Category Archives: Fair Debt Collection Practices Act

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 In Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17), the Court held that filing outdated claims in bankruptcy court does not violate the Fair Debt Collection Practices Act (FDCPA).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.

Excuses in Debt Defense Will Lose Your Case

Making excuses will lose your case
Making excuses will lose your case

Sincerity vs. Integrity

Making excuses in debt law cases is a good way to lose your case.

The “iron law of cause and effect” applies to everything. What this means is that, for every action, something happens as a result. No matter why it happened, if it does happen, there are consequences. There are no free lunches. Ever.

You know that. But it’s easy to forget when things get tough.

We pretend the iron law of cause and effect does not apply to us all the time. If we’re late, we apologize, and that’s usually enough to get past the other person’s anger or hurt feelings. If we apologize sincerely enough or give enough good reasons, it seems like we get away with it. But it isn’t called the “iron law” for nothing. Even if the other person excuses us, he thinks we are less dependable. And if the other person doesn’t, we think of it ourselves. Consequences.

Sincerity means not intending to do harm. Integrity means not doing it. Know the difference.

Substantive Law of Debt

If a debt collector can prove you borrowed money and didn’t pay it back, it should get a judgment against you. And if you don’t make them prove their case, they will get their judgment. Simple as that. They call that “strict liability,” which means that WHY you didn’t pay does not matter.

On the other hand, there are events that can destroy a debt. Showing payment, that it was based on fraud, or settlement to name a few, will attack the debt. But if the debt isn’t destroyed, no amount of sincerity will get you off the hook. It doesn’t matter how much you wanted to pay. It doesn’t matter how much you tried to pay. Or whether you tried at all.

It’s surprising how often people get mad at debt collectors for trying to collect debts they (the people involved) can’t afford to pay. Just because the debt collector has a ton of money doesn’t mean they won’t or shouldn’t get a judgment against you. Don’t think that way.

Instead, fight and make them prove their case if they can. Require them to prove the debt and their right to it. Luckily, they aren’t so good at that.

Excuses in Litigation

We’ve been talking about the substantive law of debt, which is almost absolute,. It’s a little murkier when you talk about procedures such as responding to motions and the like. There, excuses CAN make a difference – sometimes. If you make a mistake in doing something, this can sometimes be excused. Likewise, if you make a mistake, you should certainly try to get it excused. The sincerity of your excuse will matter then, so make it good and say it with feeling. And you might get away with it.

But even if you do get away with it, every mistake has consequences. As a pro se defendant, you work mighty hard to get the judge to take you and your words seriously. You want the judge to apply the law fairly and consistently – that’s really all you need in most debt cases to win.

Follow the Rules – Don’t Ask for Breaks

Any time you ask the judge for something special or make some kind of excuse, you will hurt your chances of the court taking you seriously and holding the debt collector to the rules. And all too often, the court will not give you the break it probably should. Thus you should always work your hardest and do your very best to understand the law and rules of your court. As much as possible, you NEVER want to ask the judge for anything she isn’t supposed to do.

And to get your best, you must give your best. Never make excuses for yourself, and never accept them from yourself. It’s impossible to be perfect, but try not to make any mistakes you don’t have to make. That isn’t a cliche or boring old saying – it’s encouragement to you to work your @ss off. The only way to avoid making mistakes is by figuring out things ahead of time and always going the extra mile. You can get away with doing less in some parts of your life, but you often cannot in litigation.

 

 Get Help

If you would like us to take a look at your case and give you a sort of road map 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 already know you want to defend yourself without spending a lot of money on lawyers, then get our Debt Defense System.

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Even if you are reading this article late in the game, shortly before trial, and you are not already a member, you should consider doing so. We have materials helpful to last minute defense and trial preparation even if you are facing this rule.

If it’s a little earlier in the lawsuit, or if no has filed suit yet, you have many other options. Membership can present you many benefits and help you win your case. Or you could check out some of our e-courses.

 

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Assignment Contracts – the Holy Grail of Discovery

Making the debt collector give you the actual Assignment Contract is BIG

We say that there are “no magic bullets” in debt defense, but every so often 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 like writing the word “refused” on the summons or claiming that it is illegal to use your name, or that using all capital letters matters in some way. Some people think these things have magical attributes that will bring you easy victory. In fact, they really have no legal significance,[1] and 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, the agreement assigning the debt in question from the original creditor to the debt collector. In many cases, winning the fight to obtain discovery of the assignment contract will win the case outright.

What is an Assignment Contract?

An assignment contract is the contract between the original creditor and the debt collector whereby the original creditor sells debts to the debt collector. 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, 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.” 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.

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 to be drawn from that 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 also extremely important to the pro se movement as a whole, and to everyone in it individually, 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 would simply 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 are among the many who use credit damage as a collection tool, you can start the ball rolling even faster than through formal discovery. If you get your credit report, find them on there, and dispute the debt under the Fair Credit Reporting Act, they will have thirty (30) days to “conduct a reasonable investigation” into the dispute. Since they can’t get access to information in most cases in less than 60 days, they will either have to withdraw the negative information or you will have a lawsuit against them. Since the FCRA gives you attorney fees if you win that suit, you could get a lawyer to do a lot of the work for you.

