

Should you Admit or Deny?

Pro se defendants also frequently overestimate the things they should admit. For example, you may know that you borrowed some money or used a credit card, but do you really know how much you borrowed or whether all the charges were legitimate? Do you know for sure that you did not pay some of the debt or that you truly, legally, owed every amount claimed? And do you know with certainty even that the company suing you owns the debt at all?

In most cases, the answers to these questions is legitimately “no.”

Most people do not keep careful enough track of their credit card bills (or other bills) to need to admit either the fact or amount of debt. And there’s really no way you could know whether you owe anything to a third-party debt collector.

With those things in mind, answering the petition is easy. It will usually go something like this:

  1. Deny.
  2. Deny.
  3. Deny.

The reason an Answer is so easy is that the pleadings stage – the petition and answer – really exist just to tell the court what issues need to be proved. Since you want the debt collector to prove its whole case, you deny every allegation.

There’s Much More to Pro Se Defense

Of course that’s just the first step in the process of defending yourself. You will also need to consider whether you have a counterclaim. If so, you should submit that as part of your Answer. And then you need to try to win the case. The Answer frames the issues, and you will need to conduct discovery and do some legal research to win the case. It isn’t always easy, but putting up a legitimate fight is within the ability of anyone. And fighting is often all you need to do to win.

 

Who is a Debt Collector after Santander Case

Debt collectors are governed by the Fair Debt Collection Practices Act (FDCPA). If you are able to make a counterclaim under that Act, you will improve your defense. Thus the questions are, who is a debt collector, and how do you show that the person suing you is one.

The Supreme Court  issued rulings in 2017 that will make it more difficult for debt defendants to obtain legal representation and will cause debt collectors to engage in more deceptive, dishonest and abusive behavior. Nevertheless, most people will still be able to sue debt collectors. We discuss how after our discussion of the Santander case.

Fair Debt Collection Practices Act

When Congress passed the FDCPA, debt collectors were such a problem that they were a threat to the American way of life. The FDCPA was therefore designed to prevent fraud, deception and unfairness in general in the collection of debts. Congress named numerous specific actions as “per se” violations of the Act and also included the more general description of “unfair” debt collection practices.

It wanted to prevent debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce, applying just half of the statutory definition of “debt collector” to a case and finding that, under that half of the definition, junk debt buyers were not debt collectors.

Real-Life Debt Collection

In most debt cases, creditors sell charged-off debt to debt buyers who exist to collect that money by hook or crook. They used to hire debt collectors to collect on debts and paid them from the proceeds, Creditors now get their money first and let the debt collectors take theirs from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has repeatedly said that it would not allow parties to elevate form over substance to evade the impact of laws . Santander does exactly that.

One could also characterize the Court’s ruling as dishonest. It only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The court’s decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors.

How the FDCPA Defines “Debt Collector”

Look at the part of the definition preceding the language in question to get a truer view of the statute’s clear intention.

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis)

Doesn’t it seem reasonable to read “any debts” literally, so that if the principal purpose of a business is to collect debts, they’re a debt collector? Of course it does, and that would obviously include businesses that exist to purchase debts and collect on them.

Supreme Court is AGAINST Debt Defendants

The Court opinion glibly slides over that, saying that “the parties haven’t much litigated that alternative definition of debt collector and in granting certiorari we didn’t agree to consider it, either.” Santander, Slip Op. at 5. In other words, the Supreme Court agreed to hear only so much of the case as allowed them to shove a dagger into the apparent heart of the FDCPA – not enough of the case to show what the FDCPA actually intended or to do justice.

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. On the other hand, the decision looks like a court in search of a justification for a desired outcome, and is a negative indication for the Court’s integrity. Particularly in the context of its decision in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), it shows actual hostility to the laws that protect consumers from debt collectors and a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector.”

Pleading that a Junk Debt Buyer is a “Debt Collector”

The Supreme Court limited its decision to the “regularly collected” language. Why? Probably because debt defendants have normally found it easy to prove a company “regularly collected” debts. In the Eighth Circuit, law firms representing collectors in three to five cases per year are“regularly collecting” debts.

