what to do when sued for debt

If you’re being sued for debt by debt collectors – and even by original creditors – there are some basic things you need to know. This video tells you how to start defending yourself and why you have such a good chance to win if you do.


There is an epidemic of debt litigation. Partly this is because debt of all kinds is at historic levels – there’s never been so much consumer, auto, credit and other debt around. And there’s never been so much of that debt that isn’t being paid. To complicate this picture and make it even worse, identity theft (and resulting unpaid purchases and bills for people whose identity has been stolen) is also at historic levels – and getting worse.

In short, things are bad and getting worse for a lot of people.

If you get sued, you should not panic. One good thing to come out of the debt epidemic is that the debt collectors use factory-type collection methods. If you know what you’re doing, your chance of successfully defending yourself – whether or not you ever actually owed anybody on the debt – are extremely good. That’s because the debt collectors find it more profitable to go after people who don’t fight back. Fight back, and you’re making yourself much less attractive as a defendant – and making it much more likely they’ll drop the suit. Plus, you have a very good chance of winning even if they don’t drop the suit.

Our company exists to help people fight back intelligently. That way, you don’t just hand the debt collectors and easy win, and they’ll probably move on. Or you’ll win.

About the Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is the centerpiece of legal protections for debtors against debt collectors. The law was passed in its essential form in 1977, and its goal was to protect debtors against the abuses of debt collectors. This article discusses what makes this law great, and some of its limitations.

The Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA)  was enacted to put an end to some of the worst practices of the debt collection industry. It’s been a very good law, but the debt collectors are still doing many of the things the law was designed to present. You may be able to sue them or prevent them from suing you..

The Debt Collection Industry

Before the act, the debt collection industry was routinely engaging in the most abusive sorts of behavior imaginable, from calling debtors at all hours of the day or night and subjecting them to streams of cursing and name-calling, to discussing their debt with children, neighbors, and employers. Debt collectors frequently misrepresented themselves as attorneys and often threatened legal action which they were powerless to initiate. And they often attempted to, and did, collect debts that either never existed or were long unenforceable because of statutes of limitation or bankruptcy.
Whatever the staid spokespeople of the debt collection industry may say, this is the background of their industry. The Fair Debt Collection Practices Act, 15 U.S.C. Section 1692, et seq., was enacted to put a stop to these extreme behaviors in 1977. Because the people intended to be protected by the act are underrepresented by lawyers, and because of the explosion of debt litigation over the past decade, many of the old abuses still continue, and as people increasingly defend themselves from the debt collectors, they develop new tricks all the time.

The FDCPA: A Pretty Good Law

Nevertheless, the FDCPA is in many ways a model piece of legislation. What makes the law so powerful is that, in addition to making certain enumerated acts illegal, the Act also more generally makes acts that are “oppressive,” “false or misleading representations,” or “unfair practices” illegal. This means that, whereas in most laws, the would-be wrongdoer is free to craft his actions around the specific language of the law and find “loopholes,” under the Fair Debt Collection Practices Act, at least, the consumer may argue that these actions are still unfair or oppressive. The Supreme Court has ruled that an “unfair” act can be shown by demonstrating that it is “at least within the penumbra” of some common law, statutory “or other established concept” of unfairness.

That’s pretty broad. The price for this flexibility, however, is that the remedies—what you get if you prove the case—are less powerful. And this may be why the practices are still occurring today.

As mentioned above, there are specific actions enumerated in the FDCPA, and these include most notably, suing on expired debts, filing suit in distant jurisdictions, publishing certain types of information regarding the debtor, calling outside of specified hours. And the list goes on. If the debt collector is acting in some highly offensive way, chances are he’s within the specific provisions of the Act. These can be found at 15 U.S.C. 1692c, d, e and f. You can find the specifics by Googling the Act or provision and determining whether the specific action you’re concerned about is within one of these provisions.

Who or What is a Debt Collector

The definition of “debt collector” became a lot less clear in 2018 when the Supreme Court ruled that owning a debt made one a “creditor” regardless of the status of the debt at the time of purchase. But there are still ways to prove that the company suing you is a debt collector. Doing so means they have to follow the FDCPA – or more particularly it means that if they don’t obey it you can counterclaim against them or file suit yourself.

