Debt Consolidation Articles

Anyone collecting a bill is trained to take advantage of two human emotions; guilt and fear. A good collector will usually start with guilt "You promised to pay and now you're breaking your promise." "You lied when you made this agreement What kind of person are you?" If guilt fails to speed up your payments, fear is typically the next emotion to be manipulated. Bill collectors will commonly threaten a legal action, garnishment of wages, or repossession. Consumers, too often unaware of how the legal system works as applied to debts, are duped into straying from what may be carefully planned strategies. Collection agencies are especially notorious for these kinds of tactics, but large creditors are beginning to use them to a greater degree as they set up their own collection departments to save money and avoid the provisions of the Fair Debt Collection Act. There is one simple rule to remember when threatened with legal action: Don't panic. Your bank account cannot be attached; your wages cannot be garnished. And a judgment cannot be filed against you until you have been served. Collectors often try to leave the impression that they can take action with our court sanction. This is simply not true in most cases. The only exceptions to the above rule are government tax agencies, motor vehicle lenders, and real estate trust deed holders. These three can take action such as garnishment or repossession without a court order.

If you fail to pay a large bill and refuse to contact the creditor to make arrangements, you are likely to be sued eventually. The creditor has only a limited time to take action (four years in most cases), so he is likely to sue as soon as possible if he believes he can collect. If you have debts you won't be able to pay for some time and you have ruled out the possibility of bankruptcy, you will still want to contact the creditor and make your situation sound as dire as possible. Be warned: he will try to gather as much information as possible, to be used against you later. If he asks where you work, don't respond. Make use of a drop box as a mailing address and a voicemail as a telephone number. Don't give any additional personal information. Remember, the purpose is not to cheat anyone out of anything but to protect you. Although the Fair Credit Collection Act has been in place for several years, collectors generally ignore it, since most of their conversations are over the telephone and come down to your word against theirs. Never call a creditor or collector's 800 numbers from your personal phone if he does not already have your telephone number. These toll-free lines will indicate to the creditor the number you are calling from. The less information a creditor has about you and the more difficult you are to serve, the less likely he is to sue. Suing is expensive. If a creditor doesn't know where you live, or if you don't accept certified mail, he will have difficulty proceeding with legal action.

He may eventually find you but by that time you may have exceeded the statute of limitations or be in a position to settle the debt. Bankruptcy is generally a better alternative than a life of dodging creditors. And often even the threat of bankruptcy is enough to turn the negotiations your W'&f.

Any precautions you take may delay action for some time, but short of changing your address and job and not applying for any more credit, you will eventually find yourself facing a lawsuit. Legal action is probable when debts exceeding $1,000 are involved, but with the emergence of law firms that double as collection agencies, it is becoming more common on smaller debts. Legal action can take several forms.

LAWSUITS

The attorney will usually make contact before filing a lawsuit. A demand letter-a letter stating the claim and demanding payment-will ordinarily be sent a few weeks before action is filed. Sometimes it will explicitly state the intention to file a lawsuit. If it is ambiguous and uses words like "may take legal action," it may be a standard "dunning" notice. These kinds of notices are often sent out on an attorney's letterhead and are really mass mailings, not much more than another notice from the collection agency. A creditor may also call to inform the debtor that a lawsuit is being filed. According to the Fair Debt Collection Act, he may do so even if you have requested that he not call you. A final settlement may be offered even at this stage. If the creditor knows where you live and work, you may wish to work out an arrangement. Although you can probably make a settlement after a lawsuit has been filed, you will have more leverage at this time because the creditor would like to be able to avoid some of the costs of legal action. If the lawsuit is filed, the creditor may also insist that you pay legal expenses, which could be =Iuite substantial.

There are three kinds of courts in which the lawsuit could be filed m: small-claims court, municipal court, or superior court.

Small-claims court

Small-claims court is probably the most "user friendly" of the three. Attorneys are not allowed in small-claims court.

20rporations must send an employee, officer, or director to represent: hem. Small-claims courts are generally very informal and are also limited in the size of the claim allowed. Limits vary from state to state, ruling anywhere from $1,500 to $5,000. The trend within the court system is to increase limits to relieve the growing burden of civil litigation from the municipal system. A claim begins with the plaintiff's statement. This is sent to the defendant (or the person being sued) by certified mail, the marshall's office, or a third-party agent. Different; Tates may have slightly different rules on how a defendant must be served. A response is not required, but your presence on the date named .s. In the case of a consumer obligation the venue of the case is very important. "Venue" is a legal term that refers to whether the case was filed properly. Although venue requirements may vary state to state, cases ;an generally be filed in the county (1) where the defendant currently lives, (2) where the contract was signed, (3) where the defendant lived ",hen he or she signed the contract, or (4) where the goods or vehicle is permanently kept or installed. If the venue of the case is not correct, write the court and ask for a dismissal, stating your reasons why you believe the venue to be incorrect.20rporations