Under fact pleading rules, one must plead facts constituting a basis for your legal conclusion. So debt defendants routinely allege something like the following:

Heartless, Ruthless and Merciless, represent debt collectors in dozens of lawsuits attempting to collect debts per year. They are, therefore, debt collectors, and

Heartless Debt Collector, Inc., regularly sues persons for debts purchased after default…

Use of “Regularly Collects” Debts Language

Debt defendants have typically used “regularly collected” because it is easy to demonstrate as a matter of public record. Establishing a business’s “principal purpose” will now be much more difficult. My attempts to find an authoritative definition for “principal purpose” of a business turned up zero cases. No doubt there are some cases that address the issue, but certainly not many.

Many court decisions include the term “principal purpose.”  But they use it generically, as a synonym for “main” or “major.”

I found no cases quantifying the term in any way. So it isn’t clear how much of any other purpose would be enough.

Debt buyers who purchase billions of dollars of debt for no other purpose than to collect it. But they will argue that their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible. But they will claim all manner of beneficial purposes for their activities.

This will alter the nature of the proof required to establish that the company is a debt collector. Information regarding a business’s “principal purpose” will be in the possession of the debt collector. Thus parties attempting to obtain that information will encounter the usual tricks when they try to get it. Expect the same series of stone walls, delays and unethical and oppressive litigation strategies debt collectors usually use. (Fortunately, this can be a double-edged sword. We train our members at Your Legal Leg Up to use this to their advantage.)

Debt defendants must now allege and attempt to prove the debt collector’s main business is to collect debts.

What Debt Defendants Should Do

Debt defendants have all the same defenses to debt lawsuits they ever did – or almost all of them. Santander applies very little to the defense of debt suits.

To state claims under the FDCPA, you need to allege the company’s principle business is the collection of debts. You should probably allege they buy debts from others for the purposes of collection. And that they provide no significant service to the debtors.

Verification of Debt – Don’t Let the Right Turn You into a Sucker

Don’t be a Verification Sucker – Request for Verification is NOT a Substitute for an Answer

 

Debt verification (also called “validation”) of your debt is an important right. If the debt collector brings suit, though, it’s too late. Demanding validation will NOT prevent a default judgment if you try it after the debt collector brings suit. In fact, a lawsuit does NOT trigger the right to verification at all.

People in debt trouble hear a lot about debt validation, and it can be a valuable right. Even though it requires little from the debt collector, making the demand seems to cause some debt collectors to go away. It will at least send a signal to the debt collector that you will defend your rights.

If the debt collector has filed suit, you must defend the lawsuit and file an answer (or appropriate motion) in court. If you don’t answer, the debt collector usually gets a default judgment. That effectively ends your rights to fight the debt.

That’s because, under the Fair Debt Collection Practices Act (FDCPA), filing suit is not an “initial contact” for purposes of verification. Validation is designed to keep debt collectors from suing the wrong people. After they file suit, it’s too late for that. Instead, the courts will decide.

Or so goes the legal precedent. The debt collectors know – and we all know – that most people do not protect themselves in court.

Make sure you do. You have to file an answer or the appropriate motion to do this.

Conclusion

When a debt collector (or creditor) files suit against you, you will have to file an answer in court to avoid a default judgment. Many people think all they have to do is “dispute the debt and request verification.” The right to verification, however, applies only to collection efforts that are not part of a lawsuit. Don’t be a verification sucker – file an Answer and defend yourself.

Uniform Commercial Code (UCC) – NOT a Key to Debt Defense – Myths and Facts about the UCC

Many people think that the Uniform Commercial Code (UCC) offers consumers special protections from debt collectors. It does not.

Like the Strawman theory, the U.C.C. is a slender reed to support your hopes of avoiding or defeating creditors and debt collectors. Because in fact it does essentially nothing to help. We’ll discuss the U.C.C. and then tell you what you should be doing instead of tripping over strawmen below.

What is the Uniform Commercial Code?

Most people think of themselves in terms of their nationality (i.e., “I’m American). While most Americans do know that states have different laws , our daily lives rarely expose us to these different laws and their consequences.

It wasn’t always that way, though. Up until the 1930s, perhaps, state laws had priority in most people’s lives, and those laws could vary widely. It could be hard to know where to sue someone or what laws applied to specific actions. And that’s still true, to an extent, but. Since the 1930s, however, it has been progressively less true. The federal government has grown in size and function. Also, the states have sought uniformity in their laws because there is so much interaction between their citizens.

Part of the reason the states have worked together more smoothly has been the UCC.  What happens is that some think tank convenes a task force and asks it to codify existing (state) laws and make recommendations as to where those laws might be changed to become more uniform or fairer.

