The Importance of Counterclaims

I have talked about counterclaims often throughout this site, and counterclaims are very important if you can make them for the reasons discussed below. Things have gotten a little more complicated in this area recently, however. It used to be that almost everyone who might sue you was a “debt collector” under the Fair Debt Collection Practices Act.  Two big things have happened to change that.

First, many of the banks are no longer selling debts but are bringing their own lawsuits as plaintiffs.  This makes sense as a way to preserve evidence – although they still often do not have what they need to win.

And second, the Supreme Court has ruled that debt buyers are not necessarily “debt collectors” under the Fair Debt Collection Practices Act. The FDCPA has historically been the easiest source of counterclaims. If you can argue that the company suing you has debt collection as its “principle business” (as opposed to making and servicing loans or selling stuff, for example), you can still sue them under the FDCPA. Likewise, there are sometimes state law claims you can make. If you were defrauded, for example, you might be able to counterclaim for fraud against a debt collector.

With those limitations in mind, our original article and video are below.

The Importance of Counterclaims

If you are being sued by a debt collector, the best defense can be a good offense. It is important to file a counterclaim if you can both because it takes the fun out of the suit for the debt collector and because it allows you to hold the debt collector in the lawsuit long enough to force it to dismiss its claims against you “with prejudice.”

 

In many jurisdictions, the party bringing a lawsuit retains the option to dismiss it at any time up to trial without consequence or even without the need for permission. This can mean in debt cases that the debt collector files suit, and after you have hired a lawyer and filed an answer, the debt collector is free to drop the suit, possibly for later refiling. In any event, when the suit is dismissed “without prejudice,” you are left without a convenient way to force the debt collector to stop reporting the debt to the credit bureaus, so it continues to harm your credit report.

The solution to these problems is filing a counterclaim – that holds the debt collector in the law suit until you have negotiated a resolution to the issues.

In the Shoes of the Original Creditor

Debt collectors often masquerade as the original creditors both to make you think they have more evidence than they have and to make you feel guilty if you fight them. Here’s how to figure out if they’re trying this trick on you and what to do about it if they are.

Debt Collectors Make Their Money by Getting People to Give Up

Debt collectors often claim that they stand “in the shoes” of the original creditor. They do this as part of an attempt—illegal in my opinion—to intimidate the people they are harassing into believing they have more information than they do. You should make them pay.

How the “in the Shoes of the Original Creditor” Argument Comes up

There are various ways the “in the shoes” argument comes up, often beginning with the petition, in which the debt collector (a company you may never have heard of) claims to have extended credit to you, to have sought repayment, and to have been refused payment. You know it never happened that way if you think about it, but they’re hoping you won’t think about it at all.

What typically happens is that some debt collector bought the debt from somebody claiming you owed them money. As part of that purchase, they may have obtained a few electronic copies of statements and a computer record claiming you owe the money. This isn’t nearly enough to prove you owe them the money, and they want you to think that they have all the records because “they” lent you the money. They will often take it another step and actually submit affidavits claiming that you borrowed money from them (they say, “plaintiff” rather than their name, since that would reveal the deception). Or they will send you requests for admissions asking you to admit borrowing money from them—again, they say “plaintiff,” to hide the fact that they’re asking you to admit you borrowed money directly from them.

This is outright deceit, and it ought to offend anyone’s sense of fair play. But when you claim, rightly in my opinion, that this is an unfair debt collection practice under the Fair Debt Collection Practices Act (FDCPA), the debt collector argues vehemently that it has a right to make these claims because when it bought the debt it “stepped into the shoes” of the original creditor.

Nonsense.

The Grain of Truth behind Debt Collector’s Deception

The grain of truth behind the debt collectors’ deception is that a company collecting another’s debt generally has all the same rights to collect the money as the original creditor did. Debts are transferable in most cases, in other words, and the person assigned the debt has the same right to collect as the person transferring the debt.

But debt collectors do not “become” the original creditor (their buying the debt, after all, is what made them a “debt collector”), and claiming to be the original creditor is patently deceptive. Under the Fair Debt Collection Practices Act, a person (including companies) that routinely buys debts for the purposes of collecting on them is considered a “debt collector.” Essentially all of the provisions of the FDCPA apply to debt collectors, and foremost among these are the provisions against “deceptive” or unfair debt collection practices. These provisions apply to debt collectors but in general do not apply to original creditors. Thus the debt collector’s claim to stand in the shoes of the original creditor is, regarding their collection efforts, absolutely untrue.

