Collection Actions: 2.3.1 When the Consumer Has Not Yet Been Sued
Consumers may seek legal representation before they are sued on a debt. If the client’s concern is constant debt collection contacts, these can be stopped in a number of ways.
Consumers may seek legal representation before they are sued on a debt. If the client’s concern is constant debt collection contacts, these can be stopped in a number of ways.
A consumer’s credit report is a key document that can help the attorney unravel many aspects of a case. It will usually show the current status of an account, the amount owed, and who provided that information. It will also show the history of the account and who reported that historical information.
If the client has not yet been sued—and a lawsuit does not appear imminent—the client may only need advice on dealing with debt collection communications. An important point is that clients should not let debt collection harassment force them into making wrong decisions. Clients should make their own choices about which debts to pay first based on what is best for them. It is more important for clients to keep up with rent or mortgage payments, utility bills, car payments and the like than with a credit card bill. The wrong choice can result in the loss of a home or a car.
The practice of reporting a debt to a credit reporting agency (CRA) without first providing notice of the alleged debt to the consumer is called “debt parking.” Until recently, debt collection agencies and debt buyers often did not bother to contact consumers about alleged medical, rental or other forms of debt. Instead, they reported the debt to a CRA and waited until a consumer’s application for new housing, employment, or credit was denied based on the delinquent debt.
It is less likely that the consumer will continue to receive robocalls on their cell phone for the debt presently in litigation. However, clients often have more than one debt, and it can be useful to contact all other creditors and debt collectors and revoke the consent for calls to the client’s cell phone or landline. The client should then be asked to keep a careful record of any subsequent robocalls from each source.
A key factor in any collection action will be an appraisal of the litigation tactics that are typical of both the debt collector and the debt collector’s attorney. Do the debt collector and collection attorney typically pursue cases aggressively, or do they drop them upon the first hint that the matter will be contested? Is the debt collector’s attorney even familiar with what is necessary to prevail in a contested action or does the attorney simply file cases in bulk hoping for default judgments?
An important part of a client interview is to understand the client’s assets and income that are at risk if the collector prevails in the court action. A debtor who possesses only exempt income and assets is referred to as “judgment proof” or “collection proof.” While a judgment may be taken against such a person, the creditor cannot compel collection of the judgment from the debtor’s income or assets, unless the debtor fails to properly claim the exemption or circumstances change.
Probably no factor will be as determinative of the nature of the litigation as the identity of the debt collector and, in particular, whether the debt collector is a debt buyer or the original creditor. A debt buyer will have purchased a debt for pennies on the dollar—a debt that the original creditor had decided was not worth pursuing.
Good facts make good law. Do not try to make new law in a case in which the consumer clearly owes the money. It is much better to raise new legal theories when there is a good argument that the consumer does not owe the money and when the consumer is otherwise sympathetic.
For any number of reasons, an attorney may decide against formally representing a consumer. In that case, it is recommended to provide the consumer with correspondence in which the attorney clearly declines to provide such representation. This prevents any confusion as to whether the attorney is handling the case, and protects the attorney if the consumer—for example, after being garnished—alleges later on that the attorney should have been taking care of things.
A debt collector with a judgment can seize non-exempt funds from the consumer’s bank account, and even certain exempt funds may be subject to a freeze. Procedures to “unfreeze” an account vary by state. In some states the consumer must fill out, file with the court, and serve on the collector a form stating that the funds in the account are exempt and provide accompanying proof.
Federal law protects a certain portion of wages from garnishment—the dollar amount is linked to the federal minimum wage. Some states protect a larger portion of a consumer’s wages than federal law, and these greater protections will apply instead of the federal standard.77
Section 3952 of the SCRA forbids self-help repossession of real or personal property if a servicemember made a payment under a purchase contract prior to entering active duty.182 This prohibition applies regardless of whether there are co-signers and whether the servicemember is the principal obligor, and it applies whether the delinquency arose prior to or during the servicemember’s active duty.
There are a number of regulations regarding standards and procedures for administrative offset.
The federal agencies that most often pursue claims against consumers are:
The Claims Collection Act authorizes federal agencies to disclose debtor information to credit reporting agencies.52 This authority does not apply to tax debts, debts arising under the Social Security Act (other than certain overpayments), or debts for tariffs.53 Information that may be released is limited to the name, address, and Social Security number of the obligor, the amount, status, and history of the claim, and the agency involved.54
In Bivens v. Six Unknown Named Agents of the Federal Bureau of Narcotics,329 the Supreme Court held that a complaint alleging that federal agents had violated the Fourth Amendment’s prohibition of unreasonable searches and seizures stated a cause of action for damages. The Court held that it had the authority to create a remedy for this violation, even though Congress had not done so.
If the government shows that the judgment debtor is receiving or will receive substantial non-exempt disposable earnings from self-employment that are not subject to garnishment, or is diverting or concealing earnings, the court may order the judgment debtor to make specified installment payments.511 The statute512 defines “nonexempt disposable earnings” as “25% of disposable earnings, subject to section 303 of the Consumer Credit Protection Act”513
The Federal Debt Collection Procedures Act (Procedures Act)149 generally governs judicial enforcement of debts owed to the federal government.
The Federal Debt Collection Procedures Act (Procedures Act) provides for a variety of methods by which the government can enforce judgments.
If the federal government is proceeding under the Federal Debt Collection Procedures Act (Procedures Act) to collect criminal justice debt, the debtor has a choice between the bankruptcy exemptions and a combination of state exemptions and non-bankruptcy federal exemptions.212 These protections may allow the debtor to exempt some amount of funds in a bank account.
In 1990, Congress passed the Federal Debt Collection Procedures Act (Procedures Act).464 Congress intended the Act to create a new statutory framework for the judicial enforcement of most debts owed to the U.S. government. The sponsors believed this would facilitate the collection of U.S. government debts and reduce the federal budget deficit.465
The Debt Collection Improvement Act significantly expanded federal agencies’ ability to offset nontax debts against federal benefits and other payments due the debtor.173 Most administrative offsets are handled centrally by the Treasury Department, but individual agencies also have authority to make offsets,174 including ad hoc, non-centralized offsets.175 In addition, a number of decisions recognize a common law right of offset on t
If a taxpayer does not set up a payment plan, negotiate an offer-in-compromise, or secure “currently not collectible” status, the IRS can force payment. Before the IRS actually forces payment, it will generally send a series of threatening letters—for example, a Notice of Tax Due and Demand for Payment or Final Notice of Intent to Levy. These notices announce the IRS’s intent to levy on or seize the income and assets of the taxpayer.