There’s a good reason for this. Laws can grow like weeds, and bringing uniformity to them can help people plan so they can know what to do.

Who Made the U.C.C.?

Two nongovernmental legal organizations created the U.C.C. These are the National Conference of Commissioners on Uniform State Laws and the American Law Institute.

The UCC, standing alone, has no legal authority or power at all.

That isn’t to say the UCC is not significant, but it is a document created by a bunch of academics and has no independent force or impact on anybody. So in a sense, when anyone says the U.C.C. does anything (at all), they’re wrong. It does nothing.

Why the U.C.C. Matters

So why is the UCC a big deal?

It’s a big deal because all the states have adopted some portions of it. But not all states have adopted the same parts of it. You see, the drafters of the UCC knew that states had different laws on certain things – laws that had evolved over time and not accidentally. The UCC was designed to help legislators bring order to what was there, not force them to have the same laws.

Remember, legislatures make laws, not think tanks.

If parts of the U.C.C. have become law in your state, they will be reflected in your state laws. You should look for the law in your state laws and not the U.C.C. itself. Likewise, I trust you can see that since the portions of the UCC that were adopted are just part of your state law they do NOT trump other laws and have no special, magical power. Likewise, as state laws they do not trump federal laws.

U.C.C. was Written for Business

The drafters of the U.C.C. were mainly concerned with the rights and duties of businesses towards each other. They were much less concerned with consumers.

That makes sense, and I mean no criticism by the statement. After all, it’s the “commercial” code. It was designed to regulate the way businesses make contracts or treat breaches of contracts. It’s purpose was only coincidentally people friendly. That is, the drafters believed that if businesses run more smoothly, they will improve everybody’s standard of living. That makes sense, doesn’t it?

On the other hand, the drafters were much less concerned about consumer rights against business. They knew that there was another body of law governing consumer rights.

UCC’s Impact on Debt Collectors

The U.C.C.’s impact on debt collectors is almost zero. Again, this is not a conspiracy. It’s just that debt collectors rarely engage in “commercial” law regarding debtors. They buy the accounts, of course, and the U.C.C. will say something about the way those transactions between original creditor and debt buyer operates. But the essence of debt collection is that the debt collector has nothing to do with the purchase of goods.

Two Small Exceptions

There are a couple of small exceptions to that statement. First, if you bought property or a service from an original creditor and rejected it,  your state’s version of the U.C.C. will tell you what to do with the inadequate goods. It could give you certain types of liens as well. Second, if you have rights against the creditor, the U.C.C. may provide for their transference to the debt collector. That is, if the original creditor breached its contract with you, you may be able to sue the debt collector who buys the debt. Federal law requires that states have this law, but the U.C.C. might have some related protections.

Help for People Harassed or Sued by Debt Collectors

When people say “the U.C.C. does this or that,” or “requires this or that,” they’re showing you they do not really understand the law. Don’t look to these people to tell you how to beat the debt collectors.

You CAN beat the debt collectors in many cases, and without even having to hire a lawyer – but your solutions will most often be in consumer protection laws like the Fair Debt Collection Practices Act or Fair Credit Reporting Act, or in the normal rules of the court.

We help you do that.

Assignment Contract – Holy Grail of Debt Defense

An assignment contract provides the “terms and conditions” of mass debt sales. If you can force the debt collector to give it to you, you improve your chance of defending yourself in a debt lawsuit. We discuss why in the video and text below.

The Actual Assignment Contract is BIG

The bill of sale is not an assignment contract. It is essentially a note (that could be many pages long) that refers to the sale of property. The terms of sale are important, but they are in the assignment contract rather than the bill of sale. They will help you decide what the debt collector has or could get for trial. They could also affect who the “real” owner of the debt is. Also, the debt collectors hate for you to get this document. Fighting for it may cause them to drop your case.

No Magic Bullets

We say there are “no magic bullets” in debt defense. Every so often, though, we find a few things that seem almost like they would or should be. However, the sort of “magic bullets” we refer to, and that don’t work, are simple, formulaic things. Think writing the word “refused” on the summons or claiming it is illegal to use your name.

If you think these might work, you are not using common sense. And if you think using all capital letters matters in some way, you are just wrong. But some people claim these things will bring you easy victory. However, spending energy on them is more likely to hurt your case than help it.