If the case against you is sound, you may wish to try and settle before going to court. If the creditor accepts a settlement, the case will be dropped and no judgment will appear on your credit record. Regardless) f your circumstances, it is wise to appear on the trial date. If you don't appear' a default judgment will be given to the plaintiff, and although you'll have the right to appeal, the creditor will be able to take collection action against you based on the judgment. Even if you can't pay, it s best to appear, explain your circumstances, and, even if you lose, ask that the court impose a payment plan you can afford. If you believe you have a good case, present it to the judge when she asks for your response to the accusations. The questioning will usually go back and forth until everyone has said everything he wanted to, and then the judge will dismiss everyone and a judgment will be sent in the mail to both parties.

Large creditors tend to avoid small-claims court because they don't like to get company personnel involved in legal matters. The fact that a small-claims matter cannot be easily appealed is also a deterrent to most lenders. Since their size is an advantage, they will often use attorneys in municipal court. This may force the consumer to hire an attorney she probably cannot afford or go to court herself, which can be difficult at best. Since the rules of municipal or superior court are strictly defined (unlike small-claims court), an individual without legal training is at a distinct disadvantage. In the end it becomes a war of attrition, which large companies almost always win. Many large legal fmns/collection agencies file large numbers of municipal suits using computers and paralegals, which brings down the costs of a suit dramatically. In spite of the difficulties, however, cases have been won by defendants without benefit of the advice of an attorney.

Municipal and superior court

Any case can be heard in municipal court so long as the damages are less than $25,000. A $500 claim, for example, can be heard in small-claims court or municipal court. Creditors often choose municipal court for the reasons we discussed earlier.

Any case involving more than $25,000 must be heard in superior court.

A lawsuit in either municipal or superior court begins with a summons and a complaint the summons indicates who is suing and where a response to the complaint can be directed to. The complaint can be several pages long and usually includes several statements of the allegations of what you did wrong. You are usually allowed thirty days to respond to these accusations. Although you can respond yourself to a complaint made in municipal or superior court, the process is not easy. If you have a good case and can afford it, get an attorney. If you know the allegations are true and you have no evidence with which to defend yourself, try to settle the matter. The creditor may agree to a payment plan but will probably insist on a judgment against you, although he is likely to dismiss the case if you settle in full before the trial date. He will probably settle for less than the full amount if you claim to have no assets or threaten bankruptcy. If you believe you have a good defense, you or your attorney will proceed as follows:

• 1. Respond to the complaint. The response usually affirms what is true in the plaintiff's complaint and then responds to what is not true, point by point If a case questionnaire has been filled out by the plaintiff, you will have to fill one out also (it will be included in the material you receive). All this material is sent to the court or taken in by you and filed with the court. There will be a fee for filing your answer.
• 2. Discovery. Both the plaintiff and the defendant have the right to obtain information from each other. This can be done through depositions (sworn statements from anyone involved), requests for documents, interrogatories (questions to be answered under oath), and the producing of any other evidence that may be relevant to the case. If either side refuses to cooperate, the judge will order them to comply.
• 3. Summary judgment. Either side can ask the judge to make a decision based on the evidence at hand, namely the statements of the plaintiff and the defendant. This is usually requested by creditors' attorneys as a way of reducing their expenses. If the evidence overwhelmingly favors the plaintiff or the defendant, the judge may make a judgment. A motion called a "Notice of Motion and Motion for Summary Judgment" would first have to be sent, along with a declaration of the facts that support the judgment, all taken under oath. The other party is given an opportunity to respond to the motion. If the other party does not respond properly, the judge may very well rule for the other side.
• 4. Pre-trial settlement. A trial date will be set and you will be notified of a pre-trial settlement date. The creditor, you. and the judge will sit down and explore how the case can be settled.
• The judge, trying to prevent more crowding in the court's calendar, will probably give you a fairly good idea of how she might rule, based on the evidence she has. If you have tried to negotiate a settlement but the creditor has refused to cooperate, be sure to make the court aware of it. Most judges hate nothing more than attorneys who waste court time. The judge may also be quite persuasive in convincing the parties to settle. This is your last chance before the trial, and if settlement is reached, there will be no judgment Review your case carefully.

THE TRIAL

Not knowing the rules of evidence can be your downfall at the trial. There are very specific rules of what is admissible and what is not. Consulting your lega1library will help. Organize your case so that it flows easily and each piece of evidence supports your assertions. If you have an attorney, you will be much better off in this phase of the lawsuit

Defenses

There are several good defenses for not paying a bill.

