How Not to Defend a Debt Collection Lawsuit

This article is a list of defenses that do not work. If you would rather find out what you should do, click over to “Served By a Debt Collector? What To Do Next“.

When I worked as a collection attorney, I handled many debt collection lawsuits, and I saw the same erroneous defenses over and over again. Here are some of the most common defenses I heard:

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Robo-Signers at Debt Buyer Firms Overwhelm Courts

The foreclosure mess got messier over a month ago, when GMAC, Bank of America, and others were caught faking (essentially) affidavits supporting their foreclosure lawsuits. The irony of banks acting irresponsibly with their finances was not lost on the media. Of course, robo-signing, as it was soon termed, was already commonplace in another kind of business: debt buyers.

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Illinois Gets $23.7 Million Judgment Against Debt Collection Law Firm

In a somewhat surprising role reversal, the state of Illinois was awarded a $23.7 million dollar judgment against the law firm of Friedman & Wexler and two attorneys from the firm. The state had previously used the law firm to collect debts on behalf of the state.

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Minnesota State Fair Attendees Sound Off on Debt Collection Lawsuits

Every year, at the Senate Fair Booth at the Minnesota State Fair, Minnesotans can vote on the issues of the day. This year, one of the questions was:

Do you think debt collectors should be required to verify they have the correct debtor and the correct amount of the debt before filing a lawsuit against an alleged debtor?

A loaded question, to be sure, but here were the results:

A. Yes. 95.8% (5644)
B. No. 1.8% (108)
C. Undecided/No opinion. 2.4% (142)

Not much room for spin, there.

North Star Capital Acquisition Offers Settlement of FDCPA Claims

North Star Capital Acquisition, a Minnesota debt buyer, threatened one of my clients, called him repeatedly, and used profanity in several of the phone calls. For example: “You can do anything you f**cking want, but we are going to get this money from you one way or another.”

Shortly after we filed the Fair Debt Collection Practices Act lawsuit, North Star offered to settle for statutory damages, plus attorney fees and costs. Interestingly, North Star offered $500 as a “default” for attorney fees and costs. I find this amusing, since North Star’s law firm, Messerli & Kramer, regularly demands well over $1,000 in attorney fees for collection lawsuits it drafts by the hundreds. (North Star paid our actual fees in the end.)

Here are some of the key allegations from the lawsuit:

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How to Avoid Ending Up in Jail for Debt

Getting served with a debt collection lawsuit is bad enough without the risk of jail time. But ignoring a lawsuit could lead to a bench warrant—and possibly a short jail visit—in some circumstances. Make sure it does not happen to you.

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Debt Collection Lawsuits for “Phantom Debts” Result in Real Harassment

Debt buyers may not have any evidence to support their collection lawsuits, but that does not stop them from harassing consumers. According to yesterday’s lead story in the Star Tribune, debt buyers bring lawsuits with nothing but a row of numbers passed along by the previous owner of the debt, then support them with bogus “proof.”

Some debt buyers take more extreme measures. Thomas Labeaux, owner of Debt Equities, apparently trapped a consumer in her driveway, pretending he was a sheriff and threatening to take her newborn into protective custody if she did not pay a debt.

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In the Event of a Lawsuit, Please Head for the Nearest Lawyer

If you have been paying attention to this blog or the recent surge in debt collection reporting, you probably have a general idea of how the system works. Debt collectors (both debt buyers and debt collection law firms) sue people as fast as they can fill in the blanks on their summons and complaint forms.

95% of those lawsuits probably go unanswered, so the debt collectors end up with a judgment for the debt plus interest (and possibly other—unlawful—charges) plus attorney fees and costs. Then, they find the debtors’ bank accounts and employers and start collecting by garnishing wages, seizing funds from bank accounts, and worse.

If you are a tenant, the system works roughly the same, although landlords do not usually have quite so many people to sue.

So what do you do if you find out someone is suing you?

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Minnesota Needs Debt Buyer Regulation

Minnesota Representative Joe Mullery and Senator Ron Latz recently introduced a bill that would prevent debt buyers from filing a lawsuit without the ability to prove they have the right to collect a debt.

Why the need for the rule? Debt buyers and collectors file tens of thousands of lawsuits against Minnesota consumers every year, and probably serve at least as many that never get filed. But debt buyers should lose most of their lawsuits, if challenged.

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FDPCA & FCRA Lawsuits On the Rise

The number of FDCPA and FCRA lawsuits filed in 2009 is well ahead of both 2008 and 2007. In July 2009, the 5000th suit was filed. In 2008, that benchmark was not hit until the second week of October; in 2007 it took until early December.

So what is behind the surge? Here are my best guesses.

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