Certain things, however, can make a dramatic impact on your case. They won’t magically end the fight or reliably make the debt collectors go away all by themselves. But they can make a big difference if you know what to do with them. One of these things is the Assignment Contract. That’s the agreement assigning the debt in question from the original creditor to the debt collector. In many cases debt collectors would rather lose the case than give you the contract.

What is an Assignment Contract?

An assignment contract is the contract between the original creditor and the debt collector. The original creditor sells (large numbers of) debts to the debt collector according to certain terms. Selling debts is perfectly legal and is a widespread and commercially reasonable thing to do. Unless your contract with the original creditor prohibits transfer or assignment(very rare in consumer debt), there’s nothing wrong with doing it.

You don’t expect these things to be done on an individual basis, though, do you? No. Consumer debts are bought and sold by the hundreds of thousands at a time. The original creditors – often banks, utilities like phone companies, or gyms – create “portfolios” of debt which they sell to junk debt buyers according to certain terms. These terms are found in the assignment contracts, and assignment contacts are not little things. They are lengthy contracts of 20-30 pages that apply to all of the debts bought and sold in a given transaction.

The assignment contracts set the rules for what the debt collector can get from the original creditor if it needs to sue to collect the debts. I provides for how long the original creditor has to provide the material, and how much getting that information will cost. The contracts have many interesting features, and the debt collectors will assuredly NOT want you to see them. In fact, in many cases, the debt collectors would rather dismiss their case against you than let you see the contract.

Not Bills of Sale

Assignment contracts are not bills of sale. The bill of sale is a one-page document that says something “All the debts identified in Exhibit A, attached, are hereby sold and assigned to Company X.” It could also be a bit longer than that, but the main thing is that it does not outline the rules of the deal in detail. As we have often pointed out, debt collectors often hate to provide the bill of sale or, more often, the accounts subject to a bill of sale.

But they REALLY don’t want to give you the assignment contract.

What the Assignment Contracts Contain (that Debt Collectors Don’t Want you to See)

There are two main things the assignment contracts contain that debt collectors do not want you to know about. They don’t want you to know what they think of their own records, and they don’t want you to know how much time, and how much money, it takes for them to obtain records from the original creditors.

Debts are Sold “As Is”

As you will notice if you take the time to read through the assignment contracts, original creditors sell debts to debt collectors “as is” and without any warranty. Specifically, that means that the original creditor specifically disclaims any guarantee that the debts or supporting information they’re selling to the debt collectors are legitimate, accurate, or trustworthy.

The natural and intuitive conclusion is that the records are NOT reliably accurate. Nevertheless, some courts have ruled that they are sufficiently trustworthy to justify admission of the documents in question. The argument needed to use lack of warranty is therefore sophisticated.

Documents will Take Time and Cost the Debt Collector Money

Another important fact about the Assignment Contracts is that they usually establish that the debt collector can obtain certain specific documents from a certain, very small percentage of debts. And the original creditors give themselves a minimum of sixty (60) days to provide requested information upon receiving the request. Both of these facts are hugely important to people representing themselves pro se – and for the pro se movement at large.

Sixty days is longer than the amount of time permitted in any state’s rules of discovery of which we are aware. That means, in plain English, that if you request documents, the debt collector will never be able to provide you documents within the time permitted by law. They can get extensions – the courts are generous with time, normally – but even with extensions they may not be able to provide the documents within the required time. Therefore, you should push hard to get the information.

It may even be that in California this arrangement violates the California Rules of Civil Procedure – and you have an even more powerful weapon at your disposal to attack their case.

It is important that the original creditors charge for documents and only require themselves to provide documents in a small percentage of the debts. If EVERYONE asked for documents, the costs might bury the debt collectors. And the delays would likely make it impossible for them to answer discovery at all. They would have to change their whole way of doing business.

Another Way to Attack the Debt Collectors

You don’t have to have the Assignment Contracts to make life harder for debt collectors and better for you.  If the debt collectors after you use credit damage as a collection tool, this gives you an advantage. You can start the ball rolling even faster than through formal discovery.

Get your credit report. If you find them on there and dispute the debt under the FCRA, they get thirty (30) days to “conduct a reasonable investigation” into the dispute. They can’t get the information in most cases in less than 60 days. They will either have to withdraw the negative information or you can sue them for that. The FCRA gives you attorney fees if you win that suit, so you may get a lawyer for free.

