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Collection Actions: 8.1 Overview

A troublesome debt collection tactic is to threaten a consumer with prosecution under a criminal dishonored check statute. When a consumer writes a check that is dishonored (bounced) because the consumer’s account has insufficient funds (NSF) or credit to cover the check, or was closed, the person holding the check may threaten to initiate a dishonored check criminal prosecution against the consumer.

Collection Actions: 8.2.4 Checks Given for Preexisting Debts

Courts may exclude checks given for preexisting debts from the application of dishonored check laws.24 A payee who accepts a check for a preexisting debt gives up nothing of value in return—an express requirement of some dishonored check statutes.25 In addition, no intent to defraud can be implied from giving such a check,26 and a payee who solicits such a check may not in fact have been defrauded.27

Collection Actions: 8.2.5 Absence of Fraud or Intent

There can be no fraud—an essential element in most states—if the payee of the check was informed of the check writer’s financial distress or insufficient funds balance.33 However, some courts affirm convictions when the check writer made additional false statements or took other steps to defraud the payee.34

Collection Actions: 8.2.6 Other Limitations and Defenses

Other exceptions or defenses may be available under certain statutes or circumstances.42 The advocate should always investigate whether the payment method in question meets the statutory definition of a check.43 The state’s dishonored check law may not, for example, cover certain types of electronic payment methods. The use of electronic media may, however, support charges of wire fraud.44

Collection Actions: 8.2.7 Prosecution for Larceny

Some states, in addition to larceny by check statutes, have statutes forbidding “larceny by deception” or by “false promise,”56 or obtaining property by false pretenses,57 which may be applied to NSF checks.

Collection Actions: 8.2.9 Diversion Programs

The use of taxpayers’ resources and the state’s criminal powers to collect civil debts has been criticized on public policy and constitutional grounds.83 As one court noted, “the justice of the peace . . . is not a collection bureau. If he acts as a collection bureau, or if he utilizes the criminal processes of the court to collect a civil debt, he is perverting the functions of this small claims court and bringing disrespect upon the entire judicial process.”84

Collection Actions: 8.3.1 Civil Dishonored Check Statutes

Almost all states have enacted civil dishonored check laws, which encourage bounty hunters by providing for attorney fees and multiple or inflated damages for dishonored checks.97 It is common for check collectors to demand fees or penalties that are not authorized by these or any other statute, so it is important to review the details of these statutes carefully, including the types of payment methods they apply to, the amounts they allow, and the circumstances in which those amounts are allowed.

Collection Actions: 8.3.3 Statute of Limitations for Suit on Dishonored Check

Because of the growth of the debt buying industry, collection attempts may continue on a dishonored check many years after the check was written. UCC Article 3 requires suit to be brought on a check within three years after its dishonor or ten years after the date on the check, whichever occurs first.122 State statutes may set a shorter period.

Collection Actions: 8.4.1 Remedies Under the FDCPA and State UDAP Statutes

Courts have rightly concluded that the Fair Debt Collection Practices Act (FDCPA) is not limited to debts that arise from credit transactions.130 They have also recognized that the FDCPA does not contain a fraud or tort exception that would exclude dishonored checks from the definition of “debt.”131 Accordingly, the Third, Sixth, Seventh, Eighth, Ninth, and Tenth Circuits,132 a number of lower courts in other circuits,

Collection Actions: 16.1 Overview

The preceding chapter addressed protection of the debtor’s income—wages, benefits, and pension payments—and the debtor’s funds in a bank account. This chapter turns to the debtor’s home, the debtor’s tangible personal property, such as household goods and a car, and other assets the debtor may have, such as insurance, annuities, causes of action, and debts that others owe the debtor. All states protect at least some tangible personal property and most provide some protection for the home. However, the level of the protection varies greatly from state to state.

Collection Actions: 16.2.1 Introduction

Homestead exemptions are designed to protect the home for the debtor and the debtor’s family. The only states that do not provide homestead exemptions for debtors outside of bankruptcy are Maryland, New Jersey, and Pennsylvania.1 However, the states that have homestead exemptions vary widely in the amount and nature of the exemption.2

Collection Actions: 16.2.2.4 Non-Traditional Homesteads, Cooperatives, and Manufactured Homes

Homestead exemptions should be construed to extend beyond the traditional single-family home owned in fee simple because these non-traditional dwellings serve the same purpose as traditional homesteads.34 A number of state homestead statutes make specific provision for mobile or manufactured homes, and other courts construe their exemptions liberally to include these dwellings.35 When the debtor owns the land on which a manufactured home sits, the land should be considered part of the homest

Collection Actions: 16.2.3.1 Head-of-Household Requirements; Surviving Family Members

In some states, homestead exemptions are available only to heads of households, or heads of households are entitled to a larger homestead exemption. “Head of household” is generally defined as a married person or anyone supporting a dependent.45

A homestead exemption may survive the death of the homeowner, to protect the home from the decedent’s debts when it has passed to a surviving spouse or other close relative or dependent.46

Collection Actions: 4.1 Overview

This chapter examines the collector’s proof as to the merits of its causes of action. As the burden is on the plaintiff to prove its claims, no recovery can be had, either at trial or on summary judgment, unless the collector presents proper evidence satisfying the elements of the collector’s cause of action. As a general rule, debt buyers assume virtually all complaints will end in a default judgment. As a result, debt buyers may not produce this level of evidence, and the consumer is in a strong position to defend against the claim.

Collection Actions: 4.2.2.1 Generally

Debt buyers in particular may have little evidence to establish their case and little interest in obtaining the evidence. Instead, they may try to win their case using the consumer’s own admissions. Along with the complaint, or shortly thereafter, the collector will send the consumer a lengthy list of statements, asking the consumer to admit to them, hoping the consumer will not respond in a timely manner.

Collection Actions: 4.2.2.2.1 Overview

If a request for admissions contains statements meeting all the elements of the causes of action the collector is raising, the collector can prevail on summary judgment based solely upon the consumer’s failure to respond.20 Consequently, the worst thing that the consumer can do is fail to respond to the request for admissions. The consumer’s options as to each separate item in the request for admissions are to admit (in whole or in part), deny (in whole or in part), neither admit nor deny (with explanation), or object.

Collection Actions: 4.2.2.2.2 Neither admitting nor denying

One option is to neither admit nor deny the statement specified in the request for admissions. Federal Rule of Civil Procedure 36 allows the consumer to state in detail why the answering party cannot truthfully admit or deny the matter. For example, the consumer cannot truthfully deny or admit a fact if the consumer has no records or no recollection of that fact. The consumer cannot be expected to admit or deny information outside the consumer’s control or about which the consumer has no personal knowledge.21

Collection Actions: 4.2.2.2.3 Objecting to requests for admissions

The consumer is also allowed to object to a request for admissions but they must state the grounds for the objection.24 At that point, the collector can request that the court determine the sufficiency of the objection and the court, if it overrules the objection, can then order that an amended answer be made.25 On the other hand, a debt buyer’s business plan may be to minimize the time spent litigating a case and may not request that the court determine the sufficiency of the consumer’s objecti