And if they do withdraw the reference, you can use that against them in your defense in their suit against you.

Press – Hard – for the Assignment Contract

Under all the circumstances, it makes a lot of sense for pro se defendants (and everybody else being sued for debt) to use the discovery process to get the assignment contracts. The debt collectors do not want to provide this to you, and they will lie about its existence, deceive you if they can, and stonewall you to the limits of their ability if you push for it.  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 are unable to point to a respected authority (like a court opinion) that backs them up, but this doesn’t stop them.

Never Make Partial Payments on Old Debts

Partial Payments Always a Bad Idea on Old Debts

Suppose you get called on a debt that, theoretically, you owed, but didn’t pay, twenty years ago. Is there anything you should do? Is there anything you should NOT do? Should you make partial payments for any reason?

What You Should Do If You Get Called on an Old Debt

What you should do is find out who, exactly, is calling you. Find out the company and the individual. Then listen to what they say. If it is convenient, record the conversation. If not, take notes. Ask questions.

What You Should NOT Do

A 20 year old debt, not paid for 20 years, is beyond all statutes of limitations in all jurisdictions of which I am aware. However, you still “owe” the debt in some theoretical way. It remains a “debt,” and that turns out to be important. Know this, though: they can’t sue you for it, and they can’t hurt your credit report if you don’t pay it. And they can’t do anything good for you if you do pay it.

In my opinion, you should never pay such a debt.

Fair Debt Collection Practices Act

Just listen to what the debt collector says.

Let’s say he threatens to sue or tells you anything contrary to what I just said above. That would violate the Fair Debt Collection Practices Act (FDCPA). It is illegal for a debt collector to threaten you with action that he either does not intend to do or could not legally do.

Suppose, however, he tells you that they can’t sue you, but that you still owe the money, and wouldn’t it feel better to pay it? Some people might say they have no money, and so the debt collector tells them, “No problem, you can just make a partial payment. Then, if you ever get any more money, you can pay some more…”

That also violates the FDCPA in my opinion because it is deceiving you and trying to take advantage of something most people don’t know. If you give someone a gift and say you’ll give them more later, that creates no obligation to pay. If you make a partial payment on a “debt,” even one that is many years past the statute of limitations and beyond causing you any harm, you revive the debt and can be sued on it again.

Debt collectors are often trained to take advantage of people’s ignorance and to suggest partial payments on debts that are beyond the statute of limitations. If they try to get you to do that without telling you that you will revive the debt by doing so, they are misleading you. And that violates the FDCPA.

Partial Payments Revive Old Debts

By making the partial payment, you will revive the debt against you in its entirety, allowing the company to harass and sue you, and possibly even to damage your credit report again. Never, ever do it. Instead, take careful notes, and then go find an FDCPA lawyer to sue them.

If they get it all right and tell you that a partial payment would revive the right to sue you, tell them to go away and never call again. If they do, get a lawyer and sue them for that.

Other things to know

Partial payments will not just revive a statute of limitations after it has passed – it will extend it if it has not passed. Thus if the debt is five years old and getting close to the statute of limitations, your part payment will start the clock ticking again all over.

If you are being harassed or sued for a debt and need more information, be sure to check out our products and materials at Your Legal Leg Up. We have everything you need to protect  your rights.

Avoiding Service of Process in Debt Collection Cases

Avoiding the Process Server in Debt Collection Cases

The nearly universal advice of process servers and collection lawyers is that you should never attempt to avoid service of process. Many lawyers who represent people being chased by debt collectors also recommend the same thing. Is this good advice, though?

That depends.

Debt collectors are usually not the most energetic litigants, and anything that increases their costs of suit makes them think twice. On the other hand, it is not extremely difficult or expensive for them to get you served by alternative means. Our conclusion is that avoiding the process server can have some benefits, but there are risks and costs, and you must pay attention to the lawsuit.

In answering the question, it will help to clarify the purpose and effect of service of process, and then to define “avoiding service” more carefully. Then, we will look briefly at what you are attempting to avoid.

Purpose and Effect of Service of Process

Obtaining “effective” service of process is necessary for a court to have jurisdiction over any person.  This is because of a constitutional requirement of “notice” any time the state exercises judicial power against a person.[1] The most effective form of service is by physically handing a copy of the lawsuit to the defendant. The process server gives you the suit, fills out an “affidavit of service” (sworn statement that you were served), and the case proceeds.

Is it Possible to Avoid the Process Server?

Given the lives most of us lead, it is not possible to avoid the process server if the process server is determined and a little bit resourceful. Many, and perhaps most, of them are, but debt collection is characterized by a factory approach at every level. You have a better chance of avoiding service of debt collection cases than other kinds of cases. Even for process servers, time is money, and a very significant number of cases are dismissed for failure to obtain service. This is at least partly because so many debtors move from place to place – process servers are never sure whether you’re still living where they’re trying to find you, and they hate to waste the time looking if you aren’t.

