They’re Suing me and my Business, Can and Should I Defend?

We get this question a lot because people borrowing money for their businesses usually have to offer personal guarantees. Then if the loan goes sour, someone sues the owner and the business.

Suing Your Corporation

This issue does not normally arise where the business is either a sole proprietorship or a partnership, because these entities are not treated as “separate persons” in the law. When you’re sued as a partnership or sole proprietorship, you’re just being sued individually.

If you own a corporation, on the other hand, it is a separate person, and only lawyers can represent other persons. That means you can defend yourself, but not the corporation. What should you do? This  depends on what you can afford and what is at stake.

Corporation Valuable

If the corporation has assets and is valuable, you probably need to protect it. That means hiring a lawyer to represent it. If you don’t, the debt collector will get a judgment against it by default, and such a judgment could be or become a major nuisance.

Corporation Not Valuable

If the corporation is not particularly valuable and is not going anywhere, you could consider dissolving it if there’s a judgment, so that is less important. The debt collector may try to prove that the corporation is too “thinly capitalized” and is, therefore, just an “alter ego” for you, however. That is something you should take seriously, and again it would suggest hiring a lawyer – at least for advice on what to do about it.

Proving thin capitalization is much more lawyering than most debt collectors are prepared to do, however. They like to use premade forms to establish cases against people who do not defend themselves. Getting the facts to prove thin capitalization is uneconomic for most debt collectors, although of course this doesn’t mean it couldn’t happen in an individual case. Normally it won’t present much risk.

Hiring a Lawyer

If you hire a lawyer to defend the corporation, it is likely that the lawyer could also represent you personally. If you make that choice, which is wise if you have a lawyer well-versed in collection law, then you will simply be putting your fate in the hands of the lawyer. The problem is that most lawyers are NOT well-versed in debt defense, and there is a new financial variable as well, namely that the lawyer must charge for his or her services and recommend a “reasonable” course of action. That likely will lead to a settlement that might not be in your favor.

The Advantages of Self-Representation

The alternative is to let the lawyer represent the corporation while you represent yourself. This leaves you in the case as an involved litigant. As a practical matter, the case against you and the corporation are pretty much identical, and work on one will be work for both. Not all lawyers would willingly be involved in that scenario, but if yours is, you may get the best of both worlds. That is, you can let the lawyer spend “reasonable” amounts of time defending while you spend “unreasonable” amounts of time defending. Or, rather, since the lawyer is charging you $100 per hour or more, if you can work for less than that, time spent could be reasonable for you while unreasonable for the lawyer.

In debt law, unlike most other types of law, self-representation can make very good sense. You will not have the same bias towards settlement the lawyer has, and you will be free to spend more time on the case. This informs your judgment as to the law yet also makes your defense much tougher. We do believe that the risk of inadequate defense (by lawyers) is significant given the financial constraints, and suggest that your remaining knowledgeably involved could be very important.

Self-representation is annoying and time-consuming, and may not be financially efficient, but it would probably increase your chances of success, and there are intangible benefits of winning that are very significant.

Our Materials

Our materials will be of help to you in defending the legal issues involved in the collection. Our resources on legal research will help you with the other issues as well, but we have not addressed the specific issues of corporate law that could come up if your company is being sued. You will find the teleconferences helpful in many ways.

Do Our Materials Work against Original Creditors

Do Your Materials Work for Cases against Original Creditors?

Yes. When I represented clients in these cases, there used to be a more significant difference between original creditors and junk debt buyers. We’ve written a lot about the differences between original creditors and debt buyers. They boil down into two things: you are more likely to have a counterclaim against a “debt collector” (which all debt buyers used to be considered); and debt buyers are less likely to have the documents they need to beat you. These differences are still there, but they are less important now than they used to be.

We will discuss both defense and possible counterclaims.

Defense

The main reason our materials work against both original creditors and others is practical. That is, it is because of the way law is actually practiced and the way people dispose of lawsuits. As we have often pointed out, parties settle cases only because they think a particular settlement offer is the best overall result they can obtain. It has nothing to do with what might be good, or nice, or anything else, for the other side. As a practical matter, you look for what is best for you and don’t try to help the other side, right?

Debt lawyers consider three things in this analysis: the risk of losing, the price of winning, and the chance of collection. These three things are very different.