The Company Suing You

The company suing you, if it’s one of the big debt collectors, probably still is a debt collector. As far as I’ve heard, these companies don’t really do anything other than buy debts and collect on them. But I doubt this situation will persist. After there is some litigation quantifying what makes an activity a “principle purpose” of the business, the debt collectors will likely buy subsidiaries or engage in some other business to an extent necessary to exempt them from the FDCPA. I would, and in this area of business and law, these guys are more knowledgeable and smarter than I am. Expect them to take steps to reduce their liability.

What Is a “Debt Collector?”and When Are You being Sued by One?

So who is a debt collector? Well, there is the classic debt collector – the company that a creditor hires to hassle debtors to pay bills to the creditor. In that situation, the debt collector is an agent of the original creditor and is supposed to follow certain rules (the Fair Debt Collection Practices Act).

There’s another kind of debt collector, though. This is a business or person whose “principle business” is the collection of debts. Just what percentage of business makes the activity the “principle purpose” of the business is not clear – I would suggest it is very significant, at least 90%. But that’s just a guess at this point, as there has been very little litigation on the point. It seems clear that a bank that makes lots of money on regular banking services and also has a junk debt buying subsidiary is probably NOT a debt collector.

There is a tremendous amount of confusion of who is suing you. People will tell me that they are “being sued by a debt collector, but the name on the suit is Capital One,” for example. They think that because the lawyer signs the pleadings, or a lawfirm shows up in court, that it is the lawyer who is suing them.

And in a very limited sense – but only in a limited sense – that is correct. For most purposes, the entity suing them is the one named as “plaintiff” in the lawsuit

Lawyers who Regularly Collect Debts Are Debt Collectors

The lawyer and law firm representing the company suing you are probably debt collectors within the meaning of the FDCPA. That means that their personal actions may bring them within the law, but it isn’t always clear when they will, though. It appears that if the pleading asks for something, the lawyer signing it will be liable (on the hook) personally (and his or her lawfirm, also) for the violation. But the company won’t always be liable for the actions of the lawyer – its agent – as would normally be the case for most things.

If the company was an original creditor, and the lawyer threatened you with suit, and you sought verification of the debt, would the company be unable to sue you using the same lawyer? Not likely. Because the company – not a debt collector – has no obligations to you under the FDCPA, and that’s where the right to verification comes from. If you filed a motion to dismiss the lawsuit based on the company’s failure to verify the debt, it should be denied.

The Name on the Lawsuit Is the Important Name

If your lawsuit says “Cap One vs. You,” you are being sued by an original creditor and not a debt collector. They don’t have to play by the rules that apply to debt collectors. That means they don’t have to verify the debt, and they can do some of the things debt collectors are not allowed to do. You need to direct you Answer, Defenses, and any Counterclaims with the awareness that the other party is the original creditor and not a debt collector. It means, for example, that they needn’t verify the debt before or after suit, and that an attack by you on the ownership of the debt is not going to work – their name is on the debt. There’s no “chain of title” issue where title has never passed to another company.

But how they act when they sue you may bring the lawyers within the FDCPA.

Dispute and Debt Verification under FDCPA

Within five days of first contact, a debt collector is supposed to identify itself and advise you of your right under the FDCPA to seek verification. This right will also have what we call the “mini-Miranda,” which is notification to you that the communication is seeking payment of a debt (alleged debt) and that any information you provide will be used for the purpose of collecting that debt. You should dispute the debt and demand verification.

Disputing – A Step toward Protecting What’s Yours

Mini-Miranda

You must take the mini-Miranda seriously. Debt collectors often record, and always at least make notes of, anything you say. They are building a file on you from the first time they contact you. You should remember that anything you say that reveals financial information will be remembered by the debt collector, and that anything you say that sounds bad for you, like cussing or name-calling, may come up again at a bad time for you. This is why I say that silence is golden with debt collectors.

Verification

The other right you are told about, of course, is your right to seek “verification” or “validation.” If you request it within thirty days of receiving notice of your right, the debt collector must validate the debt and notify you before taking any further action on the debt. For some reason, debt collectors often will not do this if you seek verification, but instead will either ignore the request or sell the debt and move on to greener pastures.

