DEBT COLLECTION DEFENSE

January 02, 2014

This page provides assistance to those who are facing a lawsuit from an original creditor, or a collection agency.  Since the recession there has been an exponential increase in the number of debt collection agencies operating in the U.S.  We have also seen a major shift in how debt collectors do business.  In the past it was rare that a collection agency actually sued a debtor to collect a debt.  Now it is common practice. It is not uncommon for a consumer to receive a "dunning" letter, or numerous phone calls from a debt collector that they have never heard of, asking for amounts that are wrong, amounts that are no longer collectible due to the statute of limitations, or obligations that were previously paid or that were discharged in a bankruptcy.

The emergence of debt-buying companies. A debt buyer is a company, sometimes a collection agency or a private debt collection law firm, that purchases delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. The debt buyer can then collect on its own, utilize the services of another collection agency, repackage and resell portions of the purchased portfolio or any combination of these options.

A debt buyer does not have the same incentive to maintain the customer relationship with a debtor as the original creditor, and some debt buyers may be unconcerned about negative publicity and complaints. Thus, there are reports that some debt buyers engage in abusive debt collection practices, which are illegal under the Fair Debt Collection Practices Act, including the following:

• Filing lawsuits with no documentation showing that the debt was ever purchased or assigned to the plaintiff
• Pursuing debts that are not actually owed by the person being targeted
• Attempting to collect, improperly suing, or threatening to sue people on debts that are past the applicable statute of limitations or were settled and closed via bankruptcy
• Reporting inaccurate creditor information to a credit bureau
• Impersonating law enforcement and threatening to have a person arrested, or threatening to directly garnish a person's wages, seize their property, etc.
• Failing to validate debt in writing when requested
• Continuing to call a person's place of employment when instructed not to
• Ignoring cease-and-desist notices to stop telephoning and communicate only via mail
• Verbally abusing, using obscene language, threatening and harassing consumers

Collection defense - pre-litigation considerations

When a consumer receives any communication from a debt collector they should always respond immediately (within 30 days).  If the communication is in the form of a (dunning) letter the response should be a written response asking for debt validation. The letter should look something like the letter below.  The two questions you should want answered are, 1. Do you really owe the debt, and (if you owe the debt) 2. Do they have the LEGAL right to collect it from you.  Collection agencies engage in prohibited practices all the time when trying to collect debts from consumers - even when the consumer legitimately owes the money.  Under the FDCPA, all abusive, false, unfair practices by anyone attempting to collect a debt is prohibited by law. See15 USC Chapter 41, Subchapter V - DEBT COLLECTION PRACTICES.   Once the debt collector receives your letter (see below) challenging the validity of the debt two things must happen: 1. All collection activity must cease. 2. They must provide you with some kind of account statement showing the amount of the debt. 

Debt Validation Ltr by Kirk McClain


Litigation as a means of resolving your debt

As mentioned above, collection agencies are now filing lawsuits to collect debts.  The reason for this is simply because most of the time the consumer never appears in court to contest and the collection agency will get a default judgment.  If this happens, the consumer could face wage garnishments or liens which could have a devastating effect on their credit.  If you have received a Summons and Complaint and are being sued by a collection agency here are the steps you should take to respond.

You have 20 days to respond to the Complaint excluding the day you receive it. You must answer the complaint or the judge will grant a default judgment against you. When you receive the Complaint look it over carefully and decide exactly what the debt collector's (plaintiff's) actual claims are.  The document you will eventually file with court is called an Answer.  The answer must deny each of the claims against you or they will be considered admitted to.  You will also have the opportunity to state what is called Affirmative defenses.  Affirmative defenses are defenses in which the defendant introduces evidence, which, if found to be credible, will negate criminal or civil liability, even if it is proven that the defendant committed the alleged acts, (i.e you actually owe the debt). Self-defense, entrapment, insanity, and necessity are some examples of affirmative defenses.

In collection defense the main thing to remember about debt defense is the four S's: 1) service of process, 2) statute of limitations; other defenses, 3) standing, and, 4) support documents.

Service of process is required for a suit to be valid. If service is improper, a suit can be overturned. Be familiar with the civil procedure rules in your state (served on the person or to a person of suitable age that lives at the home....so a friend visiting can't take process but their14 year old kid probably could but the 5yr old cannot). Some process servers will lie on their affidavit but judges tend to believe them anyway. A good policy to have is to object to service only if you in good faith believe it was badly served and if you believe you can win the fight.

