How debt buyers and creditors get judgments when they do not have a right to sue, and what you can do about it

Most bad consumer debt is sold off to “debt buyers” who make a good living buying bad debt for pennies on the dollar then collecting it. As a recent New York Times article points out, these creditors have been able to get judgments on debts that are too old to sue on. Worse, when the judgment debtors tried to stop this practice by a class action lawsuit, they were thrown out of court because of a clause in the original loan agreement that forced all disputes into arbitration. Courts have rejected the argument that by going to court themselves, the debt buyers waived their right to rely on this clause.  “Sued Over Old Debt, and Blocked From Suing Back” 12-22-2015

There are some important take-aways here.

  1. Read the credit agreements and understand what you are agreeing to. Some credit cards give you a limited time to “opt out”. Arbitration looks simple and less expensive, but in fact you may be giving away important rights.
  2. Keep your own records of what you have paid or charged. You may need them later.
  3. When faced with collection, demand proof and keep good records of all contacts, letters or communications. Debt collectors are required to provide proof of the debt if you ask in writing. Because they have bought the debt in large bulk purchases, they likely do not have the original documents.
  4. Watch the statute of limitations. In New Jersey, creditors have 6 years from the date of the last payment after default in which to sue. Even a $1 payment after that time has passed could start the clock running all over again.
  5. If sued, seek legal advice and seriously consider filing an Answer IN WRITING, FILED WITH THE COURT. YOUR ANSWER MUST BE IN THE HANDS OF THE CLERK BEFORE THE STATED DEADLINE EXPIRES. Calling the collection attorney does not protect your rights. A qualified attorney can advise you about the rights and defenses you have. These might include
    1. Plaintiff does not own the debt and is not qualified to sue me.
    2. Plaintiff is not entitled to use the courts to sue me. (In New Jersey out of state businesses must file certain reports in order to sue in our courts)
    3. The statute of limitations has expired. (See above and check the law in your state)
    4. If Plaintiff is owed money, the amount claimed is wrong. (This will require production of account records and possibly the loan agreement. You need to carefully assemble your records to show what you think is due)
    5. NOTE,  THESE ARE ONLY EXAMPLES: you are entitled to demand proof, but you may not have a valid claim to the above defenses or you may have other rights and defenses. Always seek legal advice and assistance, even if it is only a consultation.
  6. When dealing with debt collectors, keep careful written records of who contacted you, when and how, and what they said. You may have a counterclaim against the debt collector, but again, proof is key. Do not hesitate to record the conversations, but be sure to tell them, at the beginning of the recording, that you are recording. Not doing this can result in criminal liability in your state or the state where the caller is at.

For many people, debt collection is more likely to be a symptom of bigger problems. You should consult with a qualified attorney about how you can use Chapter 7 bankruptcy to discharge debts you cannot afford to pay, or Chapter 13 to pay what you can afford over time.

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