What Is Verification?

Verification is not a clearly defined term. It was certainly not required as a means of slowing the debt collection process substantially. It appears to be almost a pure formality, but it does at least, according to most courts, require the debt collector to contact the original creditor and make sure, in some vague sense, that the debt is supposed to involve you. If that sounds vague or minimal to you, I’m sure you’re right. But it is an actual obligation that the debt collector take some time and do something besides harass you, and it does require them to stop harassing you, and it may give you a claim against them if they continue bugging you before verifying the debt. These are all good things.

And it often makes them go away entirely.

Foreclosure and FDCPA

Foreclosure and the FDCPA: Introduction to a Complicated Relationship

This video introduces the issue of whether and how the Fair Debt Collection Practices Act (FDCPA) applies to Foreclosure.  As part of this page we will link a series of posts addressing specific issues, with a small textual introduction to  provide context and a description of the video to follow. Each video will also be based upon an article, and this will be on the same page as the video.

 

 

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is a law that, primarily, applies to “debt collectors” who are “collecting debts” (as those terms are defined by the statute. Foreclosure and all the actions leading to it are clearly attempts to collect a debt. Whether the FDCPA will be applied to them, on the other hand, is not so clear. Currently, it appears that a majority of the district courts that have ruled on the question have found that the FDCPA does not apply.

Most of the circuit courts of appeal addressing the question, on the other hand, have held that it does. Eventually the law will probably catch up with common sense and the broad remedial purpose of the FDCPA, but for now whether the Act will apply to foreclosure may depend on where you live – and what court you file your suit in. In this essay we will first discuss the arguments in favor of applying the FDCPA to foreclosure, then the arguments against it, and finally will compare the relative merits of the arguments.

This article will provide you the case law and arguments you will need to decide what to do and defend whatever choice you make. The good news for anyone seeking to apply the FDCPA to foreclosure is that even the jurisdictions that have held it does not apply have exceptions that open the door to a considerable extent. In whatever jurisdiction you use, you will need to know all the arguments.

Foreclosure is the process by which the holder of a foreclosable interest (a lien or mortgage) causes the property to be sold, all the interests in the property to be divided, prioritized, and paid off according to priority. It does not necessarily lead to a change in possession of the property (i.e., who lives in the house), although it often does. It is about changing the rights of ownership and cutting off the rights of the subservient interests. Click here for more on Foreclosure, its history and function.

Applying the FDCPA to Foreclosure

The arguments in support of applying the FDCPA to foreclosure are both numerous and intuitive. The legal purpose of foreclosure is to collect a debt, whether the process requires the filing of a lawsuit and judgment (judicial) or is simply a formal process that does not require a judgment (non-judicial). Foreclosure is designed to allow for the original owner to take the property, sell it, and use the money to pay off a debt. The foreclosure process has often been abused and in ways similar to other debt collection techniques; nothing in the Act itself exempts foreclosure; and several parts of the Act strongly suggest that foreclosure was intended to be included.

Despite the strength of the arguments in favor of applying the FDCPA to the Foreclosure process, the courts are divided on whether to do so.  Click here for much more on foreclosure and the FDCPA.

Right to Verification Can be Deceptive

The Right to Verification of the Debt

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When a debt collector communicates with you the first time, it is required to give you written notice of your right to dispute the debt and require “verification.” In my opinion, the level of verification required by law – if you make your dispute in writing – is pretty minimal. Still, the fact is that requiring validation seems to make a significant number of debt collectors go away, so it is apparently worth doing for that reason. It’s also an important first step in preparing to defend yourself from a law suit if it happens.

Remember, they don’t HAVE to verify – they simply have to verify before taking any further actions to collect. If they leave you alone, they don’t have to do anything else.

Deceptive Notice of a Right to Verify

A Dirty Trick by Debt Collectors: “This is a Communication by a Debt Collector” on the Lawsuit

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The essence of this trick is the habit debt collection lawyers have of putting on the legal pleadings that “this communication is an attempt to collect a debt… [ and on to the right to require verification].” The problem with this is two-fold. If it WERE a qualified communication, it would violate the FDCPA because the fact of the lawsuit and the timing required by that would “overshadow” the right to require validation.