Risk of Losing

The risk of losing is the chance that you will lose. It’s obviously never quite zero, but the people suing you pretty much ignore this risk – they think they will win, and the few times they don’t, don’t hurt. At the beginning of a lawsuit, therefore, this risk might as well be zero in the minds of the debt collectors. Our materials are designed to help you see whether they have any weaknesses, and if so, to build on them to create doubt in their minds. For pro se defendants, that’s pretty much all you will ever accomplish.

Price of Winning

The price of winning is very different. That is MUCH more of a consideration for the people suing you. Given (they think) that they will win, what will it cost to get the thing to trial and get the judgment? At the beginning of the case, the people suing you also ignore this issue because most people don’t put up much or any fight. The debt collectors expect their judgment easily and quickly – probably by default without any work at all.

And they get it most of the time. Our materials help you change their perception of this factor. Everything you do will cost them money, and the more you have done, the more they expect you to do. In other words, as you defend, the pile of costs grows, and the pile of expected costs grows even more. Whether they are debt buyers or original creditors, this radically changes the equation in their heads. It raises the likelihood that they will lose money whether they win the case or not.  Frankly, this is why most of them settle for a reasonable amount.

Chance of Collection

The other factor is the chance of collection: given that they will win, can they get money from you. Debt collectors and original creditors both understand that most people want to pay their bills, and the reason some don’t is that they have money problems. They know they can’t get money from you if you don’t have it, and they think you probably don’t have it.

This factor is very much a part of their thinking at all stages of the case, and it’s why most debt collectors will probably give you a discount on the case before you do anything – if you ask. It won’t be much of a discount, but it will be more if you offer a lump sum (eliminating the risk of collecting the rest) than if you offer payments. Does that make sense?

Factors Work Together

Notice how these factors work together. If you don’t give the other side information about your assets, and you do conduct discovery, you (slightly, in their minds) increase their chances of losing and drastically increase the costs of suit. You also delay the judgment they had expected to get quickly – and that reduces their chances of collection if they win.

The two most important factors, cost and delay, are the same for original creditors and debt collectors. Risk of losing goes up more for debt collectors than original creditors, but this factor is never important for either debt collectors or original creditors.

Thus our materials help you drive the value of the case down in the same way for both groups. If the other side regards your case as less valuable, it is more likely to offer you an actually good settlement, or to walk away from the litigation eventually. But what if it doesn’t? How do our materials work then?

Remember that law is a contest with very specific rules. It has always been our belief that either debt collectors or original creditors COULD win their case against you. To do so, however, they have to get the stuff they need and follow through with it, and these are expensive to do.

When we started Your Legal Leg Up, we knew that debt collectors almost never had what they needed to win if the case went to trial, and we were satisfied that they could not get it in a cost-effective and timely way. But we believed original creditors did have the necessary evidence or could easily get it. We have discovered that this is not true.

We are unaware of any reason why this is so. From our perspective, it would seem to be a simple process to retain the necessary records and do what is necessary to “authenticate” them as evidence (make them admissible in court). Nevertheless it is an observable fact that they often do not obtain or use appropriate evidence, and therefore there must be some reason for it. Perhaps it is the same for original creditors as it is for debt collectors – either they don’t think it’s worth it given the collection risk, or they are set up in a way where getting the information would clog up their systems and increase costs in general. In any event, you can find out if they have the evidence and the will to use them correctly by doing only one thing: fighting their case and conducting discovery. We believe there’s a good chance you will win if you do this.

Counterclaims

The other side of debt defense is using a counterclaim to take control of the lawsuit. We do still regard this as an important thing, if you can do it. That’s because if you can hold the debt collector in the suit with a counterclaim, you can make them dismiss the case “with prejudice,” which prevents anyone else from suing you on the debt. It will also help you repair your credit if you destroy the claim against you.

You will probably never have a good counterclaim against an original creditor, whereas you might get one against a debt collector. Some claims do exist – notably defamation or, for extreme acts, something called the “tort of outrageous infliction of emotional distress,” but the courts have historically been amazingly tolerant of original creditors. Much less so of debt collectors.