If they do withdraw the reference, you might use that against them in defending their suit against you.

Press – Hard – for the Assignment Contract

Under all the circumstances, you should use the discovery process to get the assignment contracts.  Debt collectors do not want to provide this to you. They will lie about its existence, deceive you if they can, and stonewall you to the limits of their ability. We are developing tools for our members to use to make this fight a little easier.

[1] There are groups of people who energetically claim that things like this make a difference. They can’t point to a strong case opinion that backs them up, but this doesn’t stop them.

Supreme Court Attacks FDCPA – Defending Pro Se in Debt Defense Cases

Defending pro se may have just become an even more important option for debt defendants.

The Supreme Court has recently damaged debt defendants’ rights with two very important decisions. These decisions attack the Fair Debt Collection Practices Act (FDCPA). One allows debt collectors to bombard the bankruptcy courts with outdated claims. The other holds that junk debt buyers are not “debt collectors” under one important definition of the FDCPA.  Together, these rulings change the landscape of defense. One thing is clear: you need to know your rights more now than ever.  Defending pro se may be the only kind of debt defense you can get anymore.

Pro Se Defense

Let’s start with what “defending pro se” is.  Pro se means representing yourself in a lawsuit. This eliminates big legal fees, but it ALSO means taking on the burdens and risks of defending yourself. Hiring the right lawyer is the “gold standard” of defense, but hiring lawyers is expensive. Additionally, recent Supreme Court rulings will make it harder to get a debt lawyer at all. Still, in most debt cases people can handle their own defense. The law is not complicated, and debt cases are document, rather than witness, intensive. Defending pro se even has some significant advantages in the debt law context.

Who is a Debt Collector

In Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17), the Supreme Court ruled that junk debt buyers are not“debt collectors” under one provision of the Fair Debt Collection Practices Act (FDCPA). I discuss that case, its impact, and what action people need to take regarding it, in my article and video, “Who Is a Debt Collector – Supreme Court Tries to Destroy the Fair Debt Collection Practices Act and what to Do about that.” In general, the effect of Santander is to make it more difficult to establish that a junk debt buyer is a debt collector, and it may signify that the Supreme Court would not let you sue junk debt buyers under the FDCPA at all.

Harder to Get a Lawyer

Santander is going to make it more difficult for you to get a lawyer to defend you in a debt case – and more expensive if you can get one. That’s because the FDCPA applies only to debt collectors and gives you certain counterclaims, and certain defenses, that make defending you easier. The FDCPA also includes a “fee-shifting” provision which allows a consumer to make a debt collector pay for most of the time a lawyer spends on a case. These things – ease of defense and a rich company to pay fees – make FDCPA cases attractive to lawyers. Take away the FDCPA, and the lawyers are going to have to charge more – a LOT more. And they simply won’t take as many cases because they’re harder. This means that debt law defendants, already drastically underrepresented, are going to find it much more difficult to hire lawyers. Defending pro se has become a much more important option.

Debt Collectors Will Run Wild

The decision in Santander threatens to neutralize the FDCPA and let junk debt buyers – who now make up the vast majority of debt collectors – run completely wild. They will be much freer to abuse, deceive, harass – in short, all the tricks that brought about the FDCPA in the first place because the laws regulating them will have been predominantly removed. At the same time it makes getting a lawyer much more difficult, the decision in Santander will likely result in a large number of new and wrong lawsuits. HOWEVER, Santander does not negate any (or very few, anyway) of your defenses in a debt law case, and it does not reduce the burden of proof for debt collectors. You can still win, in other words, but you very well may have to do it yourself.

Bankrupts Beware

Bankruptcy is one refuge debtors have from debt collectors. In general, you can file bankruptcy and force all your creditors to stop contacting you and, instead, file their claims in your bankruptcy action. In theory, the court will then either grant those claims or deny them according to what is right. The dirty little secret of bankruptcy, though, is that if claims are not disputed, they are generally granted. In bankruptcy cases brought by poor people (you can bet Donald Trump never had this problem), the lawyers representing the bankrupts have little incentive to dispute wrongful claims. There’s a U.S. trustee who is supposed to oversee the process and protect the bankrupt and legitimate creditors from bad claims, but guess what?

They usually don’t.

So bad claims get allowed. In most bankruptcies, allowing a bad claim means that it’s going to get paid (eventually) by the person filing for bankruptcy.

