Tag Archive for: judgment

What is Arbitration and Should you Seek or Oppose It?

January 27, 2023

Compel Arbitration or Oppose it?

Arbitration. Should you compel arbitration? Or oppose it? I’ve recently had a comment on Youtube asking me to discuss arbitration, and it has also come up in several recent teleconferences as members contemplated seeking arbitration. Others have wanted to know whether to oppose a motion to compel arbitration.

Let’s start with a definition: Arbitration is the submission of your case to a private entity known as an arbitrator. After some process and a hearing (most likely), the arbitrator will decide what happens in your case and issue what amounts to a judgment.

For debt cases, it’s always a single arbitrator or a company that will provide a single arbitrator that’s appointed, but for other cases it could be other things, like a panel, perhaps. In any event, there will be an arbitrator and some special rules that will NOT be your state’s rules of civil procedure and also might not be your state’s rules of evidence. But there will be rules that control the process.

Arbitration is popular because it makes it faster, easier and cheaper for people to engage in litigation. The discovery process will be limited, and the appeals process almost eliminated. That’s why rich companies and debt collectors always love it. Almost all of these things are completely and profoundly BAD for debt defendants. That’s why I’ve always suggested debt defendants should avoid arbitration.

But there is another side to the question, and there are some who argue in favor of allowing or even forcing arbitration in debt cases. What’s their argument?

I think the argument in favor of arbitration boils down to the fee, which apparently has to be paid up front by the debt collector And that can amount to two or three thousand dollars, or even a little more. The idea here is that debt collectors won’t want to put that much money down on the barrelhead just to chase a bad debt and that court is, for them, much cheaper.

There is some sense in this argument.

Debt collectors never worry about winning a case, but they do know you don’t have much money. That means that they’re sure they’ll win, but worry that they won’t collect, which is the most important thing to them. The more you make them spend, the more worried about that they’ll be. Maybe they’ll drop the case if you demand arbitration.

We often make the argument that by pursuing discovery, filing and defending motions, and preparing for trial you are driving up the costs of litigation and may make the whole thing too expensive for debt collectors to want to do. Again, not because they worry about losing, but just the amount of money they’re having to spend when their business model is designed around easy, cheap judgments. However, conducting discovery and filing and defending motions and the rest do in fact improve your chances of winning, and we think that, when it comes to a debt collector, you should win your case. These things are the way to do it, and the chance the company will drop the case is basically the icing on that cake.

In arbitration, it’s the whole cake. You should remember that.

One big question that may be more theoretical than real is, who ultimately pays the arbitrator?

I say it may be theoretical since I just said the debt collector isn’t sure you’ll have any money at all, but this won’t stop them from seeking as big a judgment as possible. And if they get a judgment, they WILL try to collect it. All. So be advised that the judgment size could matter.

Okay, but who pays the arbitrator?

I think some states may have rules that matter, and I know that California, for example, does have rules regarding employment and consumer-brought claims. In the absence of any state based rule, you
would look to the arbitration provision giving you the right to arbitration – i.e., the contract. That will often say who pays the arbitrator, and it can specify any of a number of things, from company pays all to loser pays all, to dividing it up. The contract isn’t often going to put all the burden on the company because, after all, the company wrote the contract.

If it says company pays all, though, the company can’t shift that payment to you if you lose. If it’s loser pays all, though, it obviously will. But if there isn’t a direction in the contract, that would usually mean you start by splitting the cost, but that the arbitrator can award the cost to the winner, i.e., add it to the judgment.

The rule in your case is going to depend on your own specific circumstances.

The net of all this would suggest that you will have some advantage if the contract makes the company pay, but there’s risk if the loser pays. And of course it matters a lot who pays up front, which is often the debt collector.

So… should you compel arbitration?

In a debt buyer/collector case (i.e., not the original creditor) I’d still lean strongly against. You should win this case under most state laws because of the rules of evidence, and you cannot depend on the arbitrator to enforce those rules rigorously. If it’s an original creditor, it’s a much closer question. You’ll have to consider all the things we’ve discussed here and make a judgment call.