Make them Pay with the FDCPA

As mentioned above, the debt collectors often send you discovery materials (i.e., requests for admissions, interrogatories, requests for documents) which use the word “plaintiff” instead of the company that you theoretically borrowed money from. What would prevent you from reading the word literally? They ask you to admit borrowing money from them—and you know you never did. Or they ask you for all the documents reflecting your account with them, and you know you never had an account with them. Why not simply deny it? That would be the literal truth, and in the legal process you are held to the literal truth.

As I have argued above, the claim that the debts were originally owed to the debt collector are false and deceptive. They misstate the law and are designed to make you believe that the debt collector is more able to collect the debt than it actually is. If you are looking for a counterclaim—and I have often pointed out that counterclaims can give you important power in a lawsuit by a debt collector—you might consider this an opportunity to make a counterclaim. You  might consider this tactic, regardless of where it comes up in the litigation, as an unfair debt collection practice.

Kicking Debt Collectors out of Court – Jurisdictional Issues

We discussed two kinds of jurisdictional issues in a recent teleconference – two different issues that call for very different responses.

In this video we’ll discuss what happens when the debt collector doesn’t show its ownership of the debt and when you are not properly served with the lawsuit.

– Jurisdictional Issues in Debt Law

 

Ownership of the Debt

When debt buyers bring a lawsuit, their ownership of the debt is always in question. It won’t be their  name on the debt instrument or contract,  and they will have purchased the debt – gotten it on “assignment.”

There is nothing wrong with that, let me emphasize. Most debts are freely transferrable (unless either a contract or law says they can’t be transferred) – so in most cases this will not be an issue. But what is an issue is proof of ownership. Only the true owner of a debt is permitted to bring a lawsuit. In a way that’s a no-brainer, isn’t it? If I happen to hear that someone owes you money, I can’t sue them for it can I?

No – if I want to sue, I must prove that I am the “true party in interest.”

Without the true party in interest’s participation, the court  does not really have jurisdiction over the subject matter of the case. If I bring suit on a debt someone else owes you, and that person gets around to pointing out that I don’t own the debt,  the case should be dismissed immediately – without prejudice. If the person being sued does show that the plaintiff cannot prove ownership, the proper response by the court is to dismiss immediately without taking any other action – it can’t make a judgment about the validity of the debt without the real owner being present.

You can attack ownership of the debt at any time, and in a debt case you should always contest the issue not only because you might win, but also because  debt collectors actually try to collect debts that don’t belong to them fairly often. You should always make them prove it.

In the case of the big junk debt buyers, they often will have a so-called “bill of sale” between the original creditor and the junk debt buyer. It will say that the  creditor is selling and assigning umpteen million dollars worth of debts to the debt collector. It will mention an attachment with the numbers of the accounts sold.

And it will often not have that attachment or anything else linking your account to that sale. That is inadequate proof of ownership. It is no proof of ownership. If you attack the case on that basis it should be dismissed – unless the debt collector can supply the information. For some reason,they often cannot.

You can make this argument at any time.It isn’t waived by you participating in the case. Any time you can prove the debt ownership isn’t established, the case should go away.

Sewer Service

Sewer service is different. In this situation, the process server threw the summons into the ditch while the defendant was watching and then swore to having given the summons to the defendant. In that situation, the defendant is forced into a choice: attack the court’s jurisdiction immediately by motion to quash, wait and attack jurisdiction, or defend. If you take actions to defend on the merits of the case – you say you don’t owe the money – you will likely be “waiving” or letting go your attack on the court’s jurisdiction.

If there is anything suspicious to you about the way you were served, or if the language of the petition filed against you is not clear or understandable, you need to look at your rules of civil procedure – under the “pleadings” section – before you file an answer. Otherwise you risk waiving your attack and “consenting” to whatever was wrong. Sometimes you can lose your best defenses if you do this.

