Bankruptcy Lawyers Can Help You Resolve Debt and Defend Against Lawsuits
Retaining a Debt and Bankruptcy lawyer as early in the debt collection process will help you navigate the legal process. Yes, bankruptcy lawyers can represent you in the filing of bankruptcy, but they can also assist you in defending debt-collection lawsuits.
This article covers the debt collection process and what creditors can legally do or not do in collecting a debt. We also look at debt collection litigation tacts and how they win by default through intimidation of the debtor.
Most Collection Lawsuits Win By Default
Collection agencies are notoriously careless in preparing their legal paperwork because collection agencies sue in such large volumes. Most of the time, collectors win their collection lawsuits by default. They win by default because the defendant-debtor neither files a legal response to the complaint nor appears in court for the hearing.
The truth is some debtors are more emotionally vulnerable to legal pressure than others. This is where having a debt and bankruptcy lawyer can lessen the emotional burden. It will also help you to consider counseling to help you deal with the emotional side of financial pressure.
Two Categories of Vulnerable Debtors
Debtors In Clinical Depression
Debtors being crushed by debt and hounded by collection agencies often fall into a state of despair. They lose hope and don’t care anymore. These debtors emotionally surrender and often go into a state of clinical depression. They have been running on empty for so long. They might have lost their job or suffered disabling physical or emotional trauma. They are emotionally exhausted and indifferent to the legal consequences that await them.
Debtors, like so many people suffering from depression, especially those lacking in financial and emotional support, can fall into a state of surrender – as if to say, they are convinced that whatever happens will happen, and there is nothing they can do. Feeling empty and desperate often leads to substance abuse and a path toward homelessness.
Debtors That Battle With Anxiety and Panic
Other debtors, not yet having reached the state of clinical depression, can get so traumatized by being served with multiple lawsuits while dealing with other life-changing troubles that their stress and anxiety escalate into panic, and they are unable to respond to the legal challenges that face them, even when they have viable legal options.
Collection agencies prey on debtors that feel powerless and don’t have the financial and emotional resources to put up a legal fight—allowing the collection agency to go into court and obtain a default judgment against them. By going into legal default, the debtor has done exactly what the collection agency hoped you would do. Give up.
By allowing the collectors to obtain a default judgment, you have made their job of collecting easier and much less expensive. Collection agencies know that most debtors who are sued will not respond to their lawsuits. For collection agencies, debtors in financial hardship are like low-hanging fruit. All they need to do is sue them and watch them fold.
What If I Can’t Afford A Debt And Bankruptcy Lawyer?
Don’t worry. You do have options. There are free and low-cost legal services such as legal aid, discount legal service, and state and local bar association pro-bono clinics – all of which can guide you through the process and even draft legal documents for you. These services are discussed in greater detail at the end of this article.
In the meantime, if you’ve been served with a collection agency summons and complaint, get more informed by reading our article on Getting Served With A Creditors Complaint.
Creditor Obtaining A Judgement Against The Debtor
The Creditor Becomes A Secured Creditor
Unsecured Loan Verses Secured Loan
An unsecured loan is merely a legal promise to pay. The buyer puts up no collateral, which is subject to repossession or other legal rights. The seller must first obtain a court judgment against the debtor before they can execute on other forms of property such as real property, wages, and bank accounts.
An unsecured loan that results in a legal judgment becomes a secured loan. A secured judgment creditor has many more options to collect on the debt. In many states, the creditor cannot repossess the first time you miss a payment. However, the second time you miss a payment, some states allow the creditor to repossess the secured property.
Trouble Tips:
Car Loans – Mostly Secured Transactions
Almost all car loans, whether bought by a lease or monthly purchase agreement, are considered secured transactions because the borrower in the agreement expressly pledges to use the car itself as collateral should the buyer default on the loan.
This means the creditor does not need to obtain a legal judgment to repossess the debtor’s vehicle. However, the creditor must obtain a legal judgment to recover any amount over the value of the repossessed vehicle.
Repossession – Creditor Cannot Breach The Peace
Under the law, a secured creditor can only repossess if it can be accomplished without a “breach of the peace,” defined as a violent act or an act likely to lead to violence.
Usually, a debtor can stop repossession simply by verbally objecting to it. However, while this allows the debtor to demonstrate his right to safely and securely possess his property, it can also create an unreasonably dangerous situation. No car or piece of furniture is worth losing a leg or arm over.
