Many ― but not all ― debt collectors working for loan sharks are alleged humans who do the bidding of the dark side of the force. I have written about abusive debt collectors several times, in unflattering terms. It turns out that I’m not the only one who has noticed their abusive tactics. The feds are paying attention too.
I. The Abusive Tactics Epidemic
A. Criminal Charges Against Collectors
Writing in the November 18, 2014, issue of the ABA Journal, Martha Neil reported:
A Georgia-based debt-collection company, its owner and six employees have been criminally charged in what is described by federal authorities as a $4.1 million national scheme that took advantage of more than 6,000 people. U.S. Attorney Preet Bharara of Manhattan, who is overseeing the case, says a larger investigation of “an absolute epidemic of abusive debt-collection practices” is ongoing by the Consumer Financial Protection Bureau, the Federal Trade Commission, the Federal Bureau of Investigation and federal prosecutors in his own office. This appears to be the first time these agencies have coordinated on such a probe, which could signal that a major enforcement effort is underway, reports CNN Money. The Atlanta Journal-Constitution, Newsday (sub. req.) and Reuters also have stories. “[R]uthlessly persistent” collectors at Williams, Scott & Associates in Norcross, Georgia, bullied thousands of people nationwide into paying millions between 2009 and 2014, sometimes even when they didn’t owe money, said Bharara. Collectors falsely claimed affiliations with government agencies and threatened people with arrest or other enforcement action, he said.
Collectors lied! I’m shocked, shocked. Actually, I’m not shocked because I’ve had clients tell me that collectors have threatened to jail them for not paying a debt.
The FBI has an article about the Williams, Scott & Associates case, that provides much more detail about the scope of the abuse. I mention this to emphasize the fact that the FBI really is interested in going after abusive collectors. However, they cannot do so unless the victims report the abuse. Therefore, if you’ve been told by a debt collector that you’re headed for jail unless you pay a debt, call the FBI and the U.S. Attorney’s Office, and tell them about it. If enough people complain, they will act.
B. Debts That Can Lead To Jail Time
Let me clear the air on jail time for unpaid debts. There are only three types of debts that, if you willfully refuse to pay them, can lead to jail time. Notice that an inability to pay the debt is not the same as a willful refusal to pay it.
The three types of debts are: taxes, child support, and bankruptcy attorney fees. Oops, that third one shouldn’t be on the list. There are actually only two: taxes and child support. Therefore, if a loan shark debt collector threatens you with jail time, you can threaten him right back with jail time while playing a recording of either dueling banjos, or the theme from the Good, The Bad, And The Ugly in the background.
II. Legitimate Debt Collection
Although there is no shortage of abusive debt collectors, this does not mean that all debt collectors are operating illegally. There are legitimate debt collectors that are either hired by creditors to collect unpaid bills, or who buy the debts from creditors. Therefore, don’t threaten to sue the collector just because you got a call asking for payment of a legitimate debt you have.
The Fair Debt Collection Practices Act contains limits on what a debt collector can do. As long as the collector obeys the law, it is doing nothing wrong. And if you owe the debt, either pay it, or else discharge it in bankruptcy.
If you don’t pay the debt, then the collector can sue you. What defenses can you mount?
A. Statute Of Limitations
According to Cal. Civ. Proc. Code § 337, the statute of limitations for most debt collection lawsuits in California is four years. Therefore, if you receive a summons telling you that you are being sued by a debt collector, review your records. If it has been more than four years since the end of the grace period after the last time you made a payment, you may have a statute of limitations defense. But you must assert it immediately by filing a written response with the court within thirty days of being served with the summons. Otherwise that defense is deemed forever waived. And just because you assert it, does not mean that you will win. Be prepared to prove that the defense is valid.
By the way, successfully using the statute of limitations defense does not mean that the debt is invalid. It just means that the collector cannot use a lawsuit to collect it. If the debt is valid, the collector can still call you to try to collect the debt. However, if the collector loses the lawsuit because you successfully applied a statute of limitations defense, you will probably never hear from that collector again.
B. Invalidity Of The Debt
Debt collectors sometimes sue the wrong person. If you have a relatively common name, you might face a suit over someone else’s debt. You can challenge the legitimacy of the suit by filing a written response with the court within thirty days of being served with the summons. Be prepared to prove the invalidity of the debt. If you win, then you can file an action against the creditor for having filed a frivolous suit against you.
C. You Already Paid The Debt
If you once owed the alleged debt, but subsequently paid it, you can seek to have the case dismissed by filing a written response with the court within thirty days of being served with the summons. Be prepared to prove that you already paid the debt. If you win, then you can file an action against the creditor for having filed a frivolous suit against you.
IV. What The Collector Can Do If It Wins The Lawsuit
If you fail to respond within the thirty days of being served, the collector can get a default judgment against you. Or if you respond, but end up losing the case, the collector will get a judgment against you.
A. Wage Garnishment, Bank Account Levy, And Lien Recordation
In either case, the victorious collector can use that judgment to enlist the Sheriff to garnish wages and levy funds from your bank account. The collector can also record a judgment lien against your property.
B. Renewal Of Judgment
According to Cal. Civ. Proc. Code § 683.120(b), in California the collector can renew the judgment every ten years until the debt is paid or discharged. Therefore, some collectors/creditors will get a judgment against an impecunious debtor, and keep renewing the judgment while monitoring the debtor’s financial well-being. If the debtor wins the lottery, or gets a high paying job, or inherits a fortune after the death of rich uncle Bob, the collector will swoop in like a bird of prey and seize funds to satisfy the debt.
V. The Bankruptcy Solution
Debt collectors obtain their judgments under state law.
The Bankruptcy Code is federal law, made pursuant to Congress’s enumerated power in the U.S. Constitution, article I, section 8, clause 4:
The Congress shall have Power To . . . establish . . . uniform Laws on the subject of Bankruptcies throughout the United States.
The U.S. Constitution also provides:
This Constitution, and the Laws of the United States which shall be made in Pursuance thereof . . . shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
U.S. Const., art. VI, para. 2.
This means that if there is a conflict between a federal law and a state law, the federal law always wins. Therefore, if you file for bankruptcy protection, you can get rid of the state law debt under federal bankruptcy law ― provided it is dischargeable.
If you’re a debtor and need bankruptcy protection, contact an extremely knowledgeable and highly skilled bankruptcy attorney to guide you through the process.