When people are being sued for debts, they often panic and look for the quickest, easiest, or least scary way out. Bankruptcy sometimes seems to be that way. What is bankruptcy? and how does it work? How does it affect some of your other rights?
What Bankruptcy is
Most people have an intuitive idea of what bankruptcy is – legal protection for people who are broke, right?
Sort of.
Bankruptcy is at least equally a protection for creditors. You see, when people are financially troubled, this doesn’t mean that they literally have NOTHING. Rather, they will spend or distribute an inadequate number of resourses in a way to relieve them of the most pressure, or to favor people they want to favor. Bankruptcy exists to help prioritize and organize the ways debtors distribute their money so as to protect the creditors from favoritism or sneaky behavior. It does protect the debtor (person declaring bankruptcy) from all lawsuits or judgments, and this in turn spares the creditors from having to “race to the courthouse” to file suits against the financially weakened.
That makes good sense, right? So shouldn’t anybody with debt troubles dive into bankruptcy?
Price of Bankruptcy
Bankruptcy is not a “free lunch” to debtors. It can be expensive to do, and over the past decade or two has been made much trickier to get in and finish. It is also extremely intrusive and occasionally time-consuming. It also does not protect you from all claims, notably those associated with “secured” debts – debts like home and auto loans.
In my opinion, bankruptcy is RARELY a good first option for people being sued for debts, especially if they’re being sued by debt collectors. On the other hand, if you expect to negotiate with a debt collector or creditor in any way, our position is that you should consult a bankruptcy lawyer. You should know what it costs and requires, and letting a debt collector know you’ve actually talked to a bankruptcy lawyer can have a wonderful effect on their willingness to accept lower amounts of money.
Issues in Bankruptcy
Perhaps surprisingly, bankruptcy and debt law are not closely related, and lawyers who practice one kind of law rarely know much about the other. Unless your lawyer (if you have one) actually practices both types of law, he or she is probably not qualified to give you advice about the area in which he does NOT regularly practice.
Bankruptcy and FDCPA
Another issue comes from the interaction of bankruptcy and debt laws. This isn’t uniform, consistent, or particularly fair. In some jurisdictions, for example, if you declare bankruptcy, creditors will come out of the woodwork to file “claims” against the bankruptcy estate. It would be illegal for them to sue you, but in SOME courts it’s fine for them to litigate against you in bankruptcy. This is plan stupid and bad, but some federal appeals courts allow it while others make it a violation of the Fair Debt Collection Practices Act (FDCPA). The Supreme Court has not addressed the issue yet.
Bankruptcy and Student Debt
The courts are even less consistent or fair when it comes to student debt. If most of your debt problem comes from heavy student loans, bankruptcy may not offer you much help. They are treated differently from almost all other debts, and in many courts they are almost impossible to shake off. Strangely, perhaps, this issue has not been organized or even considered very much by bankruptcy or debt lawyers. I have addressed the issue in Getting Out of the Trap of Student Loans. That book discusses the way bankruptcy law and student loans collide and, on a federal circuit by circuit basis, what your chances of escaping the trap might be.
Against Debt Collectors
Our view on suits brought by debt collectors is that bankruptcy is rarely a good first option – and only sometimes a good last option. However, you should know that, if bankruptcy will work for you at all, it will work for you just about as well even if the debt collector has obtained a judgment. That is, bankruptcy protection applies to state court judgments as much as any other kind of debt, alleged or proven. Thus you could defend yourself pro se and, if you lost (as very few of our members do), you would still be able to declare bankruptcy if it would help.
Silence is Golden – Do not talk to debt collectors – part 1
Debt collectors ask a lot of questions. How much information should you “share” with debt collectors? How many questions should you answer? It all depends on what you’re trying to do and where in the process you are. This video should help you figure out what you need to say, when, and to whom.
Should I talk to a Debt Collector? What Should I Say
If you are being called or harassed by a debt collector, one of the purposes of that debt collector is to get you to talk. Should you? This is going to depend on whether you have anything to say.