But again, as a practical matter, these things have turned out to be less important than they might have been. If you win the suit against another party (without prejudice), they are unlikely ever to sue you again even if they could. And if they sell the debt, the person buying the claim would have little chance against you in court. It also appears to be true that after dropping a suit against you the other side would have less energy and desire to prevent you from credit repair. It isn’t that they like you or couldn’t make trouble, it’s just that they have no financial interest in doing so. This appears to cause a lot of them to take no steps to prevent your efforts to remove their credit references.

Most people being sued by debt collectors just want the suit to go away and are not interested in trying to make the other side pay. This reduces the importance of the other side’s status as debt collector or not.

Conclusion

Therefore all things considered, our materials are about equally effective against debt collectors and original creditors. If the matter goes all the way to trial, you might have a somewhat larger chance of losing to an original creditor, but fighting intelligently will give you your best chance of preventing that from happening. The actual court processes are the same in either case, so you will be prepared to fight.

Sample Deposition Questions 2

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Sample Deposition One

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Deposing a Business Records Keeper

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Econ 101 or What Happens when the Bills Come Due

I believe it is a fundamental, unchanging law: there are no free lunches in life or nature. What gets bought must be paid for, eventually, by someone.Members at Your Legal Leg Up know very well that that law applies to daily personal purchasing decisions, and many have paid very steep prices indeed. But it also applies at the national and international level, and politicians who have long ignored the fact are soon going to be reminded of it.

As one economist puts it, in order for one person to get something for nothing, someone else must get nothing for something. So what happens to our current government debt of 21 trillion dollars (more or less, and growing rapidly) in a world of debt jubilee? Eventually it must be paid, right?

This is part of a series of articles on Occupy Wall Street, Debt Jubilee, and our future. Click on the links for the previous articles, but this article should stand on its own, also.

Debts Used to be Paid in Gold

Up until the 1930s, debts all the world round were settled, ultimately, in gold. A “dollar” was a fixed amount of gold, and for over a hundred years there had been essentially NO inflation. There had been occasional “runs” on banks that got overextended, and banks (and people with savings in them) got wiped out from time to time, and there had been occasional booms and busts. The Federal Reserve was put in to deal with those problems, and so it did. Thirteen years after its founding in 1914 the Great Depression began, and we’ve been on a boom and bust cycle ever since then.

But I digress.

Private Debts were Paid in Gold until the 1930s

The point is that Gold was first removed from actual circulation within the United State by Franklin Roosevelt and made illegal for persons to own. At the same time, the dollar was devalued (against gold on an international basis) by about thirty percent. International debts were still settled in gold until 1971.

So what does “settled in gold” even mean? When a businessperson in the U.S. buys a Japanese widget, he pays either dollars or yen. That is, either he sells dollars to buy yen, or the Japanese business ultimately does so. In any event, some dollars are transferred to Japan. Of course this happens in a gazillion ways and times throughout any given year, but in the final analysis one side is holding more of the other side’s currency. Mostly, that is allowed to persist, but at some point the side holding more of the other side’s currency may want to settle up in something else. Until 1971 foreigners could trade dollars for gold.

Dollar Window is Closed

Then there was the Vietnam war along with various U.S. policies that cost more than the government was taking in. That caused the dollar’s actual value to go down, but the official dollar value in gold stayed the same. That meant that gold was too “cheap,” and the French (in particular) decided to trade large amounts of dollars for gold. In 1971, the U.S. dollar was cut free of any specific relationship to gold and the government stopped giving foreigners gold for dollars.

At that point, the U.S. deficit was a few billion dollars and causing a lot of anxiety. Since then it has grown to 21 trillion (and adding, at current rates, another trillion or more per year) and causing very little anxiety. People on Social Security are hoping to get paid, and yet there are fewer and fewer workers to support them, so they are being paid out of taxes (or, realistically, government debt). The deficit is going to grow, inevitably.

Still No Free Lunches

What happens when the law against free lunches kicks in, finally? What happens when those trillions have to be paid? And what happens if, along the way, a lot of student loan and other debts are also wiped out by legislative act?

Right now, the dollar’s value is established by the free market (which isn’t to say it isn’t extremely manipulated). It’s worth what people all over the world say it’s worth without reference to any fixed point (gold, historically). When the law against free lunches kicks in, people will decide they would rather have things than dollars. They’ll say the dollar is worth less as they try to recuperate some of the resources they’ve been sending over in exchange for U.S. debt, in other words. This process has happened many times to various other countries. It is happening right now to Venezuela, whose inflation rate was, unofficially, approximately 1 million percent in 2018. It’s happening in Turkey right now. It happened in Germany, where one U.S. dollar was ultimately worth 4 trillion German marks in 1921.

