Monthly Archives: July 2013

Dealing With Debt Collectors

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The relatively new Consumer Financial Protection Bureau has put some useful resources on the Bureau’s website to deal with obnoxious debt collectors.  The first thing on this page are links to two new bulletins providing notice to debt collectors of practices the Bureau finds abusive.  These things just make kind of fun reading.

The meat of the page are the so-called “Action Letters”.  These are form letters developed by the CFPB to help consumers implement their rights under existing consumer protection laws (primarily the Fair Debt Collection Practices Act).   These letters serve the following purposes:

  • To dispute a debt and request additional information about the debt;
  • To dispute a debt and demand that the collector prove that the consumer is responsible for the debt and to stop contacting the consumer until they have done so;
  • To restrict the times and methods by which the collector can attempt to contact the consumer;
  • To notify the collector that the consumer has retained an attorney and all contacts should go through counsel; and
  • A cease and desist letter — this is a letter instructing the collector to stop all contact attempts with the consumer.

These letters are very useful tools, but they do have some downsides.  FDCPA disputes almost never produce what you hope they will, and if you really do owe the debt, it will buy you only a brief respite from collection activity.  If, however, you are willing to proceed with active litigation against the collector, this kind of verification letter can be extremely valuable.

The most valuable restriction on time and place of contact is preventing the collector from contacting you at work.  This can be very effective.  It will not, however, stop overly aggressive collectors from calling your employer — just to verify that you really do work there — yea, right.

Attorney retention letters are really better coming from the attorney.  Far too often people will tell a collector that they are represented by a certain attorney (whose name they have plucked from the phone book or a website) when they really aren’t, because they have heard that will stop collection calls.  Believe it or not, the collectors really will verify this; and you will not be winning friends with an attorney you may need to actually represent you down the road if his or her phone starts ringing off the hook with creditors of a supposed client the attorney has never heard of.  Bad plan.

Cease and desist letters basically are a mechanism for requiring that collectors stop all collection contact.  It does not mean they can’t sue you.  Well, if they can’t call you, they can’t harass you by mail and you aren’t represented by counsel; there really isn’t much left for them to do.  Now, not every collector sues upon receipt of a cease and desist letter; and I have clients who have used them very successfully, but only in very specific fact situations.

Finally, at the bottom of this page the CFPB outlines its complaint mechanism for lodging complaints against collectors and creditors.  By all means, have at it.  In fact, I encourage everyone to investigate the resources available from the CFPB and make use of them.  Just be aware of the fact that not everything will do what you expect, and most things do have consequences.  Getting a breather from collection calls is not a solution, it is a tool.

Elaine

When Creditors Don’t Go Away — Part 1

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In most cases someone files for bankruptcy, he lists all of his creditors with their addresses, account numbers and at least an approximate amount owed; the creditors receive notice of the Bankruptcy, then they receive the discharge; and they go away.  The general rule is that the Debtor will not hear from any of his creditors again once the Bankruptcy is filed.  (This post only pertains to debts that may or may not be included in the discharge.  It does not apply to creditors who don’t comply with the Automatic Stay.)

There are exceptions.  First of all, there are certain debts that are automatically not included in a discharge.  That means that once the Bankruptcy is over the Debtor is still liable for the debt.  The most common examples are recent taxes, child support or alimony and student loans.  These, the debtor can expect to have to deal with once the discharge is entered and are not generally a surprise.

Then there are the others.  There are lots of reasons why a debt will be excepted from the discharge, and some of them aren’t as predictable as recent taxes.  The complete list included in the Bankruptcy Code (and there are a few other provisions elsewhere in Federal Statutes, but they are really rare) is found at 11 U.S.C. Section 523.

If you file for Bankruptcy and a creditor thinks that you have defrauded them, obtained money by embezzlement or false pretenses, or otherwise come within the scope of a Section 523 objection to discharge, then the creditor may decide to ask the Court to exclude this debt from your discharge.  The vehicle for doing this is what is called an Adversary Proceeding, which is essentially a separate lawsuit filed within the scope of the Bankruptcy filing.  Adversary Proceedings are actually quite rare, but they do happen.

This is what can happen when a creditor isn’t willing to go away and wants to try to establish that his debt should be excepted from the discharge.  First, the creditor may appear at your First Meeting of Creditors.  This is not required, but if the creditor is local or has local counsel, it is an easy way to start to feel out the case.  The First Meeting of Creditors exists for creditors and the Trustee to ask questions, and a creditor looking to build a case for an objection to discharge may use this as an opportunity to ask a few, basic questions.  If they want to ask very many questions, the Trustee will tell them to set a 2004 Examination.

A 2004 Exam is the next step, and again it is not mandatory.  A 2004 Examination is basically a deposition.  It is a meeting in a conference room that will be recorded one way or another, it will be under oath, and the creditor who requests the exam asks the Debtor (or other party) questions.  The debtor can be required to bring documents to the meeting, and it can generate a great deal of facts that the Creditor can use to build his case against the debtor.  A 2004 Exam must be authorized by the Court, and the Court has the authority to limit it in scope or duration.

Finally, the creditor must file an Adversary Proceeding (unless his debt is automatically excepted from discharge like child support or student loans).  An Adversary Proceeding is really just a lawsuit, but it is filed inside the Bankruptcy.  Once it is filed it will proceed like any other civil case, with discovery, motions, and it will finally culminate in a trial with witnesses and exhibits but no jury.  One of the important things to remember about an Adversary Proceeding is that it must be filed by a deadline that is set when the Bankruptcy is first filed.  That deadline can be extended, but it cannot be missed – unless the creditor didn’t get notice of the filing.  Yet one more reason why you must give your lawyer a complete list of everybody you owe money to with their addresses!

I cannot repeat strongly enough how rare most of these things really are.  Creditors are not going to spend good money to send someone to a First Meeting of Creditors just because they can.  Likewise, filing an Adversary Proceeding is a significant investment in time and money; and creditors don’t do that without good reason.  There are certain flags that your attorney will be watching for when he prepares your case that indicate an Adversary Proceeding may be likely.  If that is the case, he should go over that with you.  It is incredibly rare for an Adversary Proceeding to be filed that is a real surprise to the debtor and debtor’s counsel – assuming that the Debtor has been fully above board with his lawyer.  So talk openly and honestly with your lawyer, ask if there is a debt you are concerned about.  A big part of your attorney’s role is helping you to evaluate risk and putting you at ease when you are worrying about things that aren’t likely to be an issue.

Elaine