Debt Collectors Target Struggling People
As I have mentioned before, the debt collection business is targeted at distressed people. The debt collectors already know you don’t have much money, and they know you probably have other people trying to get money from you. Their job is not to force you to pay somebody—it’s to force you to pay them. Another way to put that is that they are not competing with you—they’re competing with other debt collectors. You are the football in a game between the debt collectors, the string in a game of tug of war. Does that make sense?
Silence Can Be Golden when Dealing with Collections
The job of the debt collector is to get you to pay them instead of someone else. They can do this either by annoying you so much that you pay them to get them off the phone or by establishing a sympathetic connection to you so you gladly do it for the voice on the other end of the line. Both of these methods involve keeping you on the phone and the connection open, and neither of these methods is directed at your well-being. Also, if they can get you to reveal information about your job or bank, or any kind of assets you have, they can improve their chances of making you pay against your will. So unless you have your own purpose for communicating, you shouldn’t do it.
Sometimes it Makes Sense to Talk to Collectors
What might be a good reason for you to communicate? Well, because you want something tangible from the debt collector to whom you are speaking. You could want them to reduce interest rates, waive penalties, agree not to give information on your debt to the credit reporting agencies, or any number of actual, materially beneficial things. If you’re hoping to get a friendly voice or understanding, a debt collector is the wrong person to talk to: they already understand everything they want to know about your situation. Talk to someone else for that.
Negotiate—And Get It in Writing
Don’t be afraid to negotiate. You can ask for anything from them, and in most cases the debt collector could give you anything you might request. So be bold. If you want to settle for ten cents on the dollar, you can ask. They may laugh—but laughter is just a part of the negotiation and doesn’t mean they won’t do it. And if they agree to do anything, you must get the agreement in writing. In a practical sense, it doesn’t count if you don’t get it in writing. You won’t be able to prove it, and in some cases an oral “modification” would not even be legally recognizable even if you could prove it. It must be in writing.
They’ll want something in return. An immediate payment, an agreement to pay by a certain date, something. You can agree to this if you can do it, but you’re spinning your wheels if you cannot, so it makes sense to limit your promises to things you’re sure you can perform. Don’t over-commit, as this may negate the agreement you reach and will almost certainly increase the number and hostility of the phone calls you are receiving. Remember that the debt collector is keeping records of everything you say (so don’t tell them where you work or bank).
Stop Talking to Collectors When You’ve Said What You Need to Say
And when you run out of reasons to keep talking to the debt collector, make sure that you actually stop talking to them. There is always a price for anything you say – you’re giving them free information that they will use to decide to sue you. Sometimes talking to them is worth that price, but if that changes, you should feel no obligation to keep talking.
This is part 1 of this article. Click here for part 2.
Silence is Golden – Part 2
I mentioned the mini-Miranda right in Part 1 of this article, and I have already spoken several times about the importance of silence. Why do I keep mentioning this? That’s right – because people forget it so often. Debt trouble erodes our confidence and makes us self-conscious. Debt collectors like to use your sense that you are failing in some important, moral way, when you don’t pay, to push you around. And people like to “tell their story” and make themselves understood.
Save it for the jury
Nothing you can say to the debt collector will help you in any way. You won’t persuade them you are good, that your debts are unreasonable or unmanageable, you can’t hurt their feelings in any way that helps you. You can’t cause them to delay or decide against taking any significant action.
And almost everything you do can, by contrast, be used against you one way or another. Asking for a little extra time to pay the debt? That’s an admission the debt is yours to pay. Asking them to reduce the interest rates? That’s a form of negotiation which may eliminate their need to prove any specifics of the debt and may extend the statute of limitations significantly. Say something to try to hurt the feelings of the debt collector who has been calling you several times per day? That’ll be something you hear back at trial.
If your debt troubles are going to persist in any significant way, you need to close your mouth.
