To be fair, its really not a suprise when we win a case, it happens so often, but 4 in one week is pretty good!

In this matter, the debt collector failed to do anything that it was required to do by law.  After about 45 days, Lady Z reviewed her credit report and discovered that the debt collector was still reporting this debt as valid, with no dispute listed.  We immediately filed a lawsuit against the debt collector in state court. Within a matter of about 3 weeks, debt collector’s attorney contacted us and acknowledged the error.  He was willing to eliminate the underlying debt, remove the adverse credit reporting, pay $1000 in statutory damages and pay our attorney fees.

My response to that is no, you certainly don’t.  Most people do not realize this, but here’s how it works with a credit card account. You obtain a credit card from the original creditor.  Something happens and you lose your ability to pay so you go into default status. The original creditor waits up to 180 days and then charges off the account. (A charge off is simply an accounting term, it DOES NOT mean that you do not owe the money any longer). At this point, the original creditor has 2 choices.  The first is to try to collect from you by filing a lawsuit; The second is to sell the debt to a junk debt buyer or collection agency.  Often times, the original creditor chooses option 2.

When a credit card account is sold, it is sold not as an individual account, but rather, as part of a group of block of delinquent accounts. Typically, these accounts are sold for mere pennies on the dollar. A group of “good” bad debt (good defined as recently defaulted) may sell for 5 cents on the dollar. It can get sold again and again, each time at lower rates. We have seen instances where $1000 of debt has sold for .25. 

So the purchasing junk debt buyer or collection agency then files a lawsuit against you. This is where “but I owe the money” comes into play.  From my standpoint, you may owe the money to the original creditor at the time that you default. If they lend you money or extend credit to you, you do have an obligation to pay it back so you do “owe the money”. However, once you go into default and they charge it off, they have a choice to make. They can sue you or sell the account to a collection agency. If they sue, then maybe you do “owe  the money”.  But if they sell your account, then I don’t believe that you “owe the money” any longer.

Here is my reasoning. You have a credit account and are extended credit. You certainly owe the original creditor something at that point.  Once you go into default, you still “owe the money” to that creditor. I believe, however, that if they sell the account, then you no longer “owe the money” because they have received adequate compensation for you default. When they sell your account they are saying that they no longer want to deal with you and they would like to be compensated for the default. Collection Agency X comes along and gives the original creditor money for your account.  At that point, the original creditor is out of the picture. They have received what they deemed to be adequate and fair compensation for your default.  They would not have sold it otherwise, right?  So if the original creditor is adequately compensated, then you no longer “owe the money” in my opinion.

This isn’t to say that a legal interest such as a credit card account cannot be bought and sold.  Those transactions are certainly legal. I am simply looking at this from a debtor’s standpoint. If you pay anything to that collection agency, if you believe that you “owe the money” , you are simply paying pure profit to that collection agency. After all, they paid only pennies on the dollar for your account. After the first $30 or so, any money that you pay to them is pure profit.  Do you really “owe the money”?

It is illegal for any debt collector to contact a friend, neighbor, family member or anyone at your place of employment to discuss your debt with them. (They may contact one of these third parties only to locate you, if they have made reasonable efforts at finding you that were not successful). The Fair Debt Collection Practices Act (FDCPA) sets forth many rights that consumer or debtors have in regards to delinquent accounts and collection activities that take place as a result thereof.

My partner, Clay Morrow, contacted the collection agency right away and advised them of our representation of Bob and Mary. Clay advised that the activities were illegal and that we would be bringing a claim against them.  The collection agency knew that their actions were illegal so there wasn’t much of a fight. They do these things because they know that 1) these tactics are often successful and 2) that most people will not bother to consult an attorney.

Within a matter of 10 days, Clay was able to obtain the full amount of the statutory damages ($1000) plus attorney fees for Bob and Mary.  Clay was also able to settle the underlying debt with the original credit card company for a small fraction of the actual debt.  Great job Clay!

I’ve never had an account with you.

This means absolutely nothing in a court of law. The right to sue someone is a legal interest. A legal interest can be sold, at any time, at any price, to anyone.  While it may be true that you did not have an account with the collection agency, that doesn’t mean that they cannot sue you on a delinquent account. (Whether they can prove that they bought the account is another story and is the basis for much of our success in defending collection agency lawsuits).

I tried to pay, but they wouldn’t work with me.

This may be the worst defense ever.   “I tried to pay…”  this is called an admission. Who pays on something that they do not owe?  No one.  The admission here is that you did have an account with someone and that you are in default on that account.  In a nutshell, it means that you lose your lawsuit. To be clear, once you are in default the creditor or collection agency does not have to accept any payment other than payment in full.  You do not get to set the terms of repayment.  Its not up to you to decide how much you can or are willing to pay. In addition, a court typically does not determine payment arrangements. Instead, a court determines if you owe anything and then how much. Repayment afterwards is up to the parties to handle.

My divorce decree says that I don’t have to pay.

This is mixing apples and doritos. A divorce decree or order is issued by a family court. While it has a binding effect between the spouses (ex spouse’s I should say) it does not bind other parties. The credit card company (or collection agency) is not bound by this divorce decree or order because its case is in civil court, which is different. The credit card company can sue the named cardholder only, not anyone else, and the divorce decree will not prevent that. What may happen is that the credit card company sues the cardholder and wins its case. The cardholder could then go to family court and have the other person found in contempt for not handling the account.

I hired a debt settlement company.