Current Deficit is 21 Trillion Dollars and Growing

You can buy a lot of stuff for $21,000,000,000,000.00. If people try to buy stuff with that much money it’s going to cause prices to zoom higher. Many factors have held that result in check for the time being, but it will not last. If history is any guide, the change will be sudden and happen with incredible, bewildering speed. When adding straws to camel backs, one never knows which one will be the one that is too much. All that is certain is that currently over a trillion straws are being added every year. I think the one too much will happen within the next decade or two.

The havoc caused by currency destruction is almost unbelievable. Historically, it has meant the destruction of the middle class and all economic security. It has devastated the poor and led to widespread starvation and disease, and it has led to oppressive government and foreign wars. Without going into further details, I hope that the millennials will try to prevent it from happening. That’s going to mean some very tough choices.

As an aside to the reader, although I think the value of the dollar may, at the point foreseen, be among the least of your problems, it would probably be smart to try to keep it from being a problem at all. You should consider buying things of actual value no with whatever money you can afford. Talking about gold, silver, land, food… I’m not saying hoard cans of food like a survivalist. I’m saying it makes sense to recognize what seems to be coming our way and take rational steps to prepare where possible. There seems to be no telling when things will hit the fan, but that they will hit the fan is guaranteed by the law against free lunches.

Jubilee for Student Debt

There is a movement – in its very early stages – for a debt jubilee. You may not have heard of it, but it has some people very worried. And I think there’s a good chance it will come to pass. Soon.

This is the second of a series of articles on a continuing political phenomenon important to people with debt. The first article is “Occupy Wall Street.”  The second article is Econ 101 or What Happens when the Bills Come Due.

What is a “Jubilee”?

A jubilee is the mass forgiveness of debt – a governmentally imposed wiping of the slate clean from all debt of any specific, or all, types of debt. You might think it could never happen here in the United States, but it has, historically, happened several times in various places. Never was it more appropriate than for student debt, in my opinion. Of course, other kinds of debt could also get thrown into the pot when things get going. Is it good? Is it likely? And if it happens, what will be the probable consequences?

Any talk of student loan jubilee should begin with what has happened in the past forty years. During that time, student loans have become not just popular, but essential for almost all students entering college or other formal, advanced education in the United States. In some countries in Europe, for example, schooling is free, but here it is expensive – very expensive. And it has been getting more so at a rate far exceeding the rate of inflation for the past forty years. This is because student loans, which had a noble publicly discussed purpose (making education available to all) had the unintended consequence of making education unaffordable to all. By relieving the price competition, it has allowed schools to increase tuition at a tremendous rate.

The schools and the banks have become filthy rich from the system. Student graduation rates have fallen, and average length of college has increased. And a whole generation of students have entered adult life with a crushing burden of debt.

Because of “special government protections,” bankruptcy is almost never any help to people with student debt. They declare bankruptcy and still end up paying everything they have for student loans that, all too often, were completely useless to them. Whatever you think of Trump’s tax cuts for the super-rich in 2017, the amount would have been enough to rid people of their student debt burdens, so it can be done. It’s just a question of who gets the money: the super rich 1%? Or the poverty stricken 99%?

This question is soon going to be coming to the fore.

Social Security is a Huge Issue

There’s another factor at play. The baby boomers – people born from roughly 1950 – 1965 – have plundered the resources of the past and future. They’ve given themselves tax cuts and embarked upon expensive wars while decimating the interest rates that allowed old people to live on their savings. And while guzzling the resources that could have given the young a start in life. Now they’re beginning to retire, assuming that Social Security will keep them in the comfort to which they are accustomed, for the rest of their long lives. When boomers started paying into Social Security, there were many workers per retiree, now there are less than half as many workers per retiree. Social Security is paid out of current tax revenues, so what that means is that the “surplus” people like to talk about for Social Security is an illusion – that surplus is made up of government bonds which are paid (or rolled forward to be paid later) out of current taxes. The millennials will be paying for the boomers’ retirement, if they choose to do so.