Don’t Talk to the Debt Collection Lawyer
And you need to keep it closed if they sue you. Talking to the debt collector’s lawyer only magnifies the chance that you’ll say something that hurts you. In that situation, not only can you say something that damages your case, you can make an admission that kills it. I can’t tell you how many people have told me that they “told the lawyer the debt was there’s but…”
If you admit the debt to the lawyer – or to anyone on the debt collection team – you may be letting them off the hook of proving they own the debt or that you owe it. Once that happens, you will find their willingness to reduce the amount they want you to pay much harder. That’s because until they prove that you owe them the money, they must consider the risk that they cannot prove these things and, further, consider the cost it would take to prove them. These are major risks for debt collectors who do not have any original records and only the sketchiest information on the supposed debt. Solve these problems for them and you triple the value of the debt. Now they only have to worry about the expense and delay of forcing you to pay.
And you must also keep your mouth shut to the judge
In many ways, this is the toughest. Judges are stern, and they’re accustomed to having almost complete control over the people in their courts. This makes it extremely difficult and even risky to refuse to answer a judge’s question. Instead, you must be a master of double speak. If the judge asks you if this was your account you’re being sued for, you have to say something like, you’re not sure, but you don’t think the plaintiff has or can prove it. And then you say you’re not sure they can prove they own the debt or how it was accumulated. If the judge asks whether you dispute the amount of the debt, again you point to the debt collector’s duty to prove it. “I’m not sure what the debt, if any, was,” you say. “But it’s the debt collector’s job to prove it, and they can’t use hearsay…” It is your right to dispute the debt and require the debt collector to prove its case. Don’t let the judge’s desire for an early lunch hour keep you from insisting on that right.
Should you Go Pro Se in Debt Defense
If you’re being sued for debt, do you need a lawyer? Or can you defend yourself? Obviously lawyers can be very expensive, but there are times when the expense is well worth it. Here are some pros and cons of going pro se in debt law. We think it can make sense for a lot of people.
Some Pros and Cons of Pro Se when You’re Sued for Debt
Pro Se means “for or by yourself” and refers to representing yourself in a lawsuit. If you are being sued by a debt collector this can be a good choice because lawyers are expensive and often would either cost more than the amount in dispute or are in any event unaffordable for ordinary people. So it may be practically necessary, and it can also be effective because the same thing that makes hiring a lawyer to defend yourself uneconomical also makes hiring a lawyer to sue you uneconomical once your defense requires individual attention by the debt collector’s lawyers. The fact that debt suits are for small amounts of money (considering typical lawsuits) and that people owing money may not (or usually do not) have the money to pay makes it unwise for a company to spend a lot of money trying to obtain the right to try to collect that money from you.
If you are suing the debt collector under the Fair Debt Collection Practices Act (FDCPA) or other statute that includes a right to attorney fees if you win, it may be more practical and possible to find a lawyer to represent you. This is because, if there is a chance the lawyer can force the debt collector to pay, the lawyer can spend more time on the case without worrying so much about not being paid. That is the purpose of “fee-shifting” statutes, and it reduces the pressure to keep attorney fees to an absolute minimum. On the other hand, even where you are suing the debt collector it isn’t always possible to find a lawyer who will represent you for an amount you can afford, and that can make going pro se the practical choice.
Representing Yourself
When debt collectors file cases they usually do so “in bulk,” filing many cases at the same time – this allows them to divide the cost and risks of the cases among all the cases. The first trick to representing yourself pro se, therefore, is to do it in a way which forces the debt collection lawyers to spend time specifically and exclusively on your case. I call this “intelligent” defense because it raises the price of suing you and increases the chance that any money spent will be lost even if the debt collector wins the case. That makes walking away and leaving you alone the best economic choice for the debt collector.
And then the second trick, of course, is to do the things that give you a chance to win the case if it goes to trial.
Debt collection cases tend to be “document-intensive,” meaning that the evidence of the case is much more likely to be documents than anybody’s testimony, provided you do not admit owing the money. This means that the case has a better chance of ending before trial, but that if it goes to trial there will be less emphasis on managing witnesses or testimony, reducing the advantage of having a lawyer.