When Debtors Legally Fight Back
The last thing a collection agency wants is for the debtor to file for bankruptcy. But even worse, to have the debtor legally fight back with or without a lawyer.
The debtor can do this by filing a legal Answer to the Agency’s Complaint and, if there is a legal basis, filing a cross-complaint against the collection agency.
Answering The Complaint And Filing A Cross-Complaint
Assuming you don’t fold and instead file and serve a legal answer to their legal complaint, and perhaps even a Cross-Complaint against the creditor, the next phase of the legal process is called the discovery stage. A process in which both parties are given the opportunity to discover what evidence the other has in support of their case or which can disprove the opposing side’s case.
Collection Agencies Dread Having To Defend Counter-Claims
Counter-Claims invariably mean more work and more costs and carry with them added legal exposure for the creditor. Chances are the collection agency will want to settle with you as soon as they realize you are committed to the facts of your case and you have presented what appears to be a viable cross-claim.
However, the collector often has little or no evidence to present to the court and is in anticipation that you will not appear, allowing the collector to win by default.
Collection Agencies Are Notorious For Abusing Discovery
Sometimes collection agencies try to intimidate debtors by serving them with many interrogatories (written questions) and document requests.
For the collection agency, these are standard boilerplate forms that are easy to produce in volume. Don’t get intimidated. The best approach is to give them as little as possible and object to everything else.
Objections and Responses To Opposing Discovery
Some objections include claiming their questions are vague, ambiguous, are protected by the work-product or client attorney-privilege. You can also object on the basis that the collection agency’s discovery is intended to solely annoy, vex and harass the debtor.
You can also respond to the collection agency’s responses by representing that you have made a good faith and diligent search for the information and documents requested but are unable to find them and therefore are unable to produce them.
By objecting to the other side’s discovery, you will force them to file a motion to compel answers and produce documents, which is unlikely for them to do since it will cost them more money to continue litigating the case than the debt is worth. Always remember, collection agencies live by one rule: collect the debt as quickly and inexpensively as possible, and if the effort fails, settle the case, sometimes for pennies on the dollar, and move on to the next case.
The Court Will Try To Force The Parties To Settle
Miffed and frustrated by your legal battle, the collection agency will likely want to negotiate a settlement with you rather than spend more money litigating the case. They will offer to take a discounted amount and propose you pay the balance over time. You may not want to settle under those terms.
Consider holding out for a better offer, especially if you intend on putting more legal pressure on them. It’s your choice. Settle now for what you believe is fair, or continue litigating.
Don’t Fall For The Payment Plan Scheme
If the collection agency offers you a payment plan, do not accept it or sign any documents until you consult with an attorney. You might even want your lawyer to negotiate and settle your case. But in any event, you definitely need the lawyer to review any documents they would like you to sign. If they are suing you for five-thousand dollars, consider offering them three-hundred dollars to settle the entire case now.
Restrain yourself by making a counteroffer. Sometimes standing firm on your settlement amount is the best approach you can take. Remember, you are likely to receive your best offer right before or at trial. Again, these are issues that you should discuss with your legal counsel.
However, before paying anything, you must insist on getting everything in writing and signed by the parties and only after you consult with your lawyer. You must also insist they sign a total release of all claims against you before sending them their money.
Have them sign a full release in exchange for a stated sum. Make sure to always obtain an executed request for dismissal with prejudice to the entire action, along with obtaining an executed release of all claims. You can obtain these kinds of legal documents inexpensively using a reputable discount legal document service.
Settling with a collection agency can get tricky – and do NOT rely on verbal promises of any kind. You must consult a lawyer before signing any documents – and never send any money unless and until everything is in writing and signed by both parties.
Trouble Tips To Consider
Debt mills rarely sue on small debts
A collector is much less likely to file a collection suit when the debt is small. Most will not file a lawsuit if the claim is under $ 1,500. Even this amount is too low to warrant the expense of litigating a debt.
Collectors are unlikely to sue on a disputed claim or threaten to counter-sue
A collector is unlikely to file suit if the collection agency is a debt mill with little to no history of filing small-value lawsuits. You can check a collection agency’s litigation history through a public-records search online.
Small Claims Court – Jurisdictional Limits
Small Claims Courts are usually staffed by attorneys serving as temporary judges. Small claims courts adjudicate matters involving relatively small amounts and therefore are known as courts of limited jurisdiction.