What if they Accuse you of a Frivolous Defense to the Debt

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How Ability to Pay Affects Debt Defense

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Settling with the Debt Collector

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What is Case Worth to a Debt Collector

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What to Do if Sued for Debt

What to Do if You’re Being Sued for Debt

If you are being sued for a debt, you may be intimidated or even feel panicked. You may be considering giving up, but there is really no need for you to do that. You have an excellent chance to win if you will just fight a little bit. If you’re being sued on a  debt and want to know what your options are, watch this video.

If You Are Already Being Sued

If you are already being sued, you probably should not wait for anything. You need action now. You should be doing things to protect yourself NOW. You can beat them – it’s mostly a question of knowing what you need to do and doing that thing throughout the lawsuit, while at the same time not doing the things you should not do, until you either make them go away or win at trial. It sounds simple, and it is – if you know what you’re doing.

The purpose of our debt defense memberships is to help you know and do the things you need to do. And avoid the things that might hurt you.

I have had a great deal of experience both as a litigator and web master and have realized that almost every person representing himself or herself in a debt case would do much better if

  1. they have an opportunity, preferably on a regular basis, to talk to other people who can help them with insights and information; and
  2. a lot of the work done for them.

Our membership and resources do that. They certainly will not take all the work, or much of the learning, out of it, but any of our memberships will dramatically increase your chances of winning and reduce the amount of work you have to do.

If You Are Not Already Being Sued

If you are not already being sued, and want to try to negotiate with the debt collectors or creditors to clear up your credit report or make sure they do not sue you, then you may want our Debt Negotiation Membership.

Not all negotiation and settlement happens in court, you know. It is possible to contact many creditors and debt collectors to work things out without a law suit. But – whether there is a lawsuit or not, all negotiations occur “within the shadow of the law.” That is, in order to negotiate effectively, you need to know what their rights are, and what your rights are, in the law. What can they do to you if you do not settle? And what can you do to them? Knowing the answers to these questions helps you handle the fear and uncertainty that haunts so many people as they try to get a grip on their financial lives. You can find the answers you need.

And after you find the answers that lie behind the debts, you still need to know what to say and how to say it. You’ll find plenty of help with that, too. You see, it makes a large difference who you’re talking to and where in the debt collection process you are. We do not offer empty formulas, but rather solid understanding of what they are after, what you might want or get… and a few suggestions about how to say things so you’ll get them.

Discovery key to victory in debt litigation

We talk a lot about how many debt defendants default on their lawsuits – or show up just to give up via settlement. It is also true that many debt defendants either feel so righteous or so helpless, or so confident for one reason or another, that they defend themselves without adequately preparing for the case. This is a recipe for disaster for these defendants – and hurts other debt defendants, too. That’s because the judges get used to substandard cases from debt defendants and stop paying attention.

And THAT’S on top of the fact that most judges identify with the wealthy – and are wealthy – or at least identify with the lawyers. The guy representing the debt collector may not have golfed with the judge, but chances are good that the judge has golfed with a friend of his.

It’s a club, and you’re not in it.

For you to have a chance, you have to do something to stand out and apart from all the other people filing through the courtroom every day. You have to take some action that will allow the judge to get to know you a little bit – just enough to pay attention to you and the law. And of course you must know the right law so that you can explain that other hurtle – the judge’s ignorance.

I’m Not Saying, I’m Just saying…

A lot of judges are quite smart, and some… not so much. But you must realize that judges handle potentially thousands of cases per year, and in the case of judges dealing with debt cases, that number could be in the tens or even hundreds of thousands, of cases. They’re busy, and they barely have time to learn the fine points of the law if they don’t already know them. And most of debt law is both controlled by the fine points of laws and rules, and unknown to most lawyers. There is a very good chance, in other words, that your judge DOES NOT KNOW the law you’re depending on. And he or she barely cares. How do you break through?

Discovery – the Key to Your Best Chance

Ironically, the debt collectors will always object to all or almost all of your discovery, and this will give you an excellent reason to learn much more about the law in a useful context. Even more importantly, it will give you a reason to practice talking to the court and an opportunity to make yourself known to the judge. And it gives you the excuse to start educating the judge on what HE needs to know in order to be fair to you.

You need to discovery to have a good chance to win. And if you do it, you also dramatically increase the chances that the debt collector will walk away from your case long before trial.

What to Expect your First Day of Court in Debt Defense

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