Junk Debt Buyers Make Things Worse

Enter the junk debt buyers. They buy LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts and everyone involved down. As a practical matter this results in people paying billions to debt collectors who have no right to collect. This crushes people who declared bankruptcy and rips off legitimate creditors whose debts get paid at a lower rate.

Some debtors were suing debt collectors under the FDCPA for filing outdated claims in bankruptcy.  The FDCPA has a “fee-shifting provision,” that means consumer lawyers who win make the debt collectors pay their fees. That gave debtors’ bankruptcy lawyers at least some financial incentive to bring these claims and dispute unenforceable claims. They were doing so as part of the bankruptcy proceedings, and the debtors were also bringing suit outside of the bankruptcy context as well.

FDCPA Does Not Apply In Bankruptcy

The Supreme Court negated the FDCPA’s protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that they know are unenforceable in an ordinary court (and would violate the FDCPA if filed there).  For a fuller discussion of that case, look at my article and video, “Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims.”

Midland Funding means, in practical effect, that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has LITTLE (personal) incentive to challenge bad claims, and likewise the U.S. Trustee has VERY LITTLE time (or incentive) to do it. If the court allows the claims, you will probably have to pay them in all likelihood. That means that even if you file for bankruptcy you must prepare to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se despite having a bankruptcy lawyer.

Defending Pro Se

The Supreme Court’s decisions in Henson and Santander mean debt defendants will get much less help from lawyers. These cases are still possible to defend against and win – they’re as easy as any law gets, probably. Because so many fewer defendants will fight, you will probably have even better chances of winning YOURS. It’s less profitable for debt collectors to fight now because they will have so many more easy wins. But you are more likely to have to do it yourself now than ever.

Make it hard for them.

 

Henson v. Santander – Supreme Court Attacks the FDCPA

In Henson et al. v. Santander Consumer USA, Inc., (“Santander”), the Supreme Court hurt the FDCPA and attacked the rights of consumers. Its ruling means that the FDCPA will no longer apply to most debt collectors. This decision will make it far more difficult for debt defendants to obtain legal representation. And it will cause debt collectors to engage in more deceptive, dishonest and abusive behavior.

If you are facing debt collectors, you should know your rights and may need to defend yourself pro se.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) became law In 1978. Debt collectors were so corrupt and destructive  Congress they were a “threat to the American way of life.”  Congress named numerous specific actions as “per se” violations of the Act. It also included the more general descriptions of “unfair,” “unconscionable,” and “deceptive” debt collection practices as illegal actions. Congress wanted to keep debt collectors from changing the forms their actions took without changing what they were basically doing.

The Supreme Court has just reduced that Congressional intent to a farce. Its ruling in Santander guarantees more dishonest, careless and abusive debt collection techniques. It means consumers and honest businesses will support the worst scavengers in the world.

Real-Life Debt Collection

Instead of holding it for collection, creditors usually sell charged-off debt to debt buyers these days. When debt buyers buy a debt, their only purpose is to collect that money by hook or by crook. Creditors used to hire debt collectors to collect on debts and pay them out of the proceeds. Now they get their money first. The debt collectors take their money from the debtors. All that has happened is that nominal ownership of the debt has changed. In other words, debt collectors have assumed a different form to pursue the very same activities.

Henson et al. v. Santander Consumer USA, Inc.

The Supreme Court has not allowed parties to change the form of their actions to evade the impact of laws. Santander cheerfully elevates form over substance, however. The same actors will perform the same abhorrent deeds that the FDCPA was designed to prevent.

One could consider the Court’s ruling dishonest in that it only analyzed half of the definition of “debt collectors.” In looking at Section 1692a(6), the court examined the defining language as “any person… who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The decision then repeatedly referred to and emphasized the words “due another,” arguing that companies were only debt collectors if they fit that traditional form of collectors. In the Supreme Court’s view, debts which had long belonged to another but were sold for purposes of collection, change their nature when sold. Junk debt buyers are collecting on their own debts, not debts due another.

How the FDCPA Defines “Debt Collector”

We should look at the whole definition of “debt collector” to get a truer view of the statute’s intention.

The term “debt collector” means any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Section 1692a(6) (underlined portion is the part ignored by the Supreme Court in Santander, italicized word “any” is for emphasis).

