The Ultimate Debtor-Creditor Outline
Michael.russo@oag.state.ny.us à include cell number if ask question so he can respond
Basic Introduction of Some Vocabulary:
Judgment debtor – judgment only worth anything if the debtor has assets; only worthwhile if the judgment can be enforced (judgment creditor is the person who has the judgment); fraudulent transfers – when somebody is getting sued, people during the course of litigation may transfer their assets and hide the money trying to make themselves judgment proof- if all assets are transferred out to third parties you have to unwind the fraudulent transfers and get the assets back to the defendant; freezing assets of the defendant – ask the court to issue injunction preventing defendant from transferring assets during litigation; if you have deep pocket defendant you don’t have to worry about assets being there at the end of the day – only worry when the defendant doesn’t have deep pockets such as corporation; majority of litigation is between private litigants – defendants on the other side don’t often have many assets; bankruptcy – touch on this, not teaching it in this course
Tying up assets at the beginning of a lawsuit – attach a boat to lawsuit so that it could not be sold…if you can get the judge convince that there is a danger that the asset will be moved/sold you should…
Debt: liability on a claim
Claim: a creditor’s right to repayment
Debtor: an individual or entity that owes a creditor something
Creditor: an individual or other entity that has a claim against a debtor
Debt Collector: applies to debt collection companies and law firms (in some cases)
(a) does not pertain to post judgment enforcement
(b) does not apply to businesses attempting to collect debt
Levy: seizure of the debtor’s property by a sheriff
Attachment: pre-judgment remedy that enables a plaintiff to seize or have a law officer seize property of a defendant for purposes of either:
(a) Obtaining jurisdiction over a defendant, known as Foreign Attachment AND/OR
(b) Securing an eventual judgment, known as Domestic Attachment
Garnishment: attachment of the property of a defendant which is in possession of a 3rd party
Lien: an interest in the debtor’s property to secure payment of a debt
When one has lien rights in debtor’s property, that enables the creditor to proceed against that property to enforce a claim.
3 Types of Liens:
(1) Judicial
(2) Consensual
(3) Statutory
Insolvent: the sum of such entity’s debts is greater than all of such entity’s property (this means that debtor’s liabilities > than the fair value of its assets)
Judgment: is a piece of paper that is worth nothing if no assets are attached to which the judgment can attach to. Must be signed by the judge.
Post Judgment Enforcement Remedies:
(a) Subpoena the judgment debtor to find out what assets they have Or
(b) Bankruptcy can protect the debtor
Homestead Exemption: your home is exempt from judgment enforcement
Note: NEW YORK: $50,000 is the limit. Some States: No limit.
Two Types of Remedies When You Owe Debts:
(a) Judicial: take property, garnish wages, etc.
(b) Non-Judicial: the court is not involved, nor is the state
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Non-Judicial Collection Efforts
Introduction
What are the 2 types of remedies you can use when trying to enforce a debt?
Judicial Remedy
Non Judicial Remedy
What is an Agent Accounts Receivables (AAR’s)
Business fills out these AARs if the debt is over 60 days past due
Business then hands these AARs to debt collection agencies
Collection Agencies will charge 40-50% of the debt as a fee for collecting the debt for the business.
The Theory Behind AARs:
At least the business will get something from the debtor rather than nothing.
The business can write off the lost money on their taxes as a loss
Fair Debt Collection Practices Act (FDCPA)
Why does the federal government have power in this area?
Because it is Interstate Commerce.
What is the general purpose of the FDCPA?
It regulates the conduct of Debt Collectors
This means that only companies that are in the regular business of collecting debt are subject to the FDCA
Meant to minimize third party contact by debt collection agency
What is a Debt Collector?
Any person who uses any instrumentality of interstate commerce or the mail whose principal purpose is to collect debts. (Note: law firms can be considered debt collectors under the Act, BUT if a partner just asks you to try to get your own money, then your law firm will not be considered a debt collector and is just a creditor) (Also: FDCPA does not apply to lawyers who are engaged in litigation)
Quintessential Example: Collection Agencies
Debt Collector versus Creditor:
A debt collector is an entity that is hired to go out and collect the debt, whereas a creditor is the party who lent you the money so that you could obtain goods or services, in return for your promise to pay.
A debt collector is NOT a creditor!
Who does the act protect?
CONSUMERS: any Person obligated to pay a debt.
Note: Businesses are NOT consumers and not protected under the FDCPA
What can and cannot be done by debt collectors under the FDCPA?
Can contact 3rd Parties (ex: calling the debtor’s friend): The debt collector:
Cannot identify oneself as Debt Collector, unless specifically asked to.
Must identify himself/herself (???)
Can gain knowledge about location information only (personal or work, includes phone number)
If asked by 3rd party, must say who the debt collector is working for
The debt collector cannot say that the debtor owes money or how much they owe
Can talk to Consumers (broad definition that includes: spouse, guardian, executor, administrator, parents if a minor, etc.)
