I’d love to take credit for the tips that are made here but Peter Holland of the University of Maryland Francis King Carey School of Law is the one that deserves the credit for writing a fantastic paper outlining the process. Holland provides amazing advice here and I wish we’d see more such academic papers posted to help consumers.
How to Defend Yourself If You Are Sued by a Debt Buyer
Consumers suck when it comes to dealing with getting sued by a debt buyer. And the most predominant reason why is because they fail to show up and defend themselves. They lose by default.
Admittedly getting sued by a creditor is an intimidating and scary process for many. Rather than face the situation or hire a lawyer to defend them it often feels easier to pretend like the suit doesn’t exist and you don’t have to deal with it.
When the original creditors charge off a debt they often sell the debt to generate some cash. The entity that buys the debt is called a bad debt buyer, junk debt buyer, or a debt buyer. Like a third party collection agency that is subject to you silencing with a cease and desist letter, the debt buyer is also subject to requests to stop contacting you using a cease and desist letter. But keep in mind, if you silence communications it might just force they to sue you faster. A cease and desist letter is not a magic wand.
For information on how to send a cease and desist letter, see the bottom of this article.
A debt may be sold one, three, ten times or more. As one debt buyer tries to collect and can’t, they will repackage their non-performing accounts and sell them on.
These debts may be sold for pennies on the dollar, meaning that a $10,000 debt may be purchased for $800 or less. The new debt buyer may just get a spreadsheet of account numbers, alleged balances, and consumers names. They then use this information to attempt collections and scare people into paying or suing people in bulk knowing they will win default judgments against consumers most of the time.
What to Do – Step-By-Step
Here is a step-by-step look at what you need to do if you are sued by someone that bought the debt from the original creditor or after it was sold.
Read the Lawsuit, Complaint, and Supporting Documentation with the Lawsuit – Carefully
When you are sued you will get served with the complaint (lawsuit) and it may or may not contain supporting documentation about the debt included. Holland advises that you grab a highlighter and read through the paperwork you received multiple times.
You need to look for and highlight:
- Intentional deceptions
- Information that is incorrect
- Missing information
- Check to make sure the name of the company suing is the same as the one named in the documents
Look to make sure the company suing you has provided proof of the terms and conditions you agreed to with the original debt. It can’t be just some copy of a contract, it needs to be one that you actually signed. Look at the date on the terms and conditions they might have provided and see if it was actually in force when your account was with the original creditor.
Check to See if the Company Must be Registered as Debt Collectors
In some states the debt buyer must be licensed as a debt collector. You’d be surprised how often this is overlooked. There have been some major cases won just because the debt buyer was not registered. To check if the debt buyer suing you is licensed do a Google search for debt collector licensed [your state] and contact that state agency and inquire about the license status and/or requirement of the debt buyer.
Chain of Title
The current owner of the debt must also provide a clear lineage of ownership of the debt from the creditor that originated the debt. Think of it like the pedigree of the debt. The chain of ownership is important because without a valid chain of title the debt buyer may not be able to sue.
If they provide some statement showing the transfer of the debt from one buyer to another, look to make sure that it actually represents the specific account number in question here.
Ask for an Accounting of Charges
You should also look for an accounting of all charges and payments showing how the payments were allocated (interest, principal, and late fees). Does the debt buyer have any evidence to support the amount they are actually claiming and are those fees actually specified under the terms and conditions that you agreed to.
Don’t Forget About the Statute of Limitations
It might just be that the time available for the creditor to sue you has passed. This is called the statute of limitations or time barred debt. Just because the debt buyer is suing you does not mean they legally can. You should check online or better yet, consult with a lawyer licensed in your state to see if your account is what people call, “out of stat.”
Read Everything Over Again and Look for Missing Information
It does not hurt to pull that highlighter out again and look for misleading statements and omissions in the lawsuit. For example, if the debt buyer has provide a bill of sale from when they bought the debt, look to see if it says there are no representations or warranties of any kind, including representations about validity, collectability, or the statute of limitations. Making this readily apparent for the judge will help them decide for you.
Also keep an eye open for blacked out or deleted information. Highlight those exclusions as well.
Google Everyone Involved
Be sure to Google every entity and every person who signed any document in your case. You may find information online from others about problems with documentation and fake signatures.
Don’t Be Afraid to Get a Lawyer
At this point you’ve done a tremendous amount of work to look over your case. Not everything may be apparent to you and it is always smart to get a lawyer to help you or represent you. According to Peter Holland, less than one percent of consumers ever get legal representation for these matters and the incorrect positions on technical issues can lead to the loss of your case.
Much of the rest of Holland’s paper is technical information for lawyers. You can read the entire paper here.
Debt Collector Cease and Desist Communication Form Letter
You can send the following letter cease and desist communications letter to the debt collector or debt buyer contacting you to stop communications from them. Be aware, this letter is only effective on third-party debt collectors and subsequent buyers of your debt from the original creditor and not the original creditor that extended the credit to you.
BEWARE: This is not a magic wand. If you send this letter and shut off communications it can lead to you being sued sooner since the collector still has that option following receipt of this letter.
Upon receipt of this letter the debt buyer or collector has the following options:
- to advise the consumer that the debt collector’s further efforts are being terminated;
- to notify the consumer that the debt collector or creditor may invoke specified remedies which are ordinarily invoked by such debt collector or creditor; or
- where applicable, to notify the consumer that the debt collector or creditor intends to invoke a specified remedy.
A Sample Letter
City, State Zip
Debt Collector’s Name
City, State Zip
Re: Account Number
According to my rights under the Fair Debt Collection Practices Act I am formally requesting that you cease all communications with me or anyone else involved.
“If a consumer notifies a debt collector in writing that the consumer refuses to pay a debt or that the consumer wishes the debt collector to cease further communication with the consumer, the debt collector shall not communicate further with the consumer with respect to such debt.”
You may consider this letter as my formal notification.
If you do not comply I will file a public complaint with the public consumer complaint database at http://getoutofdebt.org/scam-reporter/ and with state and federal agencies including the Federal Trade Commission, Consumer Financial Protection Bureau, and my Attorney General.
If you are unable to comply with this request I will find a local consumer FDCPA attorney to represent me from http://naca.net, the National Association of Consumer Advocates.
Send the letter by certified mail, return receipt requested.
The postcard you get back, like the one below, will show the name of the company you sent it to, a signature of who signed for it and when they got it.
Staple the return postcard to a copy of the letter you sent and put it in a safe place with your other important papers. You may need this later.
If you receive any further telephone calls or messages, keep a log of who called about the debt in question, when they called, and what they said. Keep all written communications they may send about this debt as well.