Filing a motion to compel arbitration might trigger some settlement negotiation, but I wouldn’t think you could get the company to give you a very steep discount, but there I’m just guessing based on what I know about lawyers and not experience in these type cases.

I remain very hesitant about suggesting arbitration, but there may be value in considering it if you’re
dealing with an original creditor.

Can Debt Collectors Garnish Wages or Bank Accounts?

May 14, 2019

Can Debt Collectors Garnish Your Bank Accounts or Wages? What Should You Do about it?

For a free copy of this article in pdf form, click here: Can wages be garnished

Can your bank accounts be garnished by a debt collector? What about wages? Here are some things you need to know about garnishment.

If you have assets, and this includes either a job or money in the bank, you must be concerned about the possibility of being garnished if a debt collector (or anybody else) has a judgment against you. In other words, the short answer to our question about whether your wages can be garnished is YES. Wages can be garnished once a debt collector has a judgment against you.

Bank accounts can also be garnished when there’s a judgment against you.

The Surprise that Isn’t a Surprise

Lawsuits are divided into two main parts. The first part, which is what everyone thinks about in connection with “being sued,” is a determination of liability and damages. In plain English, the lawsuit is to decide whether you owe anything and how much. In debt cases, that’s usually determined by either a default (failing to show up to court in the first place) or “give-up settlements” (where you show up to agree to anything the debt collector wants, which often includes a “consent judgment”). That judgment just says you owe x-amount of dollars, or nothing, as the case may be.

In most cases, judgments are not “self-enforcing.” That means that after the debt collector gets a judgment that you owe some money, it must still either persuade you to give it to them or find it and take it away from you. This is called “enforcing a judgment,” or in plain language: “collection.” To do that, the debt collector tries to find your assets and then goes to the court’s garnishment office and starts garnishment proceedings.

The garnishment office does NOT tell you they’re at work, and neither does the debt collector. They want you to forget about the case and get comfortable. If you move or hide your assets, their job gets much, much tougher. And if they warn you they are at work, you’re more likely to move or hide the assets, right?

Incredibly, people are quite often shocked when the debt collector starts seizing assets, freezing bank accounts, or garnishing assets.

They are at Work

Let this be your warning. If they have a judgment against you, THEY ARE AT WORK. They still want your money, and they’ve taken a big and somewhat expensive first step by suing you. Why would they stop? You may forget about it, but they won’t.

The Way it Happens

You are always the last to know when collection activity happens. This way your funds are frozen before you can take any action such as withdrawing all your funds.

Banks

The debt collector serves a notice of garnishment on the bank, and as of the time the bank receives it, your account will be frozen. Their notifying the bank first is perfectly legal.

You typically receive the notice (including your rights) a day or two, or three, or four… after your funds have been frozen. In most states, the garnishment does not only freeze funds already in your account at the time of service on the financial institution, but can get money you put in afterwards for a period of time.

During the time the garnishment is in effect, the financial institution cannot honor checks or other orders for the payment of money drawn against your accountif it would leave a balance under the amount stated on the garnishment. For most people, this means any outstanding checks will more than likely bounce or be returned for NSF.

When the amount being garnished is paid, the freeze on your account must be terminated, but since many people do not have nearly enough money in their accounts to offset any significant judgment, this is not of practical significance. If they catch you by surprise, you probably have big trouble. Not only is your money gone, but checks (and automatic drafts, for example) are bouncing right and left – and there are other laws that punish you for that.

Jobs

Wages can also be garnished, and, again, your first notice that you are being garnished is likely to be when you receive a check that is less than you thought it would be.

Federal law limits the maximum amount that can be garnished by one or more garnishment orders to 25 percent of your disposable earnings for that week, or the amount by which your disposable earnings for that week exceed thirty times the Federal minimum hourly wage, whichever is less.

In practical terms, that means (as of this writing) that if you make $154.50 or more per week your wages will be reduced by about 25%. Since most people being sued for debt are already close to the line, a 25% reduction in their paychecks can be simply devastating. And remember, you won’t find out about it until the money is gone.