HOWEVER, A LAWSUIT IS NOT A COMMUNICATION attempting to collect a debt under the FDCPA. Suggesting that it is one, and offering a “right” to require verification, can lure consumers into disputing the debt and requesting validation instead of answering the suit. Then, while they’re waiting for the debt collector to answer their dispute, the debt collector is getting a default judgment against them.

I know they do this trick, and I know that some people fall for it. If you have, you have a strong case for a motion to vacate the judgment. And the whole thing is probably a violation of the FDCPA and would give you a counterclaim under the appropriate circumstances.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA)

A Basic Overview

The Fair Debt Collection Practices Act (FDCPA) was one of the first comprehensive set of protections established for debtors against debt collectors. It arose out of some truly horrific stories – and the reality is that the debt collectors continue to do horrific things in violation of the law. And yet the FDCPA is pretty good legislation that was designed to give the law enough flexibility to go after whatever the unfair collection practice of the day might be.

This video is designed to give you some idea of the scope of the Fair Debt Collection Practices Act so that you can begin to think of possible counterclaims against the people suing you.

More than that, it is designed to give you an idea of some of the protections that exist for consumers in a society that is awash in debt and plagued by debt collectors.

We hope you will defend your rights. In many cases you can get a lawyer who will help you sue bad companies. But when that isn’t possible, we’re here to help.

Outsmart Dirty Debt Collectors – Make them Pay

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Business Debt and the FDCPA

The Fair Debt Collection Practices Act (FDCPA) does not apply to “business” debts. According to its terms, the law only applies to “consumer” debts, and this can mean two things: a consumer is the “end-user” of the product, so the debt cannot have been generated in purchasing something for commercial resale; and the purchase cannot have been for business purchases. What does all this mean to you?

Is it a Business Debt?

For most people using my materials, this limitation may be more of a pleading issue than anything else. I say that because if your business is a legally distinct entity, you are not allowed to represent yourself anyway – because only lawyers are allowed to represent people other than themselves, and that rule applies to legally distinct businesses (i.e., corporations even if owned completely by you). If you are being sold personally, though, how would they know that your debt was generated for business purposes? Usually this is difficult if not impossible (but there are times when it is obvious that it is a business and not consumer debt, of course – as, for example, equipment leasing or purchase), and the debt collector simply pleads or alleges that it is business-related. Unless you admit that, however, it is going to be tough in most cases for them to prove it – and until it is proved, you can counterclaim under the FDCPA.

Don’t Claim Something You’ve Expensed as a Consumer Debt

As I’ve pointed out before, however, this can cause tax complications you want to consider carefully, because if you have claimed the expenses as tax deductible business expenses you can create several severe problems by turning around and claiming them as consumer expenses in a lawsuit. On the other hand, the courts will not regard your previous tax treatment of debt as necessarily deciding the question. It’s just that you can get in OTHER trouble if you claim things you have previously deducted were consumer transactions.

You Still Need to Defend Yourself Even if It Is a Business Debt

If the debt is a business debt and not a consumer debt, and everybody knows it, then the FDCPA does not apply to it. That means you cannot sue the debt collector for violating the Act. Does that mean that the Litigation Materials won’t be useful to you? Not at all. You still need to defend yourself, and all the basic rules and principles of defense still apply, and this is true whether or not the entity suing you is a debt collector or original creditor.

Alternatives to the FDCPA for Counterclaims

Beyond defense, though, consider what the FDCPA was designed to do. It makes “unfair” collection practices illegal. It was designed to level the playing field and give relatively unsophisticated consumers fairly clear rights against the debt collectors. It eased the requirements of proving damages and “wrongful” intent. In a general sense, it was designed to extend certain legal and practical rights to consumers, whereas congress considered businesses more capable of defending themselves from the day-to-day intrusions of the debt collectors and to hire lawyers to protect their legal rights.

In plain English, what I am saying is that many of the claims a consumer might bring under the FDCPA could, with slight alterations, be brought by businesses under other state laws. For example, the FDCPA makes it illegal for a debt collector to call you before 9:00 a.m. or after 9:00 p.m. without some reason to believe that’s okay. A debt collector calling a business owner at 8 a.m. Is probably going to be okay, but calling at 6 a.m. mightt rise to the level of “outrageous conduct,” which is a basis for suing regardless of whether or not the debt was business related.

