Debt Buyers vs Debt Collectors

June 7, 2018

“Debt Collectors” and “Debt Buyers”

I often talk about debt collectors, but many, and perhaps most people being sued for debt are being sued by people (or companies, usually) that have purchased the debt from someone else and are suing to collect the money for themselves. These are sometimes called “junk debt buyers.”

So What is the difference between a “debt collector” and a “debt-buyer?”

There are some companies that collect debts for other companies, taking a percentage of the collections as their fees, and most people think of these companies when they think about “debt collectors.” But the term “debt collectors,” in its legal sense, is broader than that. There are also debt buyers, who buy the debt from the original creditors and collect on their own behalf, and these companies can also be “debt collectors” in the law.

If a company’s “principle business” is the collection of debts, it is a “debt collector” whether it is a debt buyer or (just) a collector. So the company that bugs you on behalf of the original creditor is a debt collector, and so is the company that bought the debt and began harassing you in an attempt to collect for itself. And so, usually, are the lawyers suing you and their firms. All must obey the Fair Debt Collection Practices Act.

“Debt collector” used to be more conveniently determined as a matter of when a company purchased a debt – if it buys a debt that isn’t being paid solely for the purpose of collecting it, it is obviously functioning simply as a debt collector. But our distinguished Supreme Court – distinguished mostly based on its hostility to working people and its favor to the rich – sees otherwise. It ruled against common sense in 2017. So now one must look to the status of the company – what its “principle business” may be – rather than its actions.

One problem with using the “principle business” standard is that the term has rarely, if ever, been actually quantified. That is, no one really knows what percentage of a company’s business needs to be a certain thing before that thing is its principle business. More fundamentally, all the debt buyers are doing is changing the name of the person allegedly owed. They make exactly the same amount of money they ever did (or they can if the deal is structured that way because there is no real risk of ownership), and their business is exactly what a third person debt collector’s is: they collect money owed to someone else. This should not be changed if the company incidentally happens to have some other operations that are other than collecting debts.

For example, a law firm that buys debts and sues on them (as many do) will almost certainly no longer be a debt collector, whereas Congress has been pretty clear that it wanted them to be. And the standard wrongly seems to focus on the overall business of the business rather than the nature of its operations vis a vis the debt in question.

Nevertheless, to prove a debt buyer is a debt collector under the FDCPA, you will now have to prove that is it’s principle business, and that will make bringing a counterclaim more difficult.

However, for purposes of defense this will not make any difference. The important thing about debt buyers, from our perspective, is that they are suing on a debt which they did not generate. This means they probably won’t have, and won’t be able to get, the records that would legitimately support the debt at trial. You should be able to beat any debt collector or debt buyer in court.

Our materials work on both debt collectors and original creditors.

Wishful Thinking – Dreaded Enemy of People in Debt

June 7, 2018

There is a tendency among being drowning in debt to wish for a magic bullet or some other sudden, easy remedy. Or otherwise to take no action and hope the debt goes away. This path could lead to financial destruction.I am now not paying credit cards as I am swamped with debt, and the minimum payments are killing me. I have been told the banks only gave me debt, not money, and are guilty of conversion by selling my personal information. I have been told the banks are committing fraud, coercion, unjust enrichment and violation of FCRA section 619. Do I owe anybody any money?

Magical Thinking Does Not Solve Debt

I get variations on this type of question fairly frequently. Someone has told the person contacting me that either there is no debt because the person only applied for a credit card but did not sign a contract, or, more esoterically, that there is no longer any money in the U.S. and thus there can be no debt. That argument has its academic basis in the fact that the United States left the gold standard and has allowed the Federal Reserve to issue “currency” in the form of “Federal Reserve Notes.” But it has its true basis in wishful or magical thinking. It would be so nice to wave a wand or speak some powerful words that would make the debt collectors go away.

Fighting is the only way to make them go away.

Contractual Agreement?

To handle the more basic objection first, it is true that a contract is an “agreement” between two parties, but it is not true that the agreement must be signed by both parties. An agreement can be inferred where the parties act as if there is an agreement. For example, if I offer to pay you $100 to walk on your hands across the street, and you do so, then your action has consummated a “unilateral” contract, and I am legally bound to pay you the $100. Likewise, if you apply for a credit card and I accept your application and issue a card to you, and then you use it to make a purchase, your use of the card establishes an obligation to pay back the debt under the contractual terms stated in the application. As far as I know, no modern court has ever held otherwise. Of course, a debt collector might have a difficult time finding the application and proving the terms of the debt-in my opinion a more fruitful line of attack.