Perhaps the second worst defense, and, the absolute worst move that you could make, period. (This author firmly believes that debt settlement companies are useless and clearly not worth the outrageous fees that you pay them). As stated above, a credit card company or collection agency does not have to accept any payment other than payment in full, once you are in default. Debt settlement companies cannot stop lawsuits from occurring and are not equipped to help you respond to a credit card lawsuit. DO NOT TAKE LEGAL ADVICE FROM A DEBT SETTLEMENT COMPANY.  Again, don’t hire them to begin with and you won’t have to worry about heeding their legal advice.

If you have ever heard the saying that its too good to be true, then it likely is. These ads fit that description exactly. You are not “entitled “ to lower your credit card debt under any law  that I am aware of.  “We can cut your debt in half”, well, only in very extreme and lucky circumstances.  Cutting the debt to 70% is a more reasonable goal (unless you are dealing with a debt buyer and not the original creditor. You can get a better reduction, but you should not pay anything to them) and this sort of reduction only applies where you can pay a lump sum or make substantial monthly payments.  “Be debt free in less than a year”? Only if you file bankruptcy or hit the lottery.

The truth of the matter is that these claims are false, misleading, and in my opinion, fraudulent. These claims are merely a sales pitch to get you to hire a debt settlement company. They know that you are having financial difficulties and will do anything to get out of it. The worst part about these false claims isn’t that they can’t back them up and make them come true. No, the worst part is that they charge you an outrageous fee when you sign on with the company, usually a large percentage of the debt (I have seen upwards of 20%) and an additional monthly fee.  The fee is typically paid up front, before any creditors are paid.

Here’s how the debt settlement companies work. They promise to reduce your debt. You hire them. They arrange for you to make payments to their account. When the account builds up enough money, they contact creditors one by one and try to settle cases. To be blunt, this is a horrible idea.  What do you think is happening while you are paying into the account? The creditors are getting upset and are filing lawsuits against you, all the while, the interest continues to accrue at a rate approaching 30%.

Let’s look at a hypothetical situation. Mike owes $25000 in debt to credit card companies. He hires XYZ debt settlement company to work on his debt problems. They establish an account, he pays $500 per month to the account. Since their fee is 20% (that would be $5000 here), and they get paid first, the first 10 payments are solely to pay the debt settlement company. I have to shoot out a common sense question here, is that money well spent? How much interest accrued during that 10 months? How many lawsuits were filed during that 10 months?  Even though they may tell you otherwise, signing on with a debt settlement company does not stop a creditor from filing a lawsuit. To the contrary, it may expedite the filing of the lawsuit because many creditors do not work with debt settlement companies.

The moral of the story here is to contact a consumer attorney in your area if you are faced with credit card debt. There are a number of issues that need to be reviewed, including who the creditor is, how old the debt is, who is representing the creditor, whether the debt has been sold, on and on. Perhaps negotiation is the way to go. On the other hand, perhaps defending a lawsuit is the way to go. Bankruptcy is always an option to consider. Spend the time to consult with a consumer attorney if you are struggling with credit card debt.  Hire the debt settlement company, and you are simply burning money.

The sad part, if it could get any sadder, is that the company told potential Client X that the credit card companies would not sue her because they were involved now. They mentioned that if a lawsuit did come, that they would take care of it.

Well, the lawsuit from Citibank did arrive. Potential Client X notified the company and they advised her that they would handle it.  They advised her to send an extra $125 per month to make payments to Citibank.  Potential Client X complied, only to find that while the funds did go to Citibank, the debt settlement company did not respond to the lawsuit and a judgment was entered against her for the full amount plus attorney fees. They told her that they thought Citibank would like to have 6 months of payments and then they would review her case, because ” that’s how they have handled things in the past”.

This entire fiasco could have been averted if Potential Client X had contact my office, or the office of another consumer attorney, rather than the debt settlement company.  Moral of the story, all debt settlement companies are a waste of your time and money.

Even if they get a reduction of 40%

All of the above actions are illegal under the Fair Debt Collection Practices Act. The Fair Debt Collection Practices Act (FDPCA for short) is a federal law that governs what a debt collector may do or say when it is attempting to collect a debt.

A debt collector may not threaten to take any action that is illegal, period. In the above examples, wage garnishment is a big one that we see quite often. To be clear, a debt collector may not garnish your wages in Pennsylvania for a credit card debt. There are no ifs, ands or buts to that statement. Therefore, if a debt collector makes such a threat, it is illegal and you may have a claim against them for their unfair practices.

Again, referring to the above examples, we hear of debt collectors who contact family, friends, employers and neighbors about outstanding debt. This type of activity is usually illegal, but not always.

To explain, generally, a debt collector may not speak with or contact anyone else about your debts. For the most part, an employer may never be contacted about a credit card debt. With regards to friends, family and neighbors, the same is true but with one general exception.

If a debt collector cannot find you, they may contact others to ascertain your location and contact information.  Again, they have this permission only if they cannot find you. They may not speak with others about the nature of their business, they may not tell anyone that you allegedly owe a debt.  Their sole purpose in contacting a friend, neighbor or family member can be only to locate you.  If the debt collector has a valid address and phone number for you, they have no reason or right to contact anyone else about your alleged debt.  Such an action would be illegal.

If one of the above examples should happen to you, please know that you have rights under the FDCPA. Our firm, specifically through my partner, Clay Morrow, can bring a claim against the debt collector for its illegal activities. Generally, you are entitled to a statutory damage amount $1000 AND you receive your reasonable attorney fees for prosecution of the claim. In that regard, we do not charge an up-front fee to pursue these claims on your behalf.

If a debt collector has threatened you, or discussed your alleged debt with someone else, please contact our office right away so that we can begin a claim for you.