Many small claims courts are limited to claims that do not exceed $5,000. Other states have higher limits. Some of these courts require written responses and provide prepared legal complaint and answer forms, which usually only require a check-the box-response and your signature and then must be returned to the court’s clerk. The court will require originals. Make sure you keep a copy for your records.
Make sure to read and follow the court’s written instructions that usually come with or are referred to in the complaint. Often the rules of court are online.
Depending On Your State, Lawyers Are Prohibited From Representing Litigants
Collection agencies prefer Small Claims Court because the court procedure is usually simple and less formal. In many states, such as California and Michigan, lawyers are prohibited from appearing on behalf of a litigant. Many other states permit either litigant to be represented by counsel. This is where collection agencies have a considerable advantage.
The collection agency representatives, even if they are not lawyers, are usually very experienced (having likely handled hundreds of small claims cases) in collection law and how small claims matters get litigated.
The collection agency will have an experienced representative appear to argue the creditor’s position, which is why the defendant-debtor must be prepared to argue their case and present evidence on their behalf. Know your facts and defenses, and even be prepared to submit a counter-claim.
Losing Your Lawsuit To The Creditor
Right To Appeal From Small Claims Ruling
Your right to appeal a loss will depend on your state jurisdiction and the rules governing small claims cases. In states like California, the defendant debtor in a small claims dispute has the right to appeal to the Superior Court and request a rehearing. The plaintiff who lost does not have this right. A rehearing is rarely granted.
Ways Judgement Creditors Can Force Payment
Wage Garnishment
Wage garnishment is when a court officially orders your employer to withhold your pay (usually no more than a 25% holdback) and orders that the money be sent directly to the creditor or to law enforcement which is then forwarded to the judgment creditor. In most states, the employer sends the garnished amount to law enforcement, then to the judgment creditor.
Every state can limit the amount legally garnished from your wages. Notwithstanding, under federal law, the Consumer Credit Protection Act places a maximum amount at 25% of your net pay. The states, however, are free to limit that amount even further.
The garnishment process can repeat each pay cycle until the debt is fully satisfied. At a personal level, this is not only embarrassing; it can tarnish your reputation with your employer. You should know, however, that your employer is legally prohibited from terminating or retaliating against you because your wages are being garnished.
As a practical matter, however, there might be little you can do to prevent your employer from forming a negative impression of you, which might affect your ability to obtain promotions and pay raises.
Legally Challenging The Wage Garnishment
You can legally challenge your wage garnishment by filing a written objection with the court and obtaining a hearing date. At the hearing, you must present evidence that you need more of your income to pay your expenses or qualify for a specific exemption.
Available Exemptions To Wage Garnishment
An exemption can protect your income if you show that the money to be garnished comes from government-paid social security, disability payments, private retirement, or child support and alimony payments.
You can demonstrate to the court that you have other types of legal obligations and that the garnishment would prevent you or substantially interfere with your legal obligations to make such payments. If this argument succeeds, it will reduce your available net income, which means the creditor would technically have less to garnish.
One of the most unpleasant consequences of failing to pay your bills is the “repossession” of the product(s) you purchased on credit. You do have some legal protection concerning repossession, but not much.
Vehicle Repossession
When you purchase a vehicle on time, your creditor has critical legal rights they can assert should you violate a material term of the loan or lease agreements.
Depending on your state jurisdiction, the law may allow a creditor to repossess your car without first going to court or warning you of the repossession in advance.
The creditor may also have the right to assign or sell the obligation to a third party, called an assignee, which is usually a collection agency, who may have the same right to repossess the car as the original creditor.
Content Left Within The Vehicle
The general rule is that it is unlawful for the creditor to keep or sell any personal property found inside the debtor’s vehicle. In some states, your creditor must, in writing, inform you of the specific personal items that were located in your car and how you can retrieve them.
Your creditor also may be required to use reasonable care to prevent anyone else from removing your property from the vehicle.
Breach of The Peace
While creditors have the right to repossess the vehicle and resell it to mitigate their loss, creditors that intentionally violate consumer protection laws in the process might be held civilly and criminally liable for those violations, including but not limited to abuse of process and breach of the peace. Breach of the peace includes using physical force, threats of force, or taking your car from an enclosed garage.