Debt collectors often do things which are legally wrong, but these are either defenses or counterclaims you can make against them. Or you can bring suit yourself. The key to remember, though, is that the law is almost never self-enforcing. The mere existence of defenses or claims does not do anything for you-you must assert and prove them in order for them to do you any good.

Gold Is Money

What about the constitutional directive that all money be gold and silver, does this get you off the hook for credit card debt? The argument goes that only “debt” (which Federal Reserve notes signify) has been transferred, rather than money. But the gold and silver provision of the constitution was “written out” of the law by the Supreme Court long ago. That decision was not, in my opinion, a great moment for the Court or the American people, but it has never been revisited. It probably won’t be revisited, either, at least until the U.S. currency is nearing or at the point of collapse. Then Federal Reserve currency won’t seem so central to American commercial life, and a far-seeing Court might, under radical conditions, take a new look at the question.

But even then I suspect that the argument that no money was paid will not fly, and that is because Federal Reserve notes do have at least some “value.” If I offer to pay you 100 clam shells in exchange for something from you, a contract is formed. If I breach it, I would owe you the “value” of the 100 clam shells, normally, or under certain circumstances the shells themselves. Although Federal Reserve notes certainly do not have the value they once had in the market, this has only been to the advantage of people who owe money rather than others. Ironically, about the time anybody would revisit the question of whether federal reserve notes can be used as “money,” they will be approaching worthlessness. Then the biggest disaster a debtor could face would be to have to pay back in something of more enduring value.

Federal Reserve Notes Have Value

A Federal Reserve note is basically an “IOU” by the Federal Reserve, a private institution. The Fed gives currency (these days mostly electronically) to the banks in return for some sort of assets or a promise to pay it back, and that is the way money is created. The banks then lend out the money and it “circulates.” In contract law, debt is normally freely transferable. So not only can federal reserve notes be used as currency, but other forms of “commercial paper” or even private IOUs can also be used to buy things. They aren’t money and won’t necessarily be honored at “face value,” but they can certainly be used to pay debts. This would establish a contract even if it left the value of the obligation uncertain.

No Silver Bullets to Debt

And that leads to the central problem with the various “silver bullet” arguments which try to kill a person’s debt based on technicalities. The judicial system is far more practical than many suppose, and it would not ultimately (after the appeals process-individual judges sometimes do almost anything) make a ruling that would destroy the American commercial system. And this is appropriate in a democracy, since the courts should interpret laws rather than make them. A commercial system which has grown up over many, many years by responding to practical needs and which every legislative action has either taken for granted or actually bolstered, should not be stricken down in an instant by a court opinion.

What to Do

Fortunately, a person being harassed by debt collectors need not hope for such a silver bullet. Most debt collectors have a lot of trouble trying to prove the debts they are trying to collect for much more practical reasons. Often the records no longer exist or cannot be legally introduced as evidence. If you fight back, you can either prove they cannot make their case, or take the fun and profit out of it for them so they drop the case and leave you alone. Tackling just the monster attacking you is probably going to be enough for most people. Watch out for people trying to sell you more.

Why Do Debt Collectors Not Give up

June 7, 2018

Hey there! This content is available to MEMBERS only! Consider registering for an account.

Estimating Risk and Value in Debt Litigation

June 7, 2018

Why debt collectors or original creditors will negotiate with you

June 7, 2018

Hey there! This content is available to MEMBERS only! Consider registering for an account.

Repossession in the Real World

June 6, 2018

This article “pulls back the veil” and lets the average consumer take a look at what goes on in repossession. This should help you decide what to do if you’re struggling with car payments and wondering what repossession might do to you.

Repossession of cars and trucks, like making sausages and politics, undoubtedly has its benefits, but the actual process can be extremely unjust and disturbing to watch. This article is going to pull back the veil and let the average consumer take a look at what goes on in repossession. This article should help you decide what foreclosure could do to you if you’re struggling with car payments and wondering what actions to take.