Applies to businesses collecting debts on behalf of others (if you are collecting your own money, then the FDCPA doesn’t apply)
Communication by the debt collector can take any form (letter, phone call, e-mail)
Post cards are NOT allowed because that would identify the company as a collection agency
Cannot say one is a collection agency on the envelope (No Return address or symbols, for example…Many debt collectors use PO Boxes)
If the debtor has a lawyer, then the lawyer is the ONLY person who can be contacted by the debt collector. (exception: lawyer that keeps blowing off the debt collector)
Debt collectors CANNOT:
Harass, use violence, obscene language, or have an intent to harass or annoy
Collect an amount that is not expressly authorized (example: fees for the debt collection agency can’t be tacked on)
Cannot threaten to use criminal legal means because only the creditor can. Why?
Because they are the only ones who have the right to use the criminal process and press charges.
Example: bad check situation, the creditor can threaten the legal means and not the debt collector.
Example 2: not paying a credit card bill is not a crime, so the creditor would not be able to threaten arrest.
However, if the debt collector has been sold/assigned the right on a debt, then they can threaten civil action.
Difference between Assigning of debts and hiring a collection agency:
Assignment: Collection owns the right to sue civilly
Hiring: Original creditor maintains the right to bring criminal or civil action.
If debtor works at a place that prohibits outside phone calls, then debt collector cannot call that place of business.
Cannot call after 9 PM or before 8 AM
Cannot threaten to harm the debtor’s reputation
Cannot publish the debtor’s debts or debtor lists
No false, misleading, or deceptive tactics to collect a debt
Debt collector cannot make the debtor think that they are attorneys.
Cannot threaten legal means even if they are assigned rights.
If Debt is not paid within 5 days of the initial communication with the debt collector, the debt collector must follow up the initial communication with written notice of the debt containing: (1) the amount, (2) name of the creditor, (3) statement that unless the debtor disputes the validity of the debt within 30 days after the notice was sent, that the law will presume the debt as valid by the debt collection.
If the consumer responds within 30 days DISPUTING THE DEBT, the debt col
ost dated checks (checks dated into the future which can’t be cashed until that day)
1692g
Creditor SHALL provide communication – regarding amount of debt, who the creditor is
Unless consumer disputes debt within 30 days the debt is considered valid
Consumer has the right to know who their creditor is and where the debt stems from
Debtor should always request verification of the debt to find out its legitimacy
(b) disputed debts – 30 days in writing – consumer can have communications ceased until the collector receives verification of debt, copy of judgment, or name and address of original creditor dispute debt in writing in 30 days to the collector
1692i – legal actions by debt collectors
Talks about venue of actions; venue commenced must be in the judicial district where the consumer lives
1692k – civil liability
Actual damage sustained by the person as a result of the violation of the act
Collect $1,000 for the violation this is where the main criticism of the statute – its $1000 per lawsuit – you can only collect $1k per lawsuit
Legal fees of plaintiff paid by debt collector if the debtor/plaintiff wins
Debt collectors defense is the INTENT (section c); second defense is the ERROR in conduct resulted from a BONAFIDE ERROR (for a plaintiff to recover they have to show a violation occurred, the then burden shifts to the collector to demonstrate their conduct was not intentional and they have to demonstrate that they had procedures in place to prevent these errors from occurring)
1692n
“for purposes of this section, state law is not inconsistent with this subchapter if the protection such law affords any consumer is greater than the protections provided by this subchapter”
Duty v. General Finance Company: Debt collection agency called debtor’s brother in NM collect. The debtor alleged emotional distress because she became so sick from this experience that she could not work anymore.
Held: Was a violation of the FDCPA and the debtor’s actual damages were the loss of her job.
Russell v. Equifax: Russell received 2 contradictory letters from the debt collector. The first notice gave 30 days and then 20 days later they received notice that only gave 5 days notice, which was only 25 days notice total. The first notice applies, but the unsophisticated consumer does not know this.
Held: The language was contradictory and the unsophisticated consumer would have no clue how to respond to the debt collector’s notice, so the court held strict liability against the debt collector because this was not a bona fide error.
West v. Costen: Costen is the President of a collection agency and he seeks out delinquent debts in the business community. He then distributes to his employees these accounts, who then go out and try to collect the debts. 1st the Secretary sends out a letter to the debtor. If there is no response, 2nd a preprinted form is sent out that says “certain actions will be taken” if you don’t pay. This was a class action suit against the employees who attempted to collect the debts.
Held on Each of 5 Causes of Action below:
1st Cause: 3rd party contacts were made, Court found for some consumers’ 3rd parties that were contacted and not other consumers.
2nd Cause: Threats of Arrest: The companies only hired the corporation to collect the debts, so they were barred from threatening
