Archive for August, 2012

How do I know that I have received a legitimate offer to settle my debt?

Tuesday, August 28th, 2012

Question:
I received a debt collection letter from a company that is out of state.  The web contains many complaints against this company that it commits fraud.  I know that I did not pay this credit card a couple of years ago, so I would like to settle this, so that I would never be sued.  How do I know that if I accept their settlement offer, that they will stop bothering me and that I will not hear from any other company about this debt in the future? No debt collection lawsuit has been filed, as far as I know, but I am worried about all that I read on the web.

My response:
Unfortunately, whether you have a formal, written settlement agreement or simply a letter offering to settle and proof that you accepted the settlement and paid the amount demanded, there exists a few debt collection agencies which do nothing, but defraud money from unsuspecting victims without any finality on the debt.

A false debt collection agency, such as the one from Tracy, CA described by the Contra Costa Times on 8/27/2012, which called consumers threatening to arrest them, might have learned of an unpaid debt of the consumer in an illegal way, such as electronic dumpster diving or special websites maintained by credit thieves.  Then they place harassing collection calls from a boiler room to squeeze funds from many consumers, before the local authorities crack down.  A letter from such thieves is really no more assurance of getting the real debt settled than the collection calls, though a paper trail by mail may feel more reassuring.  However, this type of operation does not even rise to the level of a debt collection agency, if it is collecting debts that it does not have the right to control and settle.

It may also be that these very low life collection agencies are simply proposing a settlement offer as a bait and switch to try to get more, even after the full agreed settlement has been received.  These sorts of agencies prey on their victims by not putting anything in writing, then claiming that the settlement was not satisfied, and demand more. Another ruse used is that they make an offer, accept the settlement money, then sell the debt to another company, not mentioning the settlement to the buyer, which tries to collect the full balance.

Unfortunately, researching the web about the company contacting you, will only make you believe that every debt collection agency is low life and/or unscrupulous.  There are so many consumer complaints against most if not all debt collection agencies, that it is a daunting task to try to decide the category of the agency contacting you, so you know how to proceed.

One source of guidance is to see if this company is regulated in the state where they say they are located, although California does not license debt collection agencies anymore.  States such as Oregon, Texas, and Connecticut require every debt collection agency to register, to be allowed to collect debts from consumers within that state or face stiff penalties. A licensed debt collector in one or all three of these data bases is meaningful, though still no guarantee that that the agency will always behave honestly and with integrity.

Robert Stempler
www.StopCollectionHarassment.com
Twitter
@RStempler

Never Served, but Now Something Came by Mail, a Request for Entry of Default Judgment

Saturday, August 18th, 2012

Question:
What does it mean when the collection lawyers sent me a Request for Entry of Default Judgment? The only thing that I received from this law firm before now were a couple of letters, which I did not call back, because I didn’t have money to settle.  The papers show they have filed a lawsuit in the courthouse near me, which the online case summary shows they claim they served the summons and complaint by mail on me a couple of months ago. I thought that the law requires personal service of lawsuits, something called “due process”?

My response:
You are correct, there is a Constitutional principle known as Due Process, which requires that a defendant be given notice of a pending lawsuit, preferably by personal service on the defendant. However, California civil procedure permits alternative forms of service, if the process server declares that they tried several times to serve you personally at home or at work, but you were never present.  This is known as due diligence.  After due diligence, they can hand the summons and complaint to someone who is an adult at the defendant’s house or apparently in charge at your workplace and then mail a copy to you at that address.  This is known a substitute service.

If you have been substitute served, rather than the usual 30 days to respond in writing to the lawsuit, California civil procedure adds 10 days from the date of mailing, giving you or your defense attorney a total of 40 days from date of mailing to file in court your response.  One point about substitute service: it must be delivered to someone at your residence or work address, or it is invalid and can be challenged, but act promptly and consult with experienced counsel on that, as there is no standard DIY form to set aside a default judgment.

Now that a couple of months have passed since the process server said he or she substitute served you, the debt collection lawyers have sent you a copy of the Request for Entry of Default, which they have also probably sent to the Clerk of the Court to be filed.  If the Clerk files it, then it becomes an enforceable judgment against you, unless you set aside the default judgment, satisfy the default judgment by paying money to settle in full with the plaintiff, or file bankruptcy to have it discharged.

A California judgment must be renewed every 10 years, or it expires, but many collection agencies keep track of judgment expiration dates and renew it until satisfied in full or discharged in bankruptcy.  Thus, I would suggest you deal with it now, if possible, as it can remain out there forever and pop up and be very annoying and vexing at the most inconvenient times.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

Three Common Mistakes to Avoid when Negotiating a Settlement of a Collection Lawsuit

Friday, August 17th, 2012

Consumers routinely try to settle a debt collection lawsuit, which is something that I believe should be explored, before deciding which option is best (see the first video on my web site’s home page, “Understanding Your Options”)).  Below are the three most common mistakes that consumers make in the settlement process.  There are plenty of others, but from the horror stories that I have reviewed after the fact, these are the most common regarding settlement.   Often, these pitfall prevent a settlement and risk a money judgment for the full balance and other charges by the debt collection law firm, which then shows up on consumer credit reports.