Creditor Sued For Breaching The Peace
Should a material breach of the peace arise in the repossession of your vehicle, the creditor may be required to compensate you for any personal harm or damage to your property. A breach of peace also may provide you with a legal defense if your creditor later sues you to collect a deficiency judgment against the debtor.
Creditor’s Right To Resell Your Vehicle
Once your vehicle is repossessed, your creditor can either keep the vehicle as compensation for your debt or resell it at a public or private auction.
In some states, the debtor may buy back the vehicle by paying the total amount owed. Usually, that will include all past due payments and the remaining debt incurred, including the expenses connected with having to repossess the vehicle.
Many states have consumer protection laws that allow you to “reinstate” your loan by paying the amount you are behind on your loan, together with your creditor’s repossession expenses.
Sale of Vehicle – Creditors Abuse of Process
Challenging The Creditor’s Sale As Illegal
When your car is repossessed and sold, a creditor will often obtain a sale price well below market value, assess bogus fees, and then seek the difference between the amount initially owed, less the auction sale price plus charges and expenses.
Under the law, you can challenge the sale by claiming the sale amount of your vehicle was not “commercially reasonable.” The creditor will then have to prove that every aspect of its notice to you and the sale was commercially reasonable, including the price.
A creditor’s failure to resell your car commercially reasonably may give you a claim against that creditor for damages or a defense against the creditor’s deficiency judgment.
Deficiency Judgment
Any difference between what you owe on the vehicle and what your creditor obtains for reselling it is called a deficiency. It usually includes fees related to the repossession and early termination of your lease or early payoff penalty of your financing.
In most states, your creditor can obtain a deficiency judgment from the court to collect the remaining amount owed. However, in most states, your creditor must pay you if there is an overage after the sale proceeds are applied to the outstanding balance.
Debtors Legal Defenses
Abuse of Legal Process and Fraud
You may have a legal defense against a deficiency judgment if, for example, your creditor breached the peace while seizing the vehicle or failed to lawfully sell the vehicle at a commercially reasonable price or manner.
Under-the-table cash transactions between the buyer and seller of the vehicle that results in an artificially inflated amount of the deficiency judgment is a felony. A consumer attorney can tell you whether you have grounds to contest a deficiency judgment. During this time, the creditor-seller will likely contact a criminal defense attorney!
Trouble Tips – Q & A
Late payments – should I talk with my creditor?
Contact your creditor if you think you will be late with a payment. Many creditors work with consumers if you already have been regularly timely in their payments. Depending on your payment history, you may be able to negotiate a short delay of your payments or even establish a revised payment schedule with your creditor. If you can agree, make sure you make the change in writing and signed by both parties.
Suppose you agree to give up your vehicle voluntarily. Alternatively, your creditor may refuse to accept your late payment and demand that you return the vehicle. In that case, you are still responsible for paying any deficiency on your contract, and your creditor may still report the late payments or repossession to the credit bureau.
It might be best to continue being a debtor in possession until you can negotiate a settlement with your creditor, such as the creditor agreeing to forfeit pursuing a deficiency judgment against you.
After repossession, is my debt gone?
Probably not. In many states, you will lose not only the car but also the down payment, you’re aftermarket car accessories, and in some cases, the monthly payments you have already made.
If, after repossession, the creditor ends up with a loss, meaning less than the amount of the debt owed, the creditor may sue you for the rest of the money by obtaining a “deficiency judgment” against you.
Can I stop repossession through bankruptcy?
It is not easy to stop or delay a repossession, but you must take immediate action to have any chance of doing so. But before you do anything, you must consult a bankruptcy lawyer and determine whether filing for bankruptcy is a reasonable option for you. based on your circumstances. This will depend on the amount of secured and non-secured debt you have and many other factors. Most bankruptcy attorneys offer a free initial consultation.
Should you file for bankruptcy, all creditors must immediately cease all legal actions against you – including all forms of repossession, garnishing wages, or any attempt to collect a debt. This is known in bankruptcy law as an “Automatic Stay.”
The automatic stay will usually last through the duration of your bankruptcy proceeding. But again, bankruptcy is an extreme measure. It may not be worth filing for bankruptcy to stop a repossession, especially since the bankruptcy trustee will likely order you to return the vehicle back to the creditor.
Retaining A Debt & Bankruptcy Lawyer
You should definitely consult with at least two Debt and Bankruptcy lawyers before making your decision on how to proceed.