Getting you physically served is obviously not always possible, and it isn’t required. Under some circumstances, other things can be allowed. What these other things are is established by state law but can include giving the suit to certain members of your household, or serving you through mail or “publication” (which is basically advertising in a legal publication). None of these things would normally require any sort of acknowledgment by you to be effective – which means that the suit could go forward whether or not you ever heard about it. If you avoid service, this is the risk you take.

Avoiding Process Server

Let’s consider the crudest way to avoid the process server. The service processor meets you in front of your house, says “Are you Mr. Smith,” and when you say “yes,” attempts to hand you the lawsuit. You run away without accepting it.

That would be considered “constructive service” – in the eyes of the law, you are “served” when you are offered the suit regardless of whether you take it or not. If you run away after the introduction and offer, you have probably been served. How far does that go? What if you see the process server and run away before the introduction, and the process server never gets closer than 20 feet? Or what if you see the process server coming and close and lock the door? He knocks and introduces himself, but you don’t answer or make a sound?

These are gray areas in the law. As a practical matter, sometimes the process server will swear that he served you, and the court will accept that unless you challenge it. Process servers do NOT always tell the truth. On the contrary, they frequently lie, and if they claim, rightly or wrongly, that you have been served, our suggestion, usually, is to defend yourself from the lawsuit.

Evading Service

What if you move to a different residence? Will that prevent the process server from finding you?

It might, and the wisdom of this would depend largely on what you’re trying to accomplish. If you don’t mind being served by publication, and you’re just hoping that the collectors won’t find you to collect the money, then moving might be effective. One would think that they have plenty of means to find you even then, but the practical fact is that they often don’t spend the money.  A judgment would hurt you, though, in various ways other than just collection.

Of course, it is very possible that if you move the debt collector will just drop the case – they often do.

If you think you may be getting sued sometime, it makes sense to watch the courts and see if you are. If you find that you are being sued, then the next question is whether they ever claim to have served you. Watch for that – if they do make that claim, then you will need to do something about it or else they’ll get a default judgment.

avoiding process server has a price
avoiding process server has a price

The Cost of Avoiding the Process Server

Avoiding the process server is one of the things that people hate most about being in debt – you never feel safe about  opening your door, you worry about strangers, and you’re afraid to answer your phone. As we discuss below, if you are being chased by a debt collector, there is no need to be afraid – you can and should win that case. We don’t suggest that you try to make the process server’s job easier, but there’s nothing to fear and no need to hide from strangers.

What if it Just Happens – they Just Never Reach You

Our position has been that you should never go out of your way to make things convenient or easy for the process server. It’s their job to get you – if they can’t do it, that isn’t legally your problem and in fact will benefit you. If they leave you a note asking you to come get the suit or asking when you’ll be around to be served, you don’t have to answer and probably shouldn’t. This method of (the process server) trying to ease the job shows a willingness to use cunning and trickery, though, in my opinion. If you receive some sort of request for help or cooperation, you must be careful that the process server doesn’t lie about serving you. Again, process servers often lie.

What to Do

The chief danger, once you have been sued, is that the debt collector will claim you have been sued one way or the other. If you have become alerted to a suit against you, you will need to monitor the case and see if that happens. Sometimes it will happen, but often it will not, and where it does not, the case will eventually be dismissed. When it does happen, however, you will need to take action to defend yourself. Until it is dismissed, you must not forget about the case even if they never serve you. You are gaining some time. Use this time to learn how to defend yourself or to put yourself in a better position to settle or win the case.

What Are You Running From

We have treated this lawsuit as a danger and suggested that avoidance is not always a bad idea. It will result in delay of the suit and sometimes its complete dismissal, both of which are good things. Lawsuits are always dangerous and often expensive, so we’re confident our approach makes sense. On the other hand, lawsuits are not all created equal by any means. Your chance of winning a suit brought by a junk debt buyer, if you have the resources in time or money, is very good – debt collectors would lose almost all their cases if they were fairly run and intelligently fought. Many original creditors should lose their cases, too. So fighting is a good idea.

Our suggestion is not to make the process servers’ jobs easier, but if they do get it done, you should certainly not lose heart. Fighting will give you an excellent chance of winning, and even if you can’t win, fighting will delay the suit and improve your chances of settling on better terms.

[1] In cases of real estate and certain other things, the thing being sued over – your apartment, for example, in an eviction action – is considered the “defendant” in the eyes of the law. The thing is adequately given notice by stapling or taping a notice of suit on the door, perhaps. There are lots of interesting legal cases and theories describing and explaining this, but debt collection cases typically involve jurisdiction over the person being sued, so that discussion is beyond the scope of this article.

Judgment Proof – Letting Debt Collector Know Helpful Facts

Letting debt collector know you're judgment proof
If you’re judgment proof

What if there is something you actually want the debt collector to know because you think it will cause it to decide to leave you alone?  How do you tell them so they’ll believe you when you say you’re judgment proof? And how do you keep the judge from hearing it and deciding not to take your case seriously? This article discusses the fine art of negotiating when you think you have “nothing to lose.”