The Court ignored the underlined portion of the definition because the debt collector at issue in the case was a bank. The parties agreed that Santander’s principal purpose was not the “collection of debts.” But the Court should not have ignored that portion of the definition, as its broadness showed congressional intention to get all “functional” debt collectors. Taking note of that intent, the Court should have read “debts owed… to another” to keep their substance despite the debt’s sale. Doing so would have prevented debt collectors from changing the NATURE of the debt merely by selling it to another party. This would have honored congressional intent and protected consumers.

Why the Court Did What it Did

Why didn’t the Supreme Court look at the whole statutory definition of “debt collector?”

The surface reason was that Santander was a bank – and the parties agreed that its business was not principally collecting debts. But that’s really only the surface fact. It would not have stopped the Court from considering the entire definition to garner congressional intention. And it wouldn’t have prevented the Court from giving a reasoned decision on the whole statute anyway. The Supreme Court grants certiorari only in a very small percentage of cases, and it has had numerous opportunities to examine the whole reality of debt collection. It chose the issue it wanted to address deliberately.

Plaintiffs in FCPA cases have usually relied on the “regularly collecting” debts language because it is easier to show than “principal purpose.”

Establishing a business’s “principal purpose” will be much more difficult. Few case use the term “principal purpose” of a business. While there must be some cases that address the issue, there are not many. Courts often use the the term “principal purpose” in judicial decisions, but its use is primarily generic.  Opinions use the words  as a synonym for “main” or “major.” I found no cases quantifying the term in any way.

“Principal Purpose” Is Hard to Prove

Junk debt buyers, who purchase billions of dollars of debt for no other purpose than to collect it in any way they can, will argue they are not debt collectors. They will claim their “principal purpose” is to “service” that debt. In their lexicon that really means extort payment in as many ways, over as long a period, as possible.

Or they will make up some other reason or claim.

This will alter the nature of the proof required to establish that the company is a debt collector. Rather than being a matter of public record, information regarding a business’s “principal purpose” will be in the possession of the debt collector. That means that parties attempting to obtain that information will have to use discovery to find it. Thus they will encounter the same stone walls, delays and unethical and oppressive litigation techniques they encounter in their other discovery attempts.

Considering the current ideology and integrity of the Supreme Court, of which debt collectors are very well aware, who knows what the courts will officially “believe?” As a debt defendant, you must now allege and prove that the debt collector’s main business is to collect debts. The judicial wind will be in your face.

Reading the Supreme Court

In theory, the decision in Santander leaves open the possibility that this “alternative” definition would extend the meaning of “debt collector” to junk debt buyers. The decision shows a court in search of a justification for a desired outcome – you should view it as a negative indication for the Court’s integrity.

Santander and another recent case, Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17) (see my article, “Opening the Floodgates of Bad Claims”), show actual hostility to the laws that protect consumers. They also show a willingness to engage in intellectually dishonest games to destroy them. As a practical matter, it will likely be several years before the Supreme Court revisits the definition of “debt collector” and applies the entire definition to the question of junk debt buyers.

What Debt Defendants Should Do

Debt defendants have almost all the same defenses to debt lawsuits they ever did. Santander applies very little to the defense of debt suits.

On the other hand, many and perhaps most lawyers are going to be scared away from taking debt cases. Many lawyers who do not understand Santander will simply regard the FDCPA as not applying to junk debt buyers. That is almost all the debt collectors in litigation these days. These lawyers won’t take debt defense cases or will charge much more for them. They will accomplish much less than they would have, too, because they will not counterclaim on your behalf. Lawyers who understand Santander will charge more and warn clients that winning is less likely than it used to be.

This means that far more debt defendants will be on their own.

Expect to see a motion to dismiss based on Santander if you currently have a counterclaim under the FDCPA. I believe you will want to amend your counterclaim to include the “principal purpose” language mentioned above. You will also need to conduct discovery designed to prove the company’s principal purpose.

Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims

Debtors often see bankruptcy as one refuge from debt collectors, but the Supreme Court has recently made things much worse. In Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17), the Court held that filing outdated claims in bankruptcy court does not violate the Fair Debt Collection Practices Act (FDCPA). If you are in bankruptcy or considering it, this is huge. It could mean having to pay more if you file for bankruptcy than if you don’t.

What Bankruptcy Does

In general, if your debts get too bad, you can file bankruptcy and force all your creditors to stop contacting you. They have to file claims in your bankruptcy action, and the court will either “allow” those claims or deny them. If the court allows a claim, you will have to pay some fraction of it (or all of it). The court then determines the amount of payments you must make, over what period of time, and you do your best to do that.