Don’t Let them Get a Judgment

All of the above means that you should work HARD to avoid letting the debt collector get a judgment. If they do manage to get one, you should EXPECT NOT ONE SHRED OF MERCY. They will take every penny they can with no concern at all for the consequences to you or your family.

Sometimes people think that things are so hopeless that it isn’t worth it to try to keep them from getting a judgment. You have nothing now for them to garnish, and you don’t expect ever to have enough for them to garnish. That’s called being “judgment proof.”

Don’t go there. Things could get better for you in any number of ways, from your job suddenly turning better, to people you don’t know dying or giving you money, or you getting some sort of great idea, or… just anything. The world is full of possibilities, and good things could happen. They’re much more likely to happen if you keep looking for them, too.

It isn’t all that hard to keep them from getting a judgment most of the time if you know what you’re doing, and of course that’s why we’re here.

Don’t Ignore the Possibility of Losing Even if you Defend

Of course, if you’re being sued there’s always a chance you could lose. ALWAYS A CHANCE.

That means that you need to keep personal information about jobs and assets out of the hands of the debt collectors whenever possible.

If you have ever written a check to the company who is the alleged original creditor, you must assume that the debt collector has your banking information. You might want to change banks.

Remember that garnishments are served on people (including corporations and banks), not accounts, so it doesn’t do any good to cancel your account and get a new one in the same bank. But changing banks will go a long way to keep you from finding out, one day, that your bank account has been emptied and your checks are now bouncing.

For a lot of people it’s harder to change jobs. I’m just saying that if you do, it will be harder for the debt collector to garnish your wages. If they have any reason to know where your present job is, you should expect them to come for it.

Your Legal Leg Up

Your Legal Leg Up is dedicated to helping people defend themselves from debt lawsuits without having to hire a lawyer. Lawsuits have a number of points where specific action is called or, and we have products to help you deal with most of these situations. We also have memberships that give you access to more materials and better training, and also provide a regular opportunity to ask questions and get answers in real-time. You can use this time to find out what the debt collectors are trying to do and what you might do in response, and you can get guidance on the issues that matter and how to think about and address them.

In addition to that, our website is a resource for all. Many of the articles and materials are reserved for members, but many others are available to everyone. Every page has a site search button in both the header and footer. Put in a key word – a word you think relates to what you’re looking for – and enter. You will get a page of results.

Products Related to this Article

If history is any indication, many of the people reading this article are here because there’s a default judgment against them, and the debt collectors are now after their money. If that’s you, there’s still hope (even aside from the fact that your Social Security payments should be safe). You should consider attempting to undo the judgment – that’s called “vacating” it – and you do that by filing a “Motion to Vacate.” Click here to begin your research on that question. And we have a product that will help you file a motion to vacate.

Most of the rest of the people reading this will be because they are in the “collection cycle” somewhere and are either being threatened with suit or are being sued. If that’s you, you will want to take a look at what the risks of ignoring the suit are versus the costs and advantages of fighting it. I normally suggest fighting it because the risks if you lose are minimal (you won’t make things worse), while the benefits of winning are more substantial than you think, even if you aren’t worried about garnishment.

In any event, if you’re considering defending, I’d suggest you give some thought to our memberships.

Memberships

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What you will not receive is any marketing from other people – or much from us, either. Our goal is to make the site more useful to members and visitors, not to swamp anyone with sales materials. The information we send will have links to information or products that we think may be helpful.

Discovery – Starting to Win your Case

June 20, 2018

It is not necessary to begin discovery at the time you file your Answer and Counterclaim, but if it is at all possible for you to do, it gives you a big advantage.

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Push or Be Pushed – Get that Discovery Started

In the law, it is push or be pushed. That is, if you aren’t already pushing the debt collector to give you discovery or respond to motions, chances are good that they will be giving you things to do. When you’re pushing them, your chances of winning go way up. When they’re pushing you, they go down.

You might not think it would have to be that way. There’s usually plenty of time given to do everything that needs to be done and that the law expects both sides to do things at basically the same time. But theory aside, the reality is that people – lawyers included – will usually do what is pressing them first. And then they may – or may not – do the rest of what they should do.