Deal Gone Wrong

It is well-known that, when you buy a new car it depreciates substantially as soon as you drive it off the lot. In plain English, that means the car is worth much less money right after you buy it than before you own it. Depending on the size of your down payment, then, you could very well be, and most often probably are, “under water” on the loan-the car is worth less than you owe. For this reason, I prefer to buy used cars, myself, but if you don’t, and you buy well, things will eventually straighten themselves out. Provided you can continue to make the payments, the car will lose value more slowly than the note does. But what if something comes up and you can’t make the payments? That’s when you’re in for a rude surprise.

After missing a payment, you will find the auto dealership has become very interested in you. They will call and write. And they’ll keep calling and writing until your payments are current. If you can’t pay, the dealership will eventually suggest you return your car-or the idea might occur to you. If you don’t return the car, the dealership may send out “repo men” to repossess the car. You may go to your accustomed parking place only to find the car gone. They won’t leave a note, either.

But not too long later, you will probably get notice that your car is to be sold “at public auction” within a certain amount of time. They may tell you about a “right to redeem,” which at least in some states is your right to make good on the payments and get the car back. Let’s assume for the present example that you can’t do that. Let’s say (to keep the numbers simple) that the purchase price of the car was $15,000, and you made a down-payment plus other payments of $5,000. The car is two years old now, and its “blue book value” is down to $8,000. So you figure that after the company sells the car, you’ll owe about $2,000, right?

Repossession in the Real World

Wrong! A month later, you’ll find out that the car was sold for $2500. They charged you $250 for the “repossession fee” and another $250 for “reconditioning.” So they “credited” your account with $2,000 against the $10,000 you owed, and now they want another $8,000 from you. They send you a letter outlining everything they’ve done. You had a camera worth $200 in the glove compartment, and you ask about that. They tell you it’s “lost.”

That’s repossession in the real world.

What You Need to Know about Debt Settlement

June 6, 2018

Most debt reduction plans play a sort of “chicken” with your creditors. The way they work is that, when your situation becomes really dire, you stop paying as many bills as you can and start saving a pot of money that you will eventually use to pay all of them off. When you have saved enough, and when your creditors have become desperate enough, you negotiate to make them go away.

It sounds like a plan that might work – and it often does.

It works because of the crazy way the debt system works. There are unbelievably massive amounts of personal debt in the world, and a system set up to handle it. In this system, many people try to avoid paying their bills, but if the debt collectors keep after them long enough, they will pay. True commitment to debt avoidance is actually rare, and people being chased by debt collectors usually hide, but they don’t resist. That means the average low-level debt collector is trained and required to keep after you and has little, if any, authority, to negotiate with you. And these are the only people you will encounter until your resistance has passed a certain level. You must go higher up “the food chain” to reach people with real authority to negotiate with you, and this does not happen easily. In many cases it won’t be until the company has hired a lawyer.

So the idea behind debt relief is to withhold payment until the company moves you up the debt collection food chain to the bigger guys with more authority.

Of course the company will sometimes sue you instead of negotiating at that point, and this has been one of my objections to the whole debt relief scheme. You will undoubtedly be doing your credit report some short-range damage if you do not pay bills you could, and you may increase the likelihood of being sued. A debt relief company will often encourage you to take risks and sustain damage before they will or can negotiate for you. If it doesn’t work out that way, you are the big loser, and they simply find someone else to try it with.

My other objection to the way debt relief companies have done business is that they charge a lot for their services. It is my belief that most people can, if they really decide to do it, probably do as good – or almost as good – a job at debt settlement negotiations as the “pros” they hire to do it for them. After all, most of what these pros have going for them is simply the knowledge that that most creditors will, eventually, negotiate.

I have been asked about doing debt relief often enough that I have simply had to recognize that some people would feel more comfortable having other people negotiate for them even if they have to pay for that service. I have found a service that helps address some of my other concerns as well, the prepaid legal program I represent.

Business Debt and the FDCPA

June 6, 2018

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.

Things you Should Know before you Settle

June 6, 2018

Things You Should Know before You Settle with the Debt Collector

If you’re being sued by a debt collector, you’re probably worried–of course you are–but think twice before settling the case just to make it go away. Sometimes that can be a very bad idea, and if you will hang in there and fight a little bit, you’ll be in much better shape.