State Tort Laws

Bad language or harassing calls might be similar. There are many other laws (these are called “tort law”) that might also apply to ruthless debt collection. The FDCPA certainly has its advantages if you can use it, but most of the things it applies to are, to some degree or another, already illegal under tort law. Your challenge as a pro se lawyer is to find your state’s tort law. To search for that you will be better off actually going to a law library, finding your state’s legal digest (a multi-volume – in Missouri has more than fifty volumes – that pretty much discusses all the state’s laws) and looking up some of the following terms: defamation, libel, slander, invasion of privacy, outrageous conduct, assault, harassment, and debt collection. Some states have broader protections than the FDCPA provides.

What if it Is Your Business Being Sued?

If the debt collector is suing your business rather than you, can you defend it? The answer here is a “qualified no.” If the business is a partnership or “C” corporation, the answer is almost certainly not. If it is a “sole proprietorship” (really just you as owner of the business), on the other hand, the answer is that you can defend yourself. There are some gray areas, however – if the corporation is an “S” corporation you may or may not be able to represent the corporation – some courts seem to allow it, although there are some good reasons not to do it. If you are being sued along with the company as a guarantor of the debt, you can defend yourself, but you will probably need a lawyer at least to file an answer to the suit against the company.

Conclusion

It’s a little more complicated, and a little tougher to prove, but there’s a good chance you can find a counterclaim even if the debt collector is after you for a debt that is clearly not a consumer debt. You just cannot bring it under the FDCPA.

Reviving Expired Debt through Trickery

Reviving Expired Debt through Trickery

The banks are always trying to revive debt, through fair means or foul. Here’s a trick you need to be alert for: issuing you a new card with an old balance on it.

The Scam

Here’s how the scam works. I’m sure you know all about statutes of limitations and the way they eventually operate to make old debts uncollectable through lawsuits. But this legal inability does not stretch to a practical prohibition. In other words, just because the debt collectors (or banks, in this case) can’t sue you, they can keep trying to get you to pay the debt back “voluntarily.” And they know that people who have had trouble paying off their debts in the past also have trouble getting credit now – after all, they do their best to make that so.

So here’s what they do: they send credit card offers to the people they can no longer sue, offering them credit cards with reasonable rates and no annual fees – but the only problem is that the cards carry the balance of the old debt. Accepting and applying for the card simply requires accepting responsibility for the debt. http://finance.yahoo.com/news/bringing-expired-debt-back-to-life.html.

What they Don’t Tell You

What the banks don’t tell you is that once you accept renewed responsibility for the debt, you have created an entirely new obligation to the old debt with an entirely new statute of limitations. If anything happens to prevent you from paying the whole amount – at any time – they’ll be free to sue you for the whole amount – at any time within the next several years.

Is it Really a Scam?

There are certainly deceptive features of the program – and a lot of opportunism. People are not generally told or reminded that the debt that is being revived is out of the statute of limitations and couldn’t be collected by lawsuit. And in my opinion, that essential deception suggests that the bankers regard their actions as a scam. Why hide the information if they’re offering such a good deal? Still, it does offer people with troubled debt history access to some credit, and it may be the only opportunity they have. Whether the bank will continue to extend credit after the credit balance is restored to zero (paid off) is a question I have, although it would seem to be in their interest to do so.

Warning

If you get one of these offers, think very carefully before you accept. Doing so will revive a potentially crippling debt that you had escaped and will probably not have any impact on your actual credit score, but it might bring you access to credit that would be otherwise unavailable. Before accepting such an offer, you should certainly make sure you do not, in fact, have other access to credit. Would your credit union, for example, lend you money if you kept a balance with them? How large would the payments on the new card be? How many such payments would it take to equal the amount of credit the card would extend? (i.e., suppose they offer you a card carrying a balance of $5,000, giving you minimum payments of $250 per month, and offering you a credit limit of $300 over that. After a little over a month, if you just saved the money, you would have more money than you would be able to borrow on the card.)

Conclusion

There might be better ways to restore your prosperity than paying a lot of money to someone you don’t owe anything.