People in general, and lawyers especially, make sure they’re pretty close to being as busy as they can be. And this inevitably means that choices will have to be made when and if things get tighter. If you push the debt collectors to answer your discovery, in other words, they very well may choose to skip discovery on you. If you skip discovery on them, you will soon discovery they have plenty enough time to keep you busy. That’s just the way things work.

So if you’re in a case where they’ve already served discovery on you, you’re going to have to do double duty – make sure you serve your discovery on them before you give them your answers. If you don’t, the next thing you know they’ll be filing a motion for summary judgment against you.

Better yet, make sure you are first out the discovery gate – and then keep tightening the screws. Serve discovery on them along with your Answer. This requires you to be prepared for your case pretty quickly, but it will pay off in a big way down the line.

If they File a Motion for Summary Judgment

June 17, 2018

“Do I need to respond to their Motion for Summary Judgment or can I file a motion to dismiss at this point?”

I received this question in a teleconference, and it brings up three extremely important issues that every person defending himself or herself from debt collectors needs to keep in mind. First, the comparative functions of a Motion to Dismiss and Motion for Summary Judgment. Second and more generally, the importance of responding to every motion or action taken by the debt collectors, and third, still more generally, the level of effort you need to put into your defense. Here’s the whole question as it was asked:

I requested discovery and responded. A few weeks later, they filed a motion for summary judgment with an affidavit for indebtedness (which was not included in their discovery), a bill of sale and assignment (which does not include any amounts or any account information), and a copy of a 2008 card statement. Do I need to respond to their Motion for Summary Judgment? Or can I I file a Motion to Dismiss at this point?

Motions to Dismiss vs. Motions for Summary Judgment

There is a lot of confusion about motions to dismiss and motions for summary judgment, even among some experienced lawyers. To put it very simply, regardless of what a party filing a motion calls it, if the motion makes reference to, or depends in any way for its outcome, on matters other than the pleadings, the motion is to be considered a motion for summary judgment. That means the motion should follow the rules regarding motions for summary judgment, and you have the time permitted by the rules for summary judgments (generally longer) rather than responding to motions to dismiss (generally shorter).

The pleadings consist of the Petition, Answer, Counterclaim and Reply to Counterclaim. For brief videos discussing each type of motion, see “Motions to Dismiss” and “Motions for Summary Judgment.”

If there is any important fact in the motion that is not also in one of the pleadings, the motion should be treated as a motion for summary judgment. Thus a motion to dismiss is not the correct motion to file when the other side files a motion depending on undisclosed discovery or when the only evidence it provides in discovery would not be enough to prove its case.In this case, where the debt collector has already filed a motion for summary judgment, you must respond in opposition to their motion for summary judgment and, in the same response, file a “cross-motion” for summary judgment.

The Need to Respond

Whenever the debt collector files a motion of any sort you need to respond to it.

Theoretically, if you filed a motion to dismiss, the court might look at your motion first, decide that the debt collector has no case, and dismiss the action as a whole. That would be easy and convenient for you. There’s too good a chance, however, that the judge will consider his or her convenience before considering yours. In fact, you should take that as a given – as something that will definitely happen. You should expect the judge to rule on the easiest thing available and skip everything else – and what’s easier than an uncontested motion? Therefore you must oppose any motion the other side files. In my opinion this is especially important when you’re a “little guy” taking on a “bigger guy.” The courts are – often if not always – prejudiced in favor of the big guy, and you cannot afford to leave an “easy out.”

Level of Effort

I am often asked variations on, “should I go ahead and… ‘X’ or wait until… ‘Y’ happens?” Should you ever wait for either the other side to take some action or for the court to rule on something? Generally, NO. There are two reasons for this: time is always limited; and it is important to keep the initiative in litigation as much as possible.

Time Is Limited

Whether or not the court enters a “scheduling order” explicitly stating when things are due, every case is on a “time clock.” You cannot waste time. Judges will often wait until a few days before the time set for trial to rule on motions for summary judgment. I do not know why this is so – but it is simply a fact, and so it means that much of trial preparation, motions, discovery and all the rest, are conducted after a motion to dismiss or for summary judgment has been filed. You simply cannot wait for a court ruling.