A Few Basic Facts about Settling Debt Cases

The lawyers for the debt collector never worry about losing a suit – they always assume they will win. And has nothing to do with the evidence, because they rarely have any idea of what the evidence is or what they could prove if they have to. Their confidence comes from two things: they don’t worry about losing a case because they have many of them and they’re cheap. And they don’t think you – a non-lawyer – have much of a chance against them anyway. So going to court and claiming they’ll win (if you try to negotiate) is nothing to them at all – and it should mean nothing to you, either.

So what do the lawyers for the debt collector fear? They fear wasting time – or spending it at all. That’s why they never do more than glance at your case before you show up. They have the business down to spending just a very few minutes per case.

They can do this because they do lots of cases at the same time and because most people give up or default.

So in Order to Settle in Any Meaningful Way

In order for you to get them to take you seriously, you will need to do a little work – and you will need to make them do a little work. Before that happens, they might knock off 20-30% of what the case is seeking if you ask (or they might not), but they won’t do serious negotiation. To settle, you have to file an answer and begin to defend yourself. Once you file an Answer and serve them some discovery, they start noticing you, and after that the chances of settling just get better and better.

And so do your chances of winning outright.

So hang tough for a bit and do a few things – they’re easy to do and not really scary. And if you want to settle eventually you can be sure that you will have made that easier and better. Or keep fighting and see if you can make them give up.

Tip 1 Uncommon Common Sense

June 6, 2018

Tip 1: Standing up for yourself isn’t hard – it’s just different

And it gets easier

You probably wouldn’t believe how often I get asked the question: “is it hard to defend yourself from the debt collectors?”

Or maybe you would.

If you’re being sued or harassed by a debt collector, one of the very first decisions you face is whether or not to defend yourself. And it is tempting to walk away, no doubt. So what you want to know is, how hard is it not to run away, but to stay and fight?

And luckily, it isn’t really hard.

One Step at a Time

I’ve started a lot of things in my time that if I’d had any idea how much work they would involve I probably never would have started in the first place. Fighting debt collectors is probably not going to be one of these things for you. But what makes it possible even to do the truly difficult things in life is simply to concentrate on the one step in front of you. As a debt defendant you will have a series of these steps. That’s what lawsuits are – a series of things to do, like steps. How many steps it will actually take, no one can say. What I can say, with certainty, is that if you are reasonably smart and willing to work a little bit, you can do every single step. One at a time.

Debt law isn’t rocket science.

You’re going to need to file an Answer or Motion to Dismiss. Could you do that if you set aside ten hours to do it? Yes. Using our litigation materials, it will take you half an hour to draft an answer, and you can do it yourself without our litigation materials in a somewhat longer time.

You’re going to need to draft “discovery,” which is the formal way you ask the other side what they have to use against you – what could hurt or help you. Could you do that? Yes, you could. Our materials make it relatively easy, but again you can do this on your own.

You may need to file or respond to a motion. Or more than one motion. Can you do it? Certainly you can.

And so it goes. You need to develop a broad strategic plan and then take a series of very manageable steps to get there. You may or may not need to take them all – again, only the debt collector really knows how far it will take things – but you can take every necessary step from being served with the suit through trial if necessary. Each step is relatively simple.

The Difficulty is in your Mind

What is “hard” about standing up for yourself is not the actual standing up or doing what needs to be done. What is hard is to do something different than you have done. Debt troubles are usually not an accident. They are usually the result of certain actions that you or someone took (or failed to take). They are often the result of certain habits. And these habits often accompany a habit of not “taking charge.”

Habits can be hard to break, but anyone can do it if they’re determined enough, right?

Standing up for yourself is “taking charge.” It’s just a different mind-set. Easy as pie – and hard as the devil! I won’t kid you – if you are going to defend yourself you must be willing to start to make the shift from “letting things happen to you” to “taking charge.” It isn’t “hard,” in the sense of physical labor or even intellectual challenge, but it does require paying attention to things you haven’t paid attention to before. And it requires looking at something you’d probably rather not look at, right?

It does require “growth.”

This growth is why people who do stand up for themselves and beat the debt collectors feel so good about doing it. Even more than the money, maybe, standing up for yourself and growing into that sort of person is deeply satisfying and – yes – liberating. You will never be sorry if you take on the debt collectors. Any work you do on it will be “good” work. You’ll know that right from the very beginning, and you’ll get to like it more and more, probably.

The difficulty is just in changing. It’s like stepping through a wall that isn’t really there. So if you’re going to do this, start today to look out for yourself. And watch for the next tip tomorrow.