How do you Tell the Debt Collector You’re Judgment Proof?

You’ve heard the saying, “you can’t squeeze blood from a turnip.” If you don’t have money a debt collector could reach or a job they could garnish your wages from, or any other assets they could reach, you are what is called “judgment proof.” How do you let them know so they believe you and go away?

If you’re Judgment Proof if Makes No Sense to Sue You

If you’re judgment proof, you almost certainly want the debt collector to know it because it makes all their work more or less pointless. At a minimum, if you don’t have anything for them to collect, they will have to wait – possibly a long time – to get anything back from the lawsuit, and debt collectors know well that time is money. There are generally better things for them to do than chase after people who really are judgment proof and have nothing to give them.

But it isn’t enough for you just to “tell” them you’re judgment proof.  It’s too “convenient” for you, and they won’t believe it if you tell it to them too easily. Plus – if you make it too easy, they’ll just get the judgment and sit on it. They’ve already spent something to buy the debt and bring suit. They have to know it will cost them more to chase you – and that it will keep costing even though they’ll never collect anything back from it.

In this article we discuss one of the fine points of negotiation: how to let someone find out something you want them to know – in a way that will make them respond the way you want them to respond.

Here’s a little warning: Unlike a lot of what we say, this will be more the “art” of negotiation than the “science” (so to speak) of law. You might have a different feeling about it, in which case you should think about it for yourself. Put some thought into it and come up with what you consider your best strategy – you’re the one who’s going to live with whatever happens, right?

The Situation: You’re Judgment Proof

You don’t have any money and don’t think you’re going to get any for a while. You want the debt collector to know that you’re judgment proof because you want them to go away.

But there is a “hidden” problem.

Being Judgment Proof Can Mean to the Judge that You Shouldn’t Defend Yourself

The law is much more practical than a lot of people give it credit for being. If you say you have “nothing to lose,” and the judge believes it, you may find yourself losing very quickly and without real fairness or equality. After all, the judge thinks, you have nothing to lose, so why bother? Really. That’s eminently practical, isn’t it? It is the way many of them think.

Most judges won’t say that, although some will. But who wants to waste his or her time on technical fairness when there’s nothing really at stake? The law is not designed or supposed to do that.

You Won’t Be Down Forever

But the fact is, you DO have something to lose. A lot. The worm turns – you may be down now, but however far you’re down now, it only takes a few good breaks, a couple things turning around, for you to be much better. Good luck often happens to people who keep trying their hardest and looking for it, and if it happens for you, let the good luck be for you and not the debt collector. You need to keep fighting even if it looks like you have nothing to lose. You MIGHT, and that’s enough.

Judgments last a long, long time, and do you want the break that could turn things around for you to enrich the debt collectors?

Losing May Hurt you in Ways you Haven’t Considered

The other thing is that the cost of losing may be greater than you suppose. It will hurt your credit report and raise all your costs of living in invisible ways, and… there are other costs, psychologically and socially.

Play to Win

Play to win. If you’re here, you’re already doing that. Don’t blow it now by casually telling anybody you have nothing to lose.  But you still want them to know you’re judgment proof. So how do you let them know?

You make them bleed for it.

Make them Pay for Any Information they Get – Even if it’s What you Want them to Know

Letting them know that they won’t gain anything from their efforts is really just half of your goal. The other half is that they must know that they will have to use a LOT of effort, and that it will cost them a lot of money (money they’ll probably never get back). Make sure they know that you will never give them anything without a fight – a fight that’s going to cost more than they could ever hope to win.

Can’t you just tell them that?

It’s better to show them how much effort will be required first. And that’s because talk is cheap. Lawyers should know, right? And they do. Telling them it will take effort is far, far different than requiring them to spend that effort. Of course, it takes far more effort on your part, too. It means you fight everything tooth and nail – don’t give them any information they aren’t entitled to, even when it’s what you want them to know. And if you watch them, you’ll see they don’t plan to give you even information you are entitled to. Fight hard.

How Much you Have, Where you Earn it, and Where you Keep it are “Irrelevant” to the Debt Collector’s Lawsuit

As we have often pointed out, contract cases involve what’s called “strict liability.” Almost. That is, there is only the question of whether you owe the money. No one cares WHY you owe the money or why you haven’t paid it off. No one even cares, legally, whether you can pay it off. The only legal issues for the court to decide on a debt case are: do you owe it to them? And, how much do you owe? That makes the amount of money you have (what you own), where you earn it (your job), how much you earn (your income), or where you keep it (your bank) all irrelevant. You should object and force the debt collectors to go to the judge (motion to compel) to force you to give it to them if they can.

Make them work to get it. Make them work hard and spend money. And then, if you have to answer, you will. It is, after all, what you wanted them to know in the first place. And if the judge denies their motion to compel and does not make you reveal the information about not having money or a job, you can just “drop it” into a conversation with the lawyer for the other side afterward (“Well, I don’t have any money anyway…”). But then you don’t give them proof – you just say it.