Statute of limitations- 6 years in Washington State on a written contract. (Check for the SOL in your particular state). This time runs from the last payment/default. If person reaffirms through language or action or partial payment at any point, it runs from the most recent incident. Example- credit card acquired in 2000. Debtor defaults in 2002. Debtor makes partial payment in 2008. Collector sues now in 2013. You would run from 2008 to 2013, its under 5 years, so SOL is not applicable. Keep in mind, go off of the alleged complaint as well as client's memory. It is possible the collector is not aware of the 2008 incident or cannot prove it. If the creditor says 2010 was last payment, ask client and if they do not believe they did, have them pull bank records to show no payment. Burden of proof is on plaintiff, not defendant.

 

Other defenses. This includes procedural, substantive, affirmative, and other defenses. A consumer should become familiar with the list of defenses on this link. http://www.jeffvail.net/2010/05/affirmative-defenses-litigation.html. The amount of defenses is overkill, however, it is pretty comprehensive.

Standing- this is the proof that the creditor alleging to be able to collect the debt needs to show to prove they are the right party to collect it. There are ONLY two scenarios. One is that it is the original creditor and they are trying to collect it themselves or through a law firm. If this is the case, then standing is very clear. The way you can determine this is by looking at the complaint. If it says, Chase v Smith or Wells Fargo v Smith, you can be pretty sure it is the original collector. If it is the original collector, we will almost never object to standing.

 

If it says ABC Collection vs Smith or Suttel Hammer v Smith, it is probably a debt buyer who is one or more transactions removed from the original debt. The consumer should almost ALWAYS object to standing in this instance. What the debt buyer needs to show is an assignment of the specific debt. This means a document that shows a transaction between the original creditor and debt buyer, but that this specific account and this specific amount is covered. Many debt buyers will put evidence of a batch transaction. It will say Cach LLC buys this barrel of debt (see excel spreadsheet) from Bof A. Not enough! We need to see the excel sheet that has our clients name, account number, etc.

Support documents: this includes something that proves the amount, that service was made, etc. Make sure if the creditor alleges anything, there is a document to prove it.

 

CHART FOR ANALYSIS

1. Was complaint served properly? Was it served upon defendant or with a person in house of suitable age that lives there?
2. Was the complaint served within the statute of limitations? Remember, this is based on default date, not origination date. Check any date alleged by creditor with clients memory. Look for proof that the date of default claimed is supported. Ask client for proof if they claim it is wrong (such as bank records for that month).
3. Does creditor have standing? Look for a document alleging transfer from original creditor to plaintiff. Look for specific account number, name, amount in document. Do not settle for hearsay.....some declaration saying they reviewed their records is only hearsay.
4. Is the amount creditor is alleging supported by evidence? If they say they are owed $3k, where is the accounting? If they say they are owed attorney fees, let them show the card agreement with that provision as well as that the amount claimed is reasonable.
5. Paragraph by paragraph analysis for support documents. Any fact or statement made by creditor must be supported by evidence. Redmark any fact not supported by evidence when reviewing for attorney.
6. Defenses. Do an initial review of what defenses you believe apply. Mistake, impossibility, wrong party, improper service, lack of standing, insufficient proof, etc.

When preparing the skeleton defense, go paragraph by paragraph and say one of the following:

• admit
• deny
• admit in part and deny in part- (provide explanation)
• If any defense applies, states that after the admit or deny.

 

Example:

Paragraph 1 of complaint states that Cach LLC has standing due to purchasing the debt. With their complaint they attach exhibit A which shows a batch transaction but no specific account number for our client and it refers to an excel sheet for more details which were not provided.

Sample answer would be: Deny. Creditor has not proved standing or that they are the real party in interest. Creditor has alleged that they purchased this debt in a batch transaction. Creditor has attached as exhibit A a document showing this batch transaction. Exhibit A refers to an excel spreadsheet that would contain the evidence that they purchased this specific debt as well as the debtors name and amount of the debt. This excel sheet was not provided, therefore, there is no admissible evidence before the court that they have been assigned a specific debt that defendant would be obliged upon. Under the best evidence rule, a reference to an excel sheet is insufficient when the excel sheet itself could be provided. Creditor has not alleged any facts or reasons why the excel sheet cannot be provided. Further, the statement by creditor that they reviewed their records is hearsay and only relates insofar as they have reviewed electronic records that may or may not have been entered properly.

 

Defendant objects as to lack of standing, hearsay as to exhibit A, best evidence rule as to exhibit A, hearsay as to creditors statements regarding review of electronic records, mistake, impossibility. In the meantime, I would suggest you write something like:

1. Deny. Lack of standing, mistake, impossibility, hearsay, best evidence rule. 



This blog article was created with the assistance of Edgar Hall, Attorney at Washington Debt Law. His practice expertise includes: Bankrupcy, Consumer Protection Act litigation, Debt settlement, Debt Strategy consultation, FCRA/FDCPA litigation, Foreclosure defense,Loan Modification, Mortgage Fraud litigation and Student loan law.