A Warning
In lawsuits, the only person who can actually speak for any other person is a lawyer, and so this means, for example, that spouses cannot speak for each other (even when they are both parties to the suit), and parents and children cannot speak for each other. Non-lawyers are not allowed to address the court on behalf of any other person, and “person” includes separate business entities.
Law on Pro Se Representation
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Create an Affidavit to use as Evidence
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Beware this Rule of Evidence – You Could Lose Your Right to Object
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Bankruptcy – what it is and how it works
When people are being sued for debts, they often panic and look for the quickest, easiest, or least scary way out. Bankruptcy sometimes seems to be that way. What is bankruptcy? and how does it work? How does it affect some of your other rights?
What Bankruptcy is
Most people have an intuitive idea of what bankruptcy is – legal protection for people who are broke, right?
Sort of.
Bankruptcy is at least equally a protection for creditors. You see, when people are financially troubled, this doesn’t mean that they literally have NOTHING. Rather, they will spend or distribute an inadequate number of resourses in a way to relieve them of the most pressure, or to favor people they want to favor. Bankruptcy exists to help prioritize and organize the ways debtors distribute their money so as to protect the creditors from favoritism or sneaky behavior. It does protect the debtor (person declaring bankruptcy) from all lawsuits or judgments, and this in turn spares the creditors from having to “race to the courthouse” to file suits against the financially weakened.
That makes good sense, right? So shouldn’t anybody with debt troubles dive into bankruptcy?
Price of Bankruptcy
Bankruptcy is not a “free lunch” to debtors. It can be expensive to do, and over the past decade or two has been made much trickier to get in and finish. It is also extremely intrusive and occasionally time-consuming. It also does not protect you from all claims, notably those associated with “secured” debts – debts like home and auto loans.
In my opinion, bankruptcy is RARELY a good first option for people being sued for debts, especially if they’re being sued by debt collectors. On the other hand, if you expect to negotiate with a debt collector or creditor in any way, our position is that you should consult a bankruptcy lawyer. You should know what it costs and requires, and letting a debt collector know you’ve actually talked to a bankruptcy lawyer can have a wonderful effect on their willingness to accept lower amounts of money.
Issues in Bankruptcy
Perhaps surprisingly, bankruptcy and debt law are not closely related, and lawyers who practice one kind of law rarely know much about the other. Unless your lawyer (if you have one) actually practices both types of law, he or she is probably not qualified to give you advice about the area in which he does NOT regularly practice.
Bankruptcy and FDCPA
Another issue comes from the interaction of bankruptcy and debt laws. This isn’t uniform, consistent, or particularly fair. In some jurisdictions, for example, if you declare bankruptcy, creditors will come out of the woodwork to file “claims” against the bankruptcy estate. It would be illegal for them to sue you, but in SOME courts it’s fine for them to litigate against you in bankruptcy. This is plan stupid and bad, but some federal appeals courts allow it while others make it a violation of the Fair Debt Collection Practices Act (FDCPA). The Supreme Court has not addressed the issue yet.
Bankruptcy and Student Debt
The courts are even less consistent or fair when it comes to student debt. If most of your debt problem comes from heavy student loans, bankruptcy may not offer you much help. They are treated differently from almost all other debts, and in many courts they are almost impossible to shake off. Strangely, perhaps, this issue has not been organized or even considered very much by bankruptcy or debt lawyers. I have addressed the issue in Getting Out of the Trap of Student Loans. That book discusses the way bankruptcy law and student loans collide and, on a federal circuit by circuit basis, what your chances of escaping the trap might be.
Against Debt Collectors
Our view on suits brought by debt collectors is that bankruptcy is rarely a good first option – and only sometimes a good last option. However, you should know that, if bankruptcy will work for you at all, it will work for you just about as well even if the debt collector has obtained a judgment. That is, bankruptcy protection applies to state court judgments as much as any other kind of debt, alleged or proven. Thus you could defend yourself pro se and, if you lost (as very few of our members do), you would still be able to declare bankruptcy if it would help.
Threatening Consumers Violates FDCPA
Original Creditor vs Debt Collector – Differences and Similarities
How to Sue a Debt Collector in Eight Steps
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