If you tell the other side you’re judgment proof too easily, the judge will find out. She will be tempted to find an excuse to rule against you as we said above. Fighting hard from the beginning – especially against divulging financial information – puts the lie to that more effectively than anything you could say. It proves you are taking the case seriously.

Watch out for Laziness

So now, consider your motives here. Isn’t a main reason you want to tell them you’re judgment proof just that you want them to go away without bugging you anymore? You’re tired of your troubles and the suit?

That’s the attitude you must beware of.

Yes, getting them to believe you are judgment proof might cause them to drop the case and reduce your overall effort and inconvenience, but your main weapon in debt litigation is the willingness to spend extraordinary efforts – and to make them do so.  And this is true whether the underlying debt was ever yours or not – it takes extraordinary efforts to defend any case. Don’t give up that weapon in the search for a short cut.

Make sure the things you do increase your chances of winning without hurting your underlying case.

Get a Copy of this Article for Yourself

Click here if you’d like a PDF copy of this article: Make them Bleed article. No sign-up required.

About Your Legal Leg Up

Your Legal Leg Up is a business dedicated to helping people fight debt collectors without having to hire expensive lawyers to do it. We offer you everything you need to defend your rights – with special help through our membership services to help make the process smoother, easier, and less worrisome. YourLegalLegUp.com has been in operation since 2007. Before that, Ken Gibert practiced law representing people being sued for debt among other types of consumer law.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

Help Evaluating Your Situation

Get Some Help Dealing with Debt Collectors
Get Some Help Dealing with Debt Collectors

Many visitors to our site are facing dramatic new situations:

  1. You may have just found out you’re being sued; or
  2. You have either received a debt collection letter or some other “threat.”

We can help. We can take a look at your situation and the material you were sent – whether it’s a letter or a lawsuit – and give you a roadmap of what to do. It isn’t legal advice, but think of it as a sort of “guided tour” of where you need to go and what you need to do. It will save you a lot of time, wasted energy, and anxiety. And you’ll come out of it with a good idea of what you’ll need to do to set things straight.

Being Sued?

If you are being sued, we can help you get oriented to the case. People ask us all the time whether they should file a motion to dismiss or Answer, and whether or not there are any potential counterclaims to the lawsuit. If those are the sorts of questions YOU have, this is a way to get a head start on figuring out the answers.

Being Harassed or Called or “Dunned”

But what if you aren’t being sued and have just received a phone call or two, or letter?  We do have a lot of information on the site to help you evaluate your situation yourself and figure out how to protect your rights, but if you’d like something a little more specific, you can now use this service, too.

Get Help

We have products and information you will need in the earlier stages of debt problems. The most important thing to remember is this: anything you do that makes it easier for them to sue and win also makes it more likely that they WILL sue you. What does that mean? It means that if you admit owing the debt, having made payments or anything like that, and if you tell them where you work or bank, you make it more likely you will be sued. You might think you are being “responsible” and appropriately cooperative, but it works differently in law and debt.

You will find materials on site that will help you navigate this stage of the problem, but if you want some more specific guidance on what to do given the things they are telling and send you, this product is for you.

If You Need Help

If you need one of these services, just click on this link and select the service you need. Note that clicking on the link will take you to our “home” site, Your Legal Leg Up. If you need a “rush” job (service in under 72 hours), be sure to go to the products page and order that as well. You will be given instructions with your receipt on what to send and how to do it – we will need images of the documents you have received as well as answers to certain questions. After you give us that information, we will have an analysis back to you within 72 hours (three days). If you need faster than that, you can order the “rush” service, although we do ask that you NOT do this unless you need it.

Verification or Validation – Using Both FDCPA and FCRA to Protect Your Rights

A smart person disputes and requires verification
A smart person disputes and requires verification

Verification under the FDCPA and FCRA – Use Both to Protect Your Rights

The information in this article and video is designed to help people being bothered or sued by debt collectors, or who are concerned about their credit reports and wish to take action to protect their rights.

Two Kinds of Verification and How to Use them to Protect Your Rights

We have spent much of our time talking about “verification” on our site and videos, and what we have meant in most of that has been the “verification” process provided by the Fair Debt Collection Practices Act (FDCPA). But there is another kind of validation you can use – validation as permitted by the Fair Credit Reporting Act.

We talk about that below and discuss how you can use both forms of validation, together or separately, to your advantage in defending yourself from the debt collectors and in repairing your credit.

The two kinds of verification are different rights. They apply in different circumstances, to possibly different “persons” under different circumstances, give different rights, and have different time requirements.

You can use them both, but they are completely separate. It is important to keep them straight.

Make sure you keep track of everything you do under either statute, and make sure that the response you get is appropriate for the statute you used for the specific right you invoke.

Rights under the FDCPA

Under the FDCPA, when a debt collector first contacts you on a debt, it is required by law to notify you of your right to dispute the debt and require “validation” or “verification.” The two words are used interchangeably, and the requirement is quite simple in general:

  • First, the debt collector must notify you of the right to dispute within 30 days (along with giving you the “mini-Miranda” warning – that anything you say may be used for collection of a debt) within five days of first contacting you.
  • And then, the debt collector must “verify” the debt if you ask within the thirty days provided.

