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Estimating Risk and What Your Case is Worth to the Debt Collector in Debt Litigation Cases

If you're being sued by a debt collector, what they consider the risks in pursuing you and what your case is worth to the debt collectors are crucial facts. Knowing these facts will start to make you see how smart it is to defend yourself.

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Risk and value are two sides of the same coin in litigation. Having a firm understanding of what the debt collector thinks its risking when it goes after you versus what it thinks it can get will allow you to change that equation so the debt collector decides to drop the case against you and go after someone else.

Risk

Risk, for debt collectors (and everybody in litigation) is divided into two questions, both vital to the decision. First, what is the chance of winning a judgment if the case is litigated? We'll call that the "legal risk." And second, what is the chance of collecting a judgment if it is won? We'll call that the "collection risk." 

The first is a question of how well and how hard (they think) you will fight the case, and the second is a question of how much money you have that the debt collector can find. That is, and to be very specific about this, these are the debt collector's <i>guesses</i> about these issues. They look at what they know and try to figure out what will or may happen. Of course you will want to increase their perception of risk every chance you get.

Let's look at the issues separately. 

Legal Risk


As surprising as it may seem, the debt collector usually starts with very little actual idea of what its case's legal "merits" (chance of winning if it goes to a judgment) are. They normally do not need to know their cases' legal merits because so few cases are actually defended. 

The FTC estimated that as much as 80% or even more of what one large debt collector collected was never owed by the people they collected from at all. They have some basic information, and they file suit. As far as I can tell, that is what most debt collectors do. Later, if necessary, they may try to find the documents that would help them win the case. So at the beginning the debt collector starts with a sense that it will win the case, but not by fighting.

Does that seem cynical? Well, welcome to the business world. If it costs a lot of money to assess the legal merits of a case that you thought you would win just by filing, would you spend any more than you had to? Perhaps some of them do the back-up research...but you might take it as a rule of thumb that the company suing you <i>might not</i> have done it. And that could give you an advantage.

What to Do


You can change the legal risk equation by defending yourself and by knowing, or seeming to know, what you are doing. Once you start forcing the lawyer to do some work, you highlight the facts that they might not have what they need to go after you and that you might win the case. You also increase the dollar value of the risk by forcing the company to spend dollars to chase you.

Collection Risk


Collection risk, or the risk that the company might not be able to collect from you even if it wins the suit, is a much vaguer concept than legal risk. On the other hand, they do have some tools at their disposal to help them with this.

Bear in mind that, like the legal risk, collection risk is barely considered before the suit is filed. Again, this is simply a question of economics. They believe they will win the suit if it is filed, and it does not cost much to file suit against you. The costs of filing garnishments at your job or taking your bank accounts is also low-if they can find them. In other words, they do not consider the collection risk before filing suit because the cost is so low. Start fighting the case, though, and you bring this issue to life for them.

What to Do


If you ever paid on the debt by check, you have given them a bank they can garnish, and that is the first place they will plan to go for collection. Nothing stops you from changing accounts, though. Likewise, if you have told them about your current job, they will probably know that information. If the debt collector doesn't know these things about you, though, can you see how you might not want to volunteer that information?
The less income the debt collector sees, the higher it considers the collection risk. Although the collectors do not usually do an individual assessment of your case's collectability before they bring suit, they do know they are usually suing people without much money. They may also have credit reports and other information about you, so they know this is a big risk for them. If you make the price of that risk-the cost of chasing you higher, you reduce your attractiveness as a defendant.

That's legalese for, "you make it more likely that they will go away and leave you alone."

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