These Debt Collection Myths Can Cost You

10 Apr These Debt Collection Myths Can Cost You

Debt colllectors use the threat of being sued because it terrifies most people. Debt collectors know that, and use it. Yet most of the things consumers fear are myths.

Among the myths I encounter among my clients:

  • I can be sued and not know it.
  • The creditor can come to my house and take my stuff.
  • I’ll have to explain my situation to a judge in open court.
  • I may go to jail if I stop paying.

These fears are exploited by the debt collection industry because they galvanize people: the targets either pay on a less important debt out of fear, or they break down and consider bankruptcy. As a bankruptcy lawyer, I’m torn.

On the one hand, I’m glad to see people and help them analyze how they can extract themselves from debt (they’ve usually waited far too long and should have thrown in the financial towel long ago); on the other hand, service of a summons and complaint is not an emergency . There is plenty of time to make a plan and execute it before the suing creditor gets a judgment.

So, let’s walk through the steps in a collection law suit and see how it works. My timelines are drawn from California law, and the details may differ elsewhere, but not substantially.

Creditor hires a lawyer Except in small claims court, a corporation must be represented by a lawyer. So the decision to sue a delinquent card holder comes at a cost to the creditor. They must either pay for legal counsel or give up a percentage to a collection firm working on a contingency.

Complaint drafted, filed with court and summons issued The complaint sets out briefly the facts and the law that the plaintiff, the party filing the suit, asserts entitle it to a judgment for money. The summons is issued by the court and is the court’s written direction to the defendant that “yes, this suit is real, and there are legal consequences if you take no action”.

Summons & complaint served on defendant Our concept of due process requires that a person get notice and an opportunity to defend before the state puts its law enforcement mechanisms behind the claims of the party suing. The rules for how service is accomplished vary, and in my experience, it is this aspect of the system that seems to be breaking down: process servers, those people licensed to serve summons seem to be willing to attest to serving the named defendant without having done so.

Defendant gets a set time to answer The time when a written answer is due is set out in the summons. In California, the summons says the answer is due 30 days from service of the complaint. Served with the summons is a notice of a case management conference. Too many people don’t read the documents word for word, spot the date for the conference and assume they don’t have to act before then. WRONG! If no timely answer is filed, the plaintiff can ask for a judgement long before the date set for the hearing.

Absent an answer, creditor asks for judgment The system is set up so that judges are entitled to conclude that you do not dispute the creditor’s right to a judgment if you don’t file an answer. Your ability to pay the debt is not at issue at this point: the issue for decision is whether the law entitles the creditor to a judgment. In California, the statute of limitations is a defense to an otherwise valid debt, but the creditor gets the judgment if no answer asserting the statute is filed.

Judgment is entered The judgment is the court’s determination that the creditor is in deed owed the money it claims and that the creditor can use the law and the mechanics of the government to levy and garnish to collect that judgment. Judgments can be set aside if a court finds that there was no legally effective service or for other excuses. The longer a judgment remains of record, the harder it is to get the default vacated.

A perfectly efficient creditor, who acted the very day that the next action in the sequence is permissible, needs 60-90 days from the filing of the complaint, to get a judgment, and longer to get a writ issued to enforce the judgment. And collection lawyers are not perfectly efficient.

So, the point of this exercise is to hammer home the fact that a collection suit takes time and you will see it coming. Rules surround the process. We do not put people in jail for not paying. (You might be jailed for failing to show up pursuant to a court order issued to collect the judgment, but jail is not the consequence of not paying, it’s the consequence of ignoring a judge’s order.)

Faced with a complaint, meet with a bankruptcy lawyer and explore the big picture in your financial situation. Figure out where this lawsuit fits in the overall scheme of things. Don’t let unfounded fear stop you.

Image courtesy of Wonderlane.


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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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