Just to make clear, it is YOU who have 30 days to dispute after getting the notice of your rights. The debt collector does not literally even have to do anything at all and also has no time limit. It’s just that, if you dispute and request verification, it cannot make further attempts to collect on the debt until it has verified it.

Exactly what verifying it is, is not exactly clear.

It would appear that contacting the original creditor and “establishing” that the debt is yours would be enough. That’s because the purpose of the requirement is not to require a separate lawsuit, but just to protect consumers from harassment based on typos or mistaken identities. The debt collector has to take some action to connect you to the debt if you dispute it under the FDCPA.

Even this low burden often seems to be too much, and possibly that is because the second owner of the debt (if there is one) has no relationship to the original creditor and simply cannot get the debt verified.  Whatever the reason, asking for verification is often enough to make them go away. If they try to collect without having verified, that violates the FDCPA. And that in turn might allow you to stop a lawsuit brought against you.

Remember, however, that when the debt collector immediately files suit against you, this is not a “first contact” which triggers your right to notice and dispute. If you get served, you have to answer (or move to dismiss). It is not enough to request verification.

Disputing under the Fair Credit Reporting Act

There is another kind of validation, and it is completely different from the FDCPA, although you can use it to fight debt collectors, too. It is the validation provided for by the Fair Credit Reporting Act (FCRA).

This is your right to “dispute” an item on your credit report.

You do this after looking at your credit report and seeing something that is not positive. Let’s say you see a debt collector reporting that you owe a debt. Remember your right to verification under the FDCPA comes when the debt collector first contacts you to try to collect the debt. You can dispute a line item on your credit report at any time.

There are rules, and there are better and worse ways to do it. But it does not depend on the other side being a debt collector or having tried to collect the debt. It simply requires that they have put some bad information on your credit report.

When you seek verification under the FDCPA, the debt collector has to verify the debt before making further attempts to collect. When you “dispute” the debt under the FCRA, it doesn’t affect collection. Instead, you are forcing the company to “investigate” the debt and show that what it is saying to the credit reporting agencies is true.

If the company reporting you cannot validate the debt, it is just required to withdraw the offending credit reference. But it could still try to collect the debt.

If it does keep trying to collect the debt after withdrawing a bad credit reference, that might be a type of admission that it can’t prove the debt if the case goes to a lawsuit.

But it probably isn’t controlling on the case because “validation” of a credit report is not

the same thing as proving that the debt is valid.

A Helpful Strategy

Here’s a strategy that might be helpful. If you receive a bill from a junk debt buyer – a company that bought your debt from the original creditor, in other words – you should

send a request for verification under the FDCPA right away. Then you should and get your credit report and look at it.

If the debt collector is reporting your debt on your credit report, you will want to dispute the credit report and seek validation under the FCRA. Separately.

Remember these are completely different rights. Your sending two different disputes may confuse the debt collector, but remember that under the FDCPA it must provide proof as to your identity and its right to bug you, while under the FCRA it must explain why the information it put on your credit report was correct. The debt collector may not verify under the FCRA, in which case you can clear your credit report.

If it DOES try to validate, it will probably give you information that it would object to having to provide if it were suing you for the debt – so it’s a shortcut to some discovery in that situation.

You should not try to do the FCRA verification first because it takes too much time.

To do the credit dispute right you have to get your credit report and dispute it with the credit bureau before you dispute it with the debt collector under the FCRA if you want to protect all your rights. You don’t have time to work your way through the FCRA before asserting your FDCPA rights.

On the other hand, if the company does not verify under the FDCPA, that would be worth mentioning as a basis for your credit dispute.

We should add that when you get the first letter from the debt collector you may not even know whether it is reporting you on your credit report. They often do not, so you won’t know whether or not you will have anything under the FCRA. But if they are contacting you, you have the right under the FDCPA. Since it only lasts for 30 days, you need not to delay in disputing.

We always recommend sending your disputes by certified mail (and keep all the proof). You don’t have to do this legally, but these things often come down to a question of what you can prove, and having proof from the postal service is a very good investment.

If you would like a free copy of this article, click here to download: Two Kinds of verification article.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation. (Note that this link takes you to our “home” site, YourLegalLegUp.com, which has many more resources on these issues.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

 

Jurisdiction – Why it Matters in FDCPA and Foreclosure

jurisdiction could mean difference between losing home or not
jurisdiction could mean difference between losing home or not

If someone is trying to take away your house for nonpayment of some debt, the Fair Debt Collection Practices Act (FDCPA) may – or may not – be useful to you. The law differs according to jurisdiction, and you will want to choose the one that gives you your best chance.

This article is a very basic primer on the interaction of state and federal jurisdiction when it comes to debt collection generally, and foreclosure more specifically. Wherever you live, you will want to consider both federal and state cases on applying the FDCPA to foreclosure if you want to sue a debt collector for its acts in taking, or trying to take, away your house.