• The goods were never received or the service was never performed.
• The merchandise was faulty or defective or the service was substandard, both failing to meet contract requirements.
• The goods were damaged and the creditor was responsible.
• The statute of limitations has expired. Statutes of limitations vary from state to state. In California the statute of limitations is four years from the due date of the debt On an installment debt, that means four years from the time each payment is due.
• So if you owed $1,200 to be paid back over twelve months and the contract was signed in January 1987 and you are sued June of 1991, then the statute of limitations defense applies only to $600, assuming you never made a payment. Although you won't destroy your defense simply by making a payment, if you make a repayment agreement, the statute of limitation begins allover again, starting on the date you make the new agreement. Never send a written promise into a creditor. Call and make a payment agreement and have the creditor send a confirmation of the agreement. Never respond in writing to a written confirmation. If you can't pay, the statute of limitations defense may be helpful to you at a later date. Check a local legal library for more information on your state's statute of limitations.

A lawsuit is not as bad as most people think. Even if you are sued, you have ample opportunity to settle before a judgment is made against you. Creditors often take advantage of a debtor's lack of knowledge and intentionally mislead him into believing that attorneys have greater powers than they do. A judgment has to be won before any other actions can occur, except in the three instances already mentioned. These need to be explored in greater detail.

SEIZURES NOT REQUIRING LEGAL ACTION

There are only three cases in which money or property can be seized without a court order: tax debt, motor vehicle debt (not including mobile homes and boats), and real estate debt.

Repossession

A automobile lender can repossess your vehicle even if you are only a day late on the payments. The lender does not have to provide any notice; he can simply walk up and take the car. In practice, most give you more time than that to catch up, especially reputable banks and credit unions, but some finance companies and car dealers will be quick to repossess. This is especially true if they have information that you may not be able to make future payments, like a "friendly tip" from your future ex-wife or her new boyfriend. The creditor will usually hire a professional to retake the car, giving him your name, address, and any other information the creditor may have. They can take the car from any public place or from your driveway or garage, if it is open. They cannot break into your garage to retake your vehicle and they cannot confront you and physically force you from your vehicle.

Once the vehicle has been taken, you have the right to reinstatement. If you make up whatever back payments you owe or payoff the debt in full, including any repossession, towing, storage, and legal fees, you can have the vehicle back. If your car is repossessed more than twice in one year, however, you may not have the right to be reinstated again. Reinstatement rights can also be lost if false information was given on the original credit application, if the vehicle is concealed in order to avoid repossession, or if the vehicle is not being properly maintained and its value is quickly depreciating.

The burden is on the creditor to prove that one of these conditions exists. Also, any personal property in the car must be returned to you. If the vehicle is not redeemed, a Notice of Intent to Sell is sent to the debtor within sixty days of the repossession. This gives you twenty days (depending on what state you live in) to redeem the car or pay the back payments, including any additional fees paid by the creditor. If your car is sold and the proceeds do not payoff the loan, you are also responsible for the excess money due, and you can be sued for it. The creditor usually sells the vehicle at fire sale prices, so a judgment for the difference, known as a "deficiency judgment" will occur in most repossession.

Debts to the government

The federal or state government can seize property without court action in the case of unpaid taxes. The action usually begins with a notice demanding the payment of your taxes, with penalties. The taxpayer filed and didn't include a payment, didn't! File, or was audited and chose not to appeal. Several notices are sent out! unless a person is labeled "Habitually Delinquent," in which case only one notice with a ten-day grace period will be sent, followed by immediate action. A notice to your employer of intent to garnish your wages I will eventually be sent, and a levy against your bank accounts and other! liquid accounts will follow, as will a lien, which will appear on your I credit bureau files. The only exemptions from the liens and attachments i are as follows:

• Wearing apparel and school books.
• Fuel, provisions, furniture, and personal effects.
• Business and professional books and tools of the trade, not to exceed $1,000 in value.
• Unemployment benefits.
• Undelivered mail.
• Certain annuity and pension benefits.
• As much income as is needed to make support payments to minor children.
• Minimum amount of income needed for sustenance.

The state can take a minimum of 25 percent of your salary and a) maximum of 50 percent (with court approval). In practice, both the) state and federal government have received so much bad publicity regarding collecting taxes that they are more than willing to work outl payment arrangements. Many of these won't even affect your credit or require a lien to be filed. If the amount is large, however, and the payments you request small, a lien may be filed anyway. Call the IRS or your state tax collection agency early on to make arrangements. The tax agencies have access to most of your financial records, unlike private sector creditors, and are very good at collecting their money. It is much better to have a payment arrangement than to find your only bank account suddenly levied.

Foreclosure

Foreclosure is a term that usually applies to real estate. Most real estate lending is done on a secured basis, so that if a home owner fails to pay her mortgage, the lender has the right to seize the rea1j estate she borrowed against There are two kinds of foreclosure, depend-!