If you succeed, you will receive a “discharge” – this eliminates all the debts disallowed and the fraction of your debts that you don’t have to pay under the plan. This is this “fresh start” that lures most people into the bankruptcy process.

It isn’t an easy path, and most bankruptcies are dismissed without “discharge.”  I have often taken the position that bankruptcy is NOT an appropriate solution for most people facing debt collectors. See my  article, Is Bankruptcy the Best Option for you? and  Bankruptcy May Not Be the Best Option When Sued for Debt, for example. The Supreme Court has made that analysis even more powerful.

Courts Allow Uncontested Claims

The dirty little secret of bankruptcy is that if claims are not disputed, the courts generally allow them. In bankruptcy cases of people without much money, the lawyers representing the bankrupts have little (personal) incentive to dispute wrongful claims. They get their pay out of the scanty resources of their clients.

The U.S. trustee who oversees the process should protect the bankrupt and legitimate creditors from bad claims, but guess what?They often don’t. Likewise, the court should winnow out bad claims, but given the number of bankruptcies and their complexity, they often do not.

Under current realities, poor people pay a lot of bad claims.

Junk Debt Buyers Seek to Exploit the System

Enter the junk debt buyers to make things much worse. They buy vast amounts of LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts, the trustees, and bankruptcy lawyers down. The more bad claims they file, the more get through because of carelessness. They should NEVER get through, because an unenforceable claim should ALWAYS be denied under bankruptcy rules. But they often do.

The Trap of Res Judicata

Paying some part of bad claims in bankruptcy is bad, but what happens if your bankruptcy, like most, ends without discharge. What if, for some reason you fall short and don’t get your “fresh start?” What happens then?

Res judicata is the rule that if an issue has been, or could have been decided by a court, it can’t be relitigated.  If a bankruptcy court has allowed a claim – even if it did so by mistake or simply because it was not disputed, you may not be able to dispute the claim in another court later.  And even if a claim would have been illegal to bring in a state court originally, if you file bankruptcy and the claim is allowed, you will probably have to pay full value on the claim later.

Bad claims hurt the chances of the bankrupts to get their fresh start. They hurt the chances of the legitimate creditors to get paid. And they make the whole process stink to high heaven of injustice. Allowing a bunch of hoodlums in fancy suits to steal wholesale from the poor damages the legal system at its very core.

The FDCPA used to offer some protection against that, but the Supreme Court negated that protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that would be illegal if filed in other courts.

Midland Funding, LLC v. Johnson

The relevant facts in Midland Funding are very simple. Midland, a junk debt buyer, was buying extremely old debts for very small amounts of money. They were using these debts, which were far beyond the statutes of limitations, as the basis for many claims in bankruptcy. Johnson opposed and got the claim in that case disallowed, and then filed suit in district court under the FDCPA, alleging that the claim had been unfair or unconscionable. The essence of Johnson’s claim was that filing obviously time-barred claims in a bankruptcy proceeding was an unfair debt collection practice.

The Supreme Court ruled that it was not.

There is no need to review (here) the tortured logic that effectively immunizes from consequences the intentional doing of something that never, under any circumstances, should be allowed. The state of the law simply is this: debt collectors can file obviously unenforceable claims in bankruptcy without worrying about the FDCPA. That means there’s a big risk that you will pay them if you aren’t looking out for them.

Result Possibly Different if you Allege Deception

There is perhaps one glimmer of light in this very bad decision. The Supreme Court was addressing “obviously outdated” claims. What Midland was doing was buying obviously unenforceable claims and hoping they would be overlooked and erroneously allowed. While this obviousness is one main way a debt collector’s intention to file outdated claims would be known, the obviousness was also a reason the Court found that the claims were not “deceptive.” What if the claims were known to be outdated by the debt collector but were not obviously so? Facts like that, or similar facts tending to show some actual intent to deceive would present difficult evidentiary issues, but the case could arise and might tip the balance in the other direction.

Conclusion

What the Midland Funding case means is that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has VERY LITTLE incentive to challenge bad claims. The U.S. Trustee and court probably won’t protect you either.

If the claims are allowed, you will probably have to pay them. That means that even if you file for bankruptcy you must be prepared to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se. You’re probably not going to get much help from your lawyer on this one.