The Supreme Court has recently damaged debt defendants’ rights with two very important decisions, one allowing debt collectors to bombard the bankruptcy courts with outdated claims, and the other holding that junk debt buyers are not debt collectors under one important definition of the Fair Debt Collection Practices Act (FDCPA) These rulings may have changed the landscape of defense, but one thing is clear: you need to know your rights more now than ever. Pro se defense may be the only kind of debt defense you can get anymore.
Pro Se Defense
Let’s start with what “pro se defense” is. Pro se means representing yourself in a lawsuit. This will save a tremendous amount in legal fees, but it ALSO means taking on the burdens and risks of doing the defense yourself. These burdens and risks are not small, and I’ve always called hiring the right lawyer the “gold standard” of defense. But in most debt cases people can handle their own defense because the law is not complicated and the cases are document, rather than witness, intensive. Pro se defense even has some significant advantages in the debt law context.
The recent Supreme Court rulings are going to force more people to take a more active role in their defense.
Who is a Debt Collector
In Henson et al. v. Santander Consumer USA, Inc., No. 16349 (Slip Op. 6-12-17), the Supreme Court ruled that junk debt buyers are not“debt collectors” under one provision of the Fair Debt Collection Practices Act (FDCPA). I discuss that case, its impact, and what action people need to take regarding it, in my article and video, “Who Is a Debt Collector – Supreme Court Tries to Destroy the Fair Debt Collection Practices Act and what to Do about that.” In general, the effect of Santander is to make it more difficult to establish that a junk debt buyer is a debt collector, and it may signify that the Supreme Court would not let you sue junk debt buyers under the FDCPA at all.
Santander is going to make it more difficult for you to get a lawyer to defend you in a debt case – and more expensive if you can get one. That’s because the FDCPA applies only to debt collectors and gives you certain counterclaims, and certain defenses, that make defending you easier. The FDCPA also includes a “fee-shifting” provision which allows a consumer to make a debt collector pay for most of the time a lawyer spends on a case. These things – ease of defense and a rich company to pay fees – make FDCPA cases attractive to lawyers. Take away the FDCPA, and the lawyers are going to have to charge more – a LOT more. And they simply won’t take as many cases because they’re harder. This means that debt law defendants, already drastically underrepresented, are going to find it much more difficult to hire lawyers.
The decision in Santander threatens to neutralize the FDCPA and let junk debt buyers – who now make up the vast majority of debt collectors – run completely wild. They will be much freer to abuse, deceive, harass – in short, all the tricks that brought about the FDCPA in the first place because the laws regulating them will have been predominantly removed. At the same time it makes getting a lawyer much more difficult, the decision in Santander will likely result in a large number of new and wrong lawsuits. HOWEVER, Santander does not negate any (or very few, anyway) of your defenses in a debt law case, and it does not reduce the burden of proof for debt collectors. You can still win, in other words, but you very well may have to do it yourself.
Bankruptcy is one refuge debtors have from debt collectors. In general, you can file bankruptcy and force all your creditors to stop contacting you and, instead, file their claims in your bankruptcy action. In theory, the court will then either grant those claims or deny them according to what is right. The dirty little secret of bankruptcy, though, is that if claims are not disputed, they are generally granted. In bankruptcy cases brought by poor people (you can bet Donald Trump never had this problem), the lawyers representing the bankrupts have little incentive to dispute wrongful claims. There’s a U.S. trustee who is supposed to oversee the process and protect the bankrupt and legitimate creditors from bad claims, but guess what?
They usually don’t.
So bad claims get allowed. In most bankruptcies, allowing a bad claim means that it’s going to get paid (eventually) by the person filing for bankruptcy.
Junk Debt Buyers Make Things Worse
Enter the junk debt buyers. They buy vast amounts of LONG overdue debt – debt far beyond the statute of limitations – and file claims in bankruptcy cases. This bogs the bankruptcy courts and everyone involved down, and as a practical matter results in people paying billions of dollars to debt collectors who have no real right to collect. This crushes the people who declared bankruptcy and rips off the legitimate creditors whose debts get paid at a lower rate.
Some debtors were suing debt collectors under the FDCPA for filing claims in bankruptcy that were beyond the statute of limitations. Because of the FDCPA’s fee-shifting provision, the debtors’ bankruptcy lawyers had at least some financial incentive to bring these claims and dispute unenforceable claims. They were doing so as part of the bankruptcy proceedings, and the debtors were also bringing suit outside of the bankruptcy context as well.
The Supreme Court negated the FDCPA’s protection with its holding in Midland Funding, LLC v. Johnson, No. 16-348 (Slip Op. 5-15-17). In that case, the Court ruled that debt collectors could file claims in bankruptcy that they know are unenforceable in an ordinary court (and would violate the FDCPA if filed there). For a fuller discussion of that case, look at my article and video, “Bankrupts Beware, FDCPA No Longer Applies – Opening the Floodgates to Bad Claims.”
What the Midland Funding case means, in practical effect, is that even if you’re in bankruptcy you’re going to have to know and protect your own rights. Your lawyer has VERY LITTLE incentive to challenge bad claims, and likewise the U.S. Trustee has VERY LITTLE time (or incentive) to do it. If the claims are allowed, you will be stuck paying them in all likelihood. That means that even if you file for bankruptcy you must be prepared to defend yourself against the debt collectors. You will AT LEAST need to know your rights, and you will very probably have to defend them pro se despite having a bankruptcy lawyer.
The net result of the Supreme Court’s decisions in Henson and Santander is that debt defendants will get much less help from lawyers. These cases are still possible to defend against and win – they’re as easy as any law gets, probably. Because so many fewer cases will in fact be litigated, your chances of winning have actually probably gone UP: it is even less profitable for debt collectors to fight now than it used to be because they will have so many more easy wins. But you are more likely to have to do it yourself now than ever.
Make it hard for them.