Mistake 1.  Whatever settlement you negotiate and accept, be sure that you can comply with the payment terms, or you may probably end up with a judgment for the full amount (less credit for payments), if you miss a payment or are late.  I often caution people to look carefully at their finances before entering into a settlement discussion.  I also warn against very long term payments, even if the seem affordable. This is not a car that you can at least drive around for several years.  If anything happens financially, such as unemployment or illness in the family, and you are unable to make the monthly payments, the collection attorney can enter a judgment on the full unpaid balance, which is almost back to square one for this lawsuit, but now there will be a money judgment on your credit reports.

Mistake 2.  Be aware of the little things that can add up to an enormous settlement, if agreeing to make payments over time.  In particular, the rate of interest on the unpaid balance.  The current legal rate in California on a money judgment is 10%, which is what money judgments earn, even if the debt was originally at a higher rate.  Not only that, but many creditors and debt collectors will not charge any interest (0%) on a long-term payment settlement agreement, provided that the agreed payments are timely received and don’t bounce.  Consider the rate of interest and try to get interest waived (0%), before agreeing to make long-term payments, as an interest rate  adds many payments to the settlement.

Mistake 3. A few people believe that they can negotiate a lower settlement of a debt collection lawsuit by misstating their income or other financial information, or not providing it at all.  Debtors must be accurate and avoid misleading statements when negotiating. Debt collection agencies and their lawyers often have a copy of the debtor’s credit report and other available information to help root out inaccurate statements.  For instance, if the debtor claims to be swimming under a load of debt, but their credit report shows only two low balance credit cards, then that will be viewed as a bad faith settlement tactic, and probably be rejected.  Another example is to claim that the house has no equity, which is easy to verify using free online databases of housing values.

Please also be aware that credit reports contain inaccurate information or are missing key data, which the debtor may need to clarify or explain, if aware of that.  For instance, some credit reports show the debtor at a different address in a good area, but if you have moved or it is only a private mail box, perhaps the debtor should clarify, so they understand your circumstances are more dire than once assumed.  Some credit reports also show employment information, which can also make a big difference in negotiating a settlement.

Hiring an attorney to negotiate and defend against a debt collection can make a difference, but I try to encourage consumers to try this for themselves, to see if they can save the legal fees and courts costs.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler

How much should I offer to settle a debt collection lawsuit?

Friday, August 10th, 2012

Question: I’ve never been sued before, this is all new. I read your Settlement Guide #1 on Avvo.com, which explained many of my questions. I’m sure that I will read your other two Settlement Guides, once I know how much to offer to settle. Should I offer 10% of the amount stated in the lawsuit?  Bankruptcy is something I want to avoid.  I have a home with some equity in it, but not much. The lawsuit is not by the bank, but filed by a debt collection agency, so shouldn’t they be willing to settle for much less?

My response:
How much to offer is probably the top question on everyone’s mind.  First, understand the debt collection agent’s perspective.  The goal of the collection attorney and their agents is to maximize the recovery from each case and turn a profit for a particular portfolio of debts.

Time is money, so the sooner the funds are received, the less costly a settlement proposal can be.  If you can pay the settlement funds soon (such as within 30 to 90 days), that will usually make the settlement a lower dollar amount.  Settlements can often be approved with payments for 12 to 36 months, sometimes longer. Some companies will agree to waive interest, so long as the payments are received timely and don’t bounce.  Some debt collection agencies insist on full payment of the principal amount, if the settlement payments are made over a year or more.

Then, there are those debt collection agencies who like to squeeze everyone, because they believe they have the upper hand over unrepresented consumers.  They squeeze the debtor consumer into paying every cent, even obnoxious rates of interest and attorney’s fees.  Why bother settling if there is almost no difference between what would be the result if you go to trial and lose and making settlement payments of the full amount plus interest, etc?

The risk of heavy-handed debt collection practices is that when push comes to shove, people will learn their options (see the first video on my website’s home page).  Once they know their options, if the debtor cannot get a reasonable, affordable settlement, they may reject settlement and see if the judgment will be enforced, file bankruptcy, or hire an attorney to defend them in the collection lawsuit and likely negotiate fairer settlement terms.

Ten percent up to half of the amount in the lawsuit might be accepted by the collection company, if the debtor can show at least one good reason why the company risks get nothing and wasting its time and money in the case, if they don’t settle.  For instance, perhaps the lawsuit was filed too late, well past the statute of limitations, which should result in immediate dismissal if proven.  Perhaps the debtor has many debts and their income is such that they qualify for a Chapter 7 Bankruptcy, in which case if the debtor is faced with an unreasonable settlement posture, the bankruptcy option may be explored and the debt collection agency may get nothing.

Even if the debt collection agency purchased the debt for less than ten percent of the amount of the unpaid principal, unless the lawsuit was not filed timely or the debtor is a good candidate for bankruptcy, I would not expect the company to accept 10%. That is because they speak with debtors every day who are unable to pay.  In their view, they must turn enough accounts into a profit over the purchase price, or they will no longer have enough income to pay employees and other business expenses.

There really is no magic number to offer or that all debt collection agencies will find acceptable, each case can be negotiated, if a difficult situation is properly and accurately presented.

Robert Stempler
www.StopCollectionLawsuits.com
Twitter @RStempler