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.”

Most debt collection lawsuits are handled by overworked and unsympathetic debt collection attorneys. With that in mind, focus on your best defenses to the lawsuit. Here are some of the weaker defenses, which you should avoid.

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A Penny Earned, A Class Action Brought

When “fashionista lawyer” Carolyn Kellman returned shorts she bought from Forever 21 for $14.46, she received just $14.45. And sued. As Scott Greenfield observes, although this looks at first blush like much ado about nothing, it is actually a perfect example of what a class action lawsuit is for: small damages spread out across a huge swath of consumers.

(It’s also possible that Kellman was the only person ever shortchanged, but as the article in the Daily Business Review points out, rounding receipts to make it easier to make change is done at other retailers, like Chipotle.)

All Kellman and her lawyers have to do now is find another 749,999 customers who were shortchanged, in order to make it past the Miami-Date threshold of $15,000.

How to Defend a Debt Collection Lawsuit

Following up his excellent 2011 article on robo-signing in small-claims court, Peter Holland just wrote a quick-and-dirty guide to defending a debt collection lawsuit. In it, he summarizes the factual, procedural, and evidentiary problems debt collectors face in court, which we have been writing about here for years.

The article is meant as a guide for lawyers, because putting Holland’s strategies to work in court requires some decent legal research skills along with the ability to assemble a coherent legal argument and defend it in court. (I wrote a similar article for the William Mitchell Law Review back in 2009, complete with citations, but it only works for Minnesota cases.) But ambitious pro se defendants will find a lot of useful information in Holland’s article, too.

For more on defending debt collection lawsuits, see our Debt Collection Help resource page.

Minnesota Conciliation Court Limit Raised to $10,000 (soon $15,000)

Guest post by Aaron Hall.

Minnesota consumers can now bring more cases to conciliation court, and many see this as good news. Unlike regular district court, conciliation court was created to handle “small claims” with relaxed rules and procedures so people don’t need to hire an attorney.

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State of Minnesota Law on Joint Accounts Clarified, but Still in Doubt

About a year and a half ago, I wrote about Judge Frank’s decision that Minnesotans may sue when a debt collector garnishes funds in a joint bank account. After a lot more litigation, pieces of that question were certified to the Minnesota Supreme Court. The Minnesota Supreme Court decided that, under Minnesota law,

  1. A judgment creditor may serve a garnishment summons on a garnishee, attaching funds in a joint account to satisfy the debt of an account holder, even though not all of the account holders are judgment creditors.
  2. Account holders bear the burden of establishing net contributions to a joint account during a garnishment proceeding.
  3. A judgment debtor is initially, but rebuttably, presumed to own all of the funds in a joint account, and if the presumption is not rebutted, all of the funds in a joint account are subject to garnishment.

What that means, in English, is that a creditor may take funds that belong to a non-debtor without notice or an opportunity to respond. This would seem to directly conflict with the due process requirements of the U.S. Constitution (and the Minnesota Constitution, for that matter), but the Minnesota Supreme Court ignored that conflict in reaching its conclusion.

The lawsuit is not over, but the law has shifted back in favor of creditors and debt collectors. For now, it looks like keeping money in a joint account is probably a bad idea if the other account holder owes anyone money.

Savig v. FNB Omaha and Messerli & Kramer, P.A. | Minnesota Supreme Court

The New Debtors’ Prison

Debtors’ prison was supposedly eliminated in the United States in the 19th century, but in the 21st, people are still being arrested and tossed into jail for debts. It just takes an extra step these days.

This morning, I sat in court and watched a debt collector get six bench warrants for debts under $1,000. I recognized the names of all the plaintiffs: Palisades, LVNV, and Capital One. Palisades and LVNV, and maybe Capital One, probably would not have won their lawsuit if the defendants challenged them. But each defendant defaulted when he or she did not answer the lawsuit, and gave up their right to challenge it.

After getting a default judgment, the debt collector asked the court to issue an order for disclosure. An order for disclosure orders the debtor to disclose his or her assets—where they keep their money. Like any other court order, failure to obey will result in jail time. This makes perfect sense under ordinary circumstances, but debt collectors use the courts like an assembly line leading to jail.

The problem is not necessarily the court rules and Minnesota statutes that the debt collectors are using. Defendants should have to answer a lawsuit to challenge it, and court orders must be enforceable. But in order to do those things, defendants must understand their rights, as well as the documents they receive. Unfortunately, the rules and statutes, along with the court’s forms, are practically incomprehensible to non-lawyers. As a result, non-lawyers, like the defendants who will be tossed in jail as a result of what I saw this morning, probably had no idea how to answer their lawsuit, or that they would go to jail if they did not disclose their assets.

Debt collectors are just taking advantage of a system that is unfriendly and nearly impenetrable to non-lawyers.

(photo: abardwell)

Federal Trade Commission Accepting Public Comments on Debt Collection Litigation

On Tuesday, the FTC will hold a free roundtable in San Francisco, open to the public, on debt collection litigation and arbitration. The FTC is seeking public comments in advance of the event, and some of the existing public comments are, well, interesting.

Debt buyers Midland Credit Management, Asset Acceptance, and Portfolio Recovery Associates whine that they are subjected to a higher standard in litigation. I thought their public comments very funny, and very misleading.

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More litigants lawyer-less during the recession

According to the New York Times, the number of people representing themselves during the recession is way up, and that can cause problems:

Judges complain that people miss deadlines, fail to bring the right documents or evidence and are simply unprepared for legal proceedings. Such mistakes make it more likely they will fare poorly — no matter the merit of their cases.

If courts are unfamiliar territory for most people, lawyers are the tour guides. At the very least, it makes sense to get advice from a lawyer — and maybe get help preparing documents — before representing yourself. Look for lawyers who offer “unbundled services,” meaning they will do just what you want, without being your full-time lawyer.

Going with unbundled services can be a great way to control costs if you are willing and able to do most of the work yourself.

In a Downturn, More Act as Their Own Lawyers | NY Times

photo: G30WORK)

(Thanks, Karen!)

National Arbitration Forum thinks courts should just rubber stamp arbitration awards

National Arbitration Forum basically offers a rubber stamp to debt collectors already, and they argue that courts should turn their awards into court judgments without looking too closely.

Are courts unreasonably tossing out arbitration awards? Nope. NAF is just advocating for its clients, the debt collectors, who have no proof of the debts on which they are trying to collect.

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Judge: “Dell Has Engaged In Repeated Misleading, Deceptive And Unlawful Business Conduct”

A judge recently said that (PDF link) Dell “has engaged in repeated misleading, deceptive and unlawful business conduct . . . .” The case specifically dealt with Dell’s grandiose promises in its service agreements, on which it did not deliver. Judge: “Dell Has Engaged In Repeated Misleading, Deceptive And Unlawful Business Conduct” | Consumerist