Waiting for the other side is much the same. Litigants are always looking for advantages, and if they get the sense that you are going to wait for them, the debt collector will very likely take advantage of that fact. They may simply delay until you have no more time to do what you need to do, or they may delay until they have time to serve discovery on you – or take some other action which takes control of the case.

Keep the Initiative

Keeping the initiative is extremely important in litigation. It is discouraging to them, and encouraging to you, to be “calling the shots.” When you do, you can take the time you need to figure things out, you can think strategically rather than reactively, and you open up a long, weary path for the other side. When you keep working, you show the other side that continuing to chase you will be expensive, risky and… annoying. You heighten their sense that they should be spending their time chasing easier victims – or should find something actually good to do with their time (maybe, eventually). And finally as you spend effort on your case you support your own morale and you learn more about your case and the law.

Conclusion

For all these reasons, you should take what Tony Robbins calls “massive action.” You should take every action you can to achieve your victory. Let the other side consider how much it is costing in time and money to respond to you. If they get the sense you’re thinking that way they are much more likely to drop your case and look for greener pastures.

Garnishment and other collection methods

Garnishment of Assets – Can they Take your Wages or Bank Account?

May 3, 2018

Can your wages be garnished by a debt collector? What about bank accounts? Here are some things you need to know about garnishment.

Bank Accounts

Bank accounts can be garnished and, when they are, it is almost always a surprise to the debtor. What typically happens is collectors obtain money judgments (usually by default) and then use the judgment to freeze the funds in your bank account. State law and banking rules govern how the bank must handle the garnishment process. Collectors always notify the bank first and then notify the debtor. This way your funds are frozen before you can take any action such as withdrawing all your funds.

Their notifying the bank first is perfectly legal. You typically receive the notice (including your rights) a day or two after your funds have been frozen. In most states, the garnishment can not only freeze funds already in your account at the time of service on the financial institution, but can also reach funds that get put in the bank afterward, for a time.

During the time the garnishment is in effect, the financial institution will not honor checks or other orders for the payment of money drawn against your account. This means any outstanding checks will more than likely bounce or be returned for NSF. The exception to this rule is if your account has more on deposit than the amount of the garnishment. In this case, the bank can honor checks up to the amount that will reduce your funds below the amount of the garnishment. When the amount being garnished is paid, the freeze on your account must be terminated.

Wages

Wages can also be garnished, and, again, your first notice that you are being garnished is likely to be when you receive a check that is less than you thought it would be. Federal law limits the maximum amount that can be garnished by one or more garnishment orders to 25 percent of your disposable earnings for that week, or the amount by which disposable earnings for that week exceed thirty times the Federal minimum hourly wage, whichever is less. In simple terms, “disposable income” is whatever money you have left after paying all required taxes and national insurances!

Disposable income is after-tax income that is officially calculated as the difference between personal income and personal tax and nontax payments. In general terms, personal tax and nontax payments are about 15% of personal income, which makes disposable personal income about 85% of personal income.

IMPORTANT: In order for wages to be garnished, disposable earnings per week must exceed thirty times the federal minimum hourly wage or $154.50. Put another way, if you make $154.50 or less per week your wages cannot be garnished – for now and as long as you don’t make any more than that. Also – Social Security and some other types of disability or retirement income are protected from collection.

There are also important state rules regarding garnishment, and if you are garnished, or if you bank account is seized (especially), your first move should be to look at the state laws on garnishment and see if an exemption applies to you. They often will.

But You Should Not Let them Get a Judgment

All of the above being said, you will almost always be much better off it you can avoid letting them get a judgment against you. Things could get better for you in any number of ways. Just because things seem bleak now doesn’t mean that the sun won’t eventually shine. And it isn’t all that hard to keep them from getting a judgment if you know what you’re doing.

If you want help fighting the debt collectors, you should consider our new FastTrack Membership. Go here for more information on debt collection and defense, and how we can help you. We can also help you overcome a default judgment.