Most Debtor-Creditor and Property Law is “State” Law

In theory, federal law only applies to areas of the law designated by the constitution, whereas everything else is controlled by state law. That can lead to confusing results where those interests overlap. In general, the laws creating and enforcing property rights (e.g., contract rights, debt, or property ownership rights) are state law. If you get sued for a debt, the action will almost certainly occur in a state (as opposed to federal) court. Foreclosure rights are also determined by state law.

Debt Collection Is a Special Situation

Claims under the FDCPA can be brought in either state or federal court. While property rights are creatures of state law, debt collection was considered so extensive a problem that it was a national (i.e., federal) problem. Thus Congress carved out a piece of debtor-creditor law for itself when it enacted the Fair Debt Collection Practices Act, which makes certain actions taken by debt collectors (primarily) illegal. The FDCPA is federal law, in other words, but as it happens it provides that it can be enforced in either federal or state courts.

Because of the way the federal and state law systems mesh, you could conceivably defend a collection action or foreclosure in state court by filing a counterclaim and seeking an injunction, by filing a separate action in state court under the FDCPA, or by filing a federal claim under the FDCPA and seeking an injunction in federal court. Likewise you could defend or settle a state collection action and then bring suit under the FDCPA in federal court (although remember that the FDCPA has a one-year statute of limitations). All of these variations occur quite often.

States are Independent of Each Other

The state law of the court in which the suit is brought will always determine some the procedures in the case and usually the actual “substantive” rights. Under certain circumstances other state laws might also apply (this comes up most frequently where there is a contract that specifies the state’s law that will apply). State laws and procedures can be different from state to state. If you live in Tennessee, you will be subject to the state laws of Tennessee, and these may (or may not) be very different in some important way than the laws of Pennsylvania, for example, or any other state.

If you are pro se (representing yourself), therefore, your first action must be to determine which state laws (and of which states) apply to which parts of your case at the basic debtor-creditor level. In other words, if you are being sued on a credit card debt, is the company suing you under the law of your home state? Or is it suing you under the laws of some other state? In foreclosure law, it will almost always be suing you (or foreclosing without suit) under the law of your own state.

The courts of one state are not bound in any way by the courts of any other state when they are dealing with their own laws, but they are subject to state courts of appeals and the state supreme courts (and sometimes in certain areas of the law, the U.S. Supreme Court).

State Courts are Independent of Federal Courts, too

Things get a little more complicated when it comes to state courts applying other states’ laws or federal law. In a general sense, they “should” determine what the appropriate court applying its own law would do. In reality, there is usually no appeal to those courts, and so the decisions can vary widely.

The Federal Law

The federal system is similar to the state system, except that eventually they all answer to the Supreme Court. That is, when the Supreme Court has spoken, all the federal courts are supposed to make decisions which are consistent with what the Supreme Court says. Because cases are always decided on the narrowest set of facts possible, and because there are so many laws and cases, however, the Supreme Court often will take many years before deciding a given issue. That leaves the lower courts to guess what the Supreme Court would say. One area where that is happening right now regards whether the FDCPA applies to foreclosure. Eventually the Supreme Court will decide one way or another, but until that time, the lower courts apply the law as they see fit. Sort of.

Each Federal Circuit Controls the District Courts below it

The federal (civil) judicial system is divided into three levels: district courts (where lawsuits are filed and tried); courts of appeal (“circuit courts of appeal”) and the Supreme Court. As described above, all courts answer to the Supreme Court. Below that, the federal circuit courts of appeal control all the district courts below them. Appeals are expensive, specially to the Supreme Court, and they are hard to win. Therefore it is vitally important to win, if at all possible, at the trial court level.

How the Different Jurisdictions Interact

Because the federal circuits are independent of one another, and the states are independent of one another and the federal courts, different places develop different rules arising out of the same law. A perfect example of that would be the way the 3rd, 4th and 9th federal circuits (and all the district courts below them) allow FDCPA claims against foreclosers, whereas the 7th and 11th federal circuits limit those rights. The states also vary from each other and the federal circuits.

Forum Shopping

What all those different decisions mean is that if you are being foreclosed on and think the FDCPA applies to your case, you need to “forum shop.” That is, after determining the state laws that apply to the foreclosure itself, your second task is to determine whether or not your state applies the FDCPA to foreclosure. If not, then does your federal circuit? You will need to look at the law for each and decide where to bring your claim. You can bring it in either federal or state law – you should bring it in the jurisdiction that seems most likely to apply the FDCPA to your foreclosure. Although this isn’t necessarily easy to tell, it can make or break your case, and you need to consider the question as a part of your initial strategy.

About Your Legal Leg Up

Your Legal Leg Up is a business dedicated to helping people fight debt collectors without having to hire expensive lawyers to do it. We offer you everything you need to defend your rights – with special help through our membership services to help make the process smoother, easier, and less worrisome. YourLegalLegUp.com has been in operation since 2007. Before that, Ken Gibert practiced law representing people being sued for debt among other types of consumer law.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.

