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I’ve Been Sued by a Debt Collector! Now What?

June 11, 2015

Part 3: MONEY, DEBT, AND THE LAW 101


Read Part 1: A Snapshot View of Consumer Debt
Read Part 2: Can They Take My Money?

Anyone can be sued by a debt collector.

Debt collectors don’t only sue deadbeats. They are paid to follow the money. Sometimes they get it right, and sometimes they get it very, very wrong and sue fine, upstanding citizens like you and me

Nowadays, a consumer debt is often bought and sold several times before it winds up in the hands of a debt collector who decides to take the matter to court. Chances are, by the time “ABC Debt Buyer” takes ownership of your debt as its asset, it has only paid pennies on the dollar for the debt. However, it has purchased the right to recover the entire amount that you, as a consumer borrower, originally owed plus all sorts of contractual fees, fines, and legal costs.

When a “receivable” like this winds up in court in a collection case, the name of the company bringing the suit usually bears no relationship to the original creditor, whether that was Macy’s, Mastercard or GM Credit. To confuse matters even further, the amount being sued for may include interest, fees, and fines. It may also appear incredibly inflated in comparison to what a consumer understands their debt obligation to be in dollar amounts. In the best-case scenario, ABC Debt Buyer (now a plaintiff in a debt-collection lawsuit) will follow the legal procedures required for notifying a consumer (now a defendant in a debt-collection lawsuit). They will inform the consumer that they are being sued for a certain sum of money.

However, put yourself in the shoes of our defendant. What would you do if you received legal notice about a lawsuit from an entity you did not know and never did business with, for an amount that bears no relationship to any line of credit you ever used? Chances are that you would ignore the notice, right? Maybe you wouldn’t even open the envelope if it came in the mail. Or, if it was actually handed to you by a process server in your home or place of work, you might even shred it if you concluded that it had nothing to do with you.

The next steps that a defendant takes can completely change the outcome of a debt-collection lawsuit in the defendant’s favor. Recent news articles suggest that lawsuits have become the debt collectors preferred collection tool. Why is that? Because in some jurisdictions, 90% or more of people who are sued by debt collectors do not show up in court. In basketball parlance, that means that 90% of the cases they bring are a slam dunk win for the debt collector. Not bad odds for the debt collector.

However, suppose that our consumer/defendant is one of your clients. You’ve been helping them with budgeting, planning, saving, setting goals and maybe even investing. Then they come to you rather sheepishly one day and confess that they’ve received a notice, from a debt collection company, about a lawsuit. This is where your knowledge of how the debt collection industry works can make all the difference in the outcome of your client’s case.

In last week’s blog, you learned that your client is entitled to notice and an opportunity to be heard in any lawsuit brought against them. “Notice” requires some very specific actions by the debt collector. Actions that dictate the time and place the notice may be given, to whom it may given and under what circumstances it may be given. Without getting into the legal nitty-gritty, you can help your client, whether they decide to be their own advocate or to seek out professional legal advice, by suggesting that they immediately start a journal and write down all the details. Be sure they note how they found out about the lawsuit, including the day, date, time, location, a description of who delivered the notice, and to whom it was given.

Next you can explain to your client what you’ve learned here: that no paper purporting to notify you of a lawsuit can be ignored, no matter how far-fetched the details and claims seem to be. Urge them to take the notice seriously. Explain that they have a right to their day in court and their “opportunity to be heard.” Suggest that they find out when they have to go to court and explain that it is crucial that they get there on the appointed date.

Then share the following resources with them:

New York City Department of Consumer Affairs

New York State Department of Financial Services

U.S. Consumer Financial Protection Bureau

Encourage them to get as much information as they can about how to defend a debt collection lawsuit. You want your client to be one of the 10% who do show up in court and defend themselves in any debt collection lawsuit in which they’ve been named as a defendant. The odds of a debt collector getting a “slam dunk” win against someone who actually shows up to defend themselves decreases dramatically compared to the outcomes for the 90% who never even show up.

With that, you’ve done your part in leveling the playing field in debt collection cases.

Guest Contributor: Marcy Einhorn, Esq.
Marcy will host AFCPE’s FPA Connect Webinar on Thursday, June 18, 2015. Her 3 part series on Money, Debt & the Law will be posted each Thursday leading up to this event.


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