Whether you are an original creditor or debt buyer (also called third party collector), you may sue a consumer on an unpaid debt. Parsippany debt collection lawyers understand that your goal as a creditor is to secure a swift judgment and then pursue post-judgment remedies to collect the judgment from liquidation of the debtor’s assets if the debtor does not voluntarily pay. The good news is that often, the intimidation and embarrassment of a lawsuit forces the debtor to settle the lawsuit and pay the debt owed. This article is intended to assist those who need help understanding the common defenses and counterclaims in debt collection lawsuits.
Most Debtors Will Not Defend When Sued
Most Americans choose not to defend debt collection lawsuits due to a mistaken belief that since they incurred the debt, there is not much that can be done to prevent the creditor from winning the monetary judgment. Accordingly, few people hire a lawyer to represent them in these lawsuits. Some debtors may try to defend the lawsuit themselves by answering the complaint and appearing at a hearing.
However, for the most part, the creditor’s lawyer usually has an easy road to victory when the defendant does not answer the complaint. After the time for responding to the complaint passes, the debtor will be in default. The creditor can then generally obtain a default judgment.
What Happens When the Debtor Defends the Lawsuit?
Even though debt collection lawsuits are generally successful, before proceeding, you may want to assess the likelihood that the debtor will raise a defense or counterclaim.
Some Possible Defenses
A defendant debtor may have viable defenses to a debt collection lawsuit even if he or she incurred the debt. By choosing to answer and defend a debt collection lawsuit, a defendant debtor can take advantage of various defenses and counterclaims, which may result in a settlement for less than the amount owed or even dismissal of the suit.
One of these defenses is statute of limitations. Statutes of limitations are designed to give time limit to creditor actions, i.e., they cut off the right to sue to collect the debt after some period of time has passed, depending on the state and the type of debt. State statutes of limitation on consumer collection actions are, generally, from 3 to 6 years. Many consumers do not know that making a written promise to pay or making a partial payment on the debt (no matter how small) may reset the clock on the creditor’s ability to take legal action. The statute of limitation is an affirmative defense which must be pleaded, and the burden of proving that the statute has expired is on the party asserting it, i.e., the debtor.
When the creditor is a debt buyer, it has no first-hand knowledge of the consumer’s payment or nonpayment of the debt; it has only the second-hand knowledge based on the records of its predecessors. Because the burden of proof rests on the debt buyer, the defendant debtor can force the debt buyer to prove that the debtor owed the debt, as well as demand proof of the account agreement and its terms. In her answer to the complaint, the defendant might say something like this:
Defendant admits that she has had more than one account with XYZ in the past, but since Plaintiff’s complaint is unverified and does not even reference an account number, Defendant can’t tell if the account is even one of her accounts, and Defendant denies the allegations of Paragraph ___ of the Complaint. Defendant demands verification of the debt and strict proof of the terms of the alleged account at specific times, including the time Plaintiff alleges it went into default, the complete terms of the account agreement and the owner of the account at that time, and proof of any charges, credits, offsets, and payments on said account, including fees and interest charged before and after the account was charged off. Defendant reserves the right to plead further once proof of these matters has been produced.
The debtor can then demand proof that the debt buyer has the right to sue on an account:
Plaintiff has no standing to sue. Plaintiff is a ‘debt buyer’ and has not proved it is the lawful owner of the account sued upon as alleged. Defendant requests a copy of the assignment or other writing with the alleged account number and other evidence proving that an account owed by Defendant was assigned to Plaintiff. If the debt has been assigned more than once, then Defendant requests that Plaintiff produce each assignment or other writing evidencing transfer of ownership to establish an unbroken chain of ownership.
Some Possible Counterclaims by a Debtor
Debt collection cases can give rise to numerous counterclaims, including claims under the Fair Debt Collection Practices Act (FDCPA) and the Fair Credit Report Act (FCRA), as well as state consumer protection laws. In attempting to collect a debt, you have to stay within the boundaries of state and federal laws regulating debt collection practices.
FDCPA (15 U.S.C. §1692) is a federal statute enacted mainly for the purpose of eliminating abusive debt collection practices by debt collectors. FDCPA is a popular counterclaim in debt collection lawsuits because it is a strict liability statute; the debtor only needs to show a violation, even if unintentional, to be entitled to damages. It is also a remedial statute, which means the courts construe it liberally in favor of the consumer.
FDCPA defines many debt collection practices that are unlawful. Some instances of such prohibited practices are contacting the debtor at any unusual time or place; reaching out to the debtor directly if the creditor knows that debtor is represented by an attorney; contacting the debtor at his or her place of employment; communicating about the debt with third parties; and engaging in any conduct, the natural consequence of which is to harass, oppress or abuse the consumer. In addition, creditors are prohibited from using false, deceptive or misleading representations or means in connection with the collection of a debt.
Under FCRA, debt collectors and original creditors can be held liable as “furnishers” under 15 U.S.C. §1681s-2(b). When a consumer disputes a certain debt with a credit reporting agency, and the credit agency then forwards this dispute to the furnisher (creditor), there are certain duties that the furnisher must comply with. Some of these duties are to conduct investigation, review all the relevant information provided by the credit agency, and report the results to the credit reporting agency. Debt collectors who do nothing to investigate a consumer’s dispute may be subject to FCRA violations.
If you are considering a lawsuit to collect a debt or have other debt collection needs, the Parsippany debt collection lawyers at Snellings Law LLC are available to assist. Call us at 973.265.6100.