By election time in 2020, the baby boomers will no longer be the largest voting group in the country. Millennials will become the largest voting block, and they will be gaining electoral power for many years after that. It is going to occur to them that the boomers have pillaged their futures. It will occur to someone that the time is ripe for a jubilee to set thing straight. That person will find a passionate following of people who have never felt called-upon to vote. Politicians have pandered to the boomers for many years. They’ve ignored the millennials, and the millennials have ignored them.

That could change very suddenly. I think it will. Some people are in fact already talking about it.

What it Means

The change in electoral power and the likely shift in governmental focus could be huge. One could hope that the millennials will strive to set some priorities that the boomers never managed. In that scenario, student loans would be eliminated and free education installed (perhaps). Social Security would be managed in some way take care of the old without overburdening the young, and peace and harmony could descend forever and ever amen. Something has to change for that to happen, though. Either the super-rich will have to pay much more or the military, for example, will have to take much less. It could happen, but these are both deeply entrenched special interests with a lot of money and power.

An alternative scenario is less attractive but more likely. In that scenario, student debt is eliminated and there’s a lot of talk about cutting back on money to retirees and the military and of taxing the super-rich. What actually happens is more of what has been happening, though – the deficit balloons. The money is paid in depreciated dollars, and the debt is pushed down the line for the future to pay.

Eventually, that isn’t going to keep working.

Motions in Limine

Motions in Limine are pre-trial motions that serve a specific purpose. That is, they are motions designed to preview issues regarding whether certain evidence will be allowed (“admissible”) for the trial and under what circumstances it would or will be admitted. Typically, a court’s final pretrial order will set the time limit and schedule for motions in limine, but even if it doesn’t, you may want to file one.

Remember, they are filed in contemplation of trial – they are not a motion to file in some more general sense. If there is a motion for summary judgment, for example, you don’t file a motion in limine – you oppose the motion and object to the evidence in that motion. You would make all the same arguments, perhaps, but in a different context.

Remember that a court may, or may not, rule on a motion in limine before trial. The idea is to present the objection in a systematic way under conditions that allow the judge to think about it outside of the heat of the moment. It often happens that you’ll present a motion in limine and the judge won’t rule on it because the context of the trial isn’t clear until things start happening in trial. No matter. Make your best argument in the motion and argument and be prepared for whatever the judge does. Pay close attention to what the judge thinks matters regarding whether the evidence will be admitted, and be prepared to argue at trial that those conditions haven’t happened (so the evidence shouldn’t be admitted).

Finally, remember that any ruling by the judge before trial is not necessarily binding at trial. Thus, even if you lose your motion to exclude in limine, you will want to object at trial and take another shot at it. You’d be surprised how often the judge will change his mind. And that means you also have to be prepared for the other side to do the same – and you must remember that in order to preserve your rights you probably have to make your objections again at trial. So think of the motion in limine as a sort of warm up.

 

Service Call Scam Warning

Tech support scams, which get people to pay for fake computer help or steal their personal information, are convincing. You might already know the signs of a tech support scam, but do your friends and family? Here’s what they need to know now:

  • Companies like Microsoft don’t call and ask for access to your computer. If you get a call like that, it’s a scam.
  • Real companies also won’t ask for your account passwords. Only scammers do.
  • Tech support scammers try to convince you they’re legitimate. They’ll pretend to know about a problem on your computer. They’ll ask you to open normal files that look alarming to make you think you need help.
  • If you do need computer help, go directly to a person, business, or website you know you can trust. General online searches are risky because they might pull up another scam.

If people you know were already scammed, here’s what to tell them:

  • If you paid with a credit or debit card, call your credit card company or bank immediately and tell them what happened.
  • If you paid with a gift card, contact the gift card company (iTunes, Amazon, etc.) ASAP to see if the funds are still on the card and can be frozen before it’s too late.
  • A tech support scammer who has access to your computer can install malware. Update your computer’s security software, scan your computer, and delete anything it identifies as a problem. Restart your computer to be sure the changes take effect. Going forward, download security updates as soon as they are available. Most operating systems have a setting to download and install security updates automatically. Use it. And install updates for your other software, including apps.
  • If the scammer got your password for a financial account, or a site like Amazon, change the password immediately. Contact the company directly to make sure nobody has broken into your account.

Report your experience to ftc.gov/complaint. You’re not alone, and reporting these scams helps law enforcement go after the people behind tech support scams.