Foreclosure: A Debt Collection Method in Ordinary Life

Foreclosure is a form of collection
Foreclosure is collection

Foreclosure is Debt Collection

Foreclosure is a form of debt collection in the real world. Debt Collectors threaten to repossess and auction off property that secures a loan unless that loan is paid, or else they actually repossess and sell off the property, in order to pay the debt. This video and article discuss the way the process works.

What Foreclosure Does

Foreclosure is designed to allow for possession (or repossession) of property that was used to secure a debt that was subsequently unpaid. Most people simply think of foreclosure as “getting kicked out of your house,” and in many situations that is an appropriate understanding. In reality foreclosure addresses ownership rights rather than possession, however. It involves the termination of at least one person’s rights of ownership in favor of another person, and this can, but does not always, lead to eviction.

English Law and the History of Foreclosure and Property Rights

We don’t think of it very often, but one of the great inventions of English law was the division of property into different property “interests” or rights that could co-exist in the same property. The state “owns” physical property in one way, the landowner in another, and the tenant also has certain ownership rights, for example. If the landowner is married, both spouses will have rights in the property, and it is possible to divide the rights up in many other ways, too. Another form of coexisting rights is the way the same property could be owned by you, but subject to a mortgage and also various sorts of liens.

“Foreclosable” Interests

It is with the mortgage and liens we are primarily interested here, because these can be “foreclosed.” It is worth remembering that while most people (including the courts) only think of “purchase-money mortgages” (the mortgage you take out in order to buy your house) when they analyze foreclosure, there are other ways liens can be placed on your house (by the state for taxes or judgments, to name two), and all liens can be foreclosed. Mechanically what happens is that the foreclosing party causes the property interests to be divided and paid off – and the way that is accomplished is by selling the property and splitting the money up according to the priority of interests.

There is a definite hierarchy of interests, and the higher interests must be completely satisfied before the lower interests get anything. Eventually, if every interest is satisfied and money is left over, this would go to the property “owner.” Or to put it another way, being the property owner means that you get whatever is left after all the other interests are paid off (you are entitled to the “equity”). But usually, if there is not enough to cover all the secured interests, you will owe the secured parties money personally.

Two Examples of Foreclosure

Let’s consider two examples. In the first, Owner A each own houses worth $100,000 on the open market. That’s what it sells for.

Owner A

Owner A has the following liens against the property: a purchase money mortgage of $35,000, a home equity loan of $10,000, and a mechanic’s lien of $1,000.

$100,000 Value of House

($35,000) Purchase Money Mortgage
($10,000) Home Equity Loan
($ 1,000) Mechanic’s Lien
===================

$54,000 – Equity

Owner B

Owner B has the following liens against the property (in this order – the order of liens is beyond the scope of this article): a purchase-money mortgage of $110,000 (the house is “underwater” because the loan remaining is more than the house is worth); a home-equity loan of $10,000, and a mechanic’s lien of $1,000.

$100,000 Value of House

($110,000) Purchase Money Mortgage
($ 10,000) Home Equity
($ 1,000) Mechanics lien
=============

($21,000) equity (a negative number)

If neither one can pay off the purchase money mortgage, go into default, and are foreclosed, here’s what happens.

Results of Foreclosure

A loses possession of the house, and all security interests in the property are “extinguished.” The money is enough for the mortgage, and that is subtracted and given to the bank. Because the home equity loan and mechanic’s liens was “secured” by the house, the foreclosure breaches the contract with the lender. It intervenes (legally) in the foreclosure and demands its money and gets paid before anything goes to A. Because the lien was “subject” to the other agreements, it gets paid afterward, again before A gets anything.

In B’s situation, the bank gets all the money, and the lenders are left with claims against B. Their security interests in the property are extinguished, and chances are good they’ll lose everything they had lent.

Why Debt Collectors Often Do Not Foreclose

What if, instead of not paying the bank, A and B had failed to pay the home equity loan? In that situation, the Home Equity lender could foreclose on the loan. Lower level security interests can foreclose on the loan. It would be conceivable that any other person with an interest in the property, including the mechanic, might take some action to intervene in order to protect its interests, although in B’s case, especially, this is unlikely. The bank will get all the money, and the home equity lender will get nothing even though it is the one that foreclosed.

This explains why debt collectors rarely foreclose on a house. It will cost them money but get them nothing. But that isn’t to say they couldn’t or that it would never make sense for them to do or threaten to do.

About Your Legal Leg Up

Your Legal Leg Up is a business dedicated to helping people fight debt collectors without having to hire expensive lawyers to do it. We offer you everything you need to defend your rights – with special help through our membership services to help make the process smoother, easier, and less worrisome. YourLegalLegUp.com has been in operation since 2007. Before that, Ken Gibert practiced law representing people being sued for debt among other types of consumer law.

If you would like to get a personalized evaluation of your situation, follow this link: https://yourlegallegup.com/pages/evaluation.

For further help, consider our Manuals and Memberships. We have materials on debt negotiations and settlement, forcing debt collectors to leave you alone, credit repair, and many other issues that arise when you are facing debt trouble.

Click here to sign up for our free newsletter, Fightdebt.