Debt collectors using courts to collect. How to fight back

The Wall Street Journal reports that debt collectors who buy debt from original creditors (often credit card companies) at about 10 cents on the dollar are relying on courts to help them collect, even for amounts as low as $1,000.

They do this because court works for them.  And that is true largely because 94% of the time people ignore the summons to court and the debt collectors win a judgment that results in the debtor being forced to make monthly payments.

But there are things you can do to fight this.  Here, briefly, are the main ones.

1.  Don’t ignore the summons.  If you think you owe the debt and you can pay it off, get in touch with the debt collector and offer them a deal.  If you have any cash, offer them 15 cents on the dollar (which is probably more than they paid for the debt).  If you want to pay over time, offer a total of 20-25% of the debt owed.

2.  Show up in court or send an attorney.  If you cannot do that, send a certified letter with some explanation or challenge.

3.  Challenge the debt.  The law requires that the creditors have evidence of the debt, and that it is not older than the statute of limitations allows.  (This will vary from state to state, but seven years is common).  In many cases the debt collectors who bought your debt will not have the information required (even though they have told the court they do) and making them produce it will end the collection effort.

4.  Plead hardship.  Show up in court or send a letter to the court telling them your situation and why you believe that it would be an undue hardship for you to pay the debt at anything but a very low monthly amount.

5.  File bankruptcy.  To me this is an underused way to get rid of burdensome debt that you can no longer afford to pay.  Filing stops all collection efforts immediately, and in most cases bankruptcy will allow you to eliminate all unsecured debt (like credit card debt), and even second mortgages.  And if you have a lot of unpaid debts, a bankruptcy can even improve your credit rating.  Bankruptcy lawyers will usually provide a free introductory visit.

6.  Sue them for damages.  The Wall Street Journal has one story about a man in Montana who had not worked for years because of a brain injury.  He had not used his credit card in eight years and had made no payments on the balance due.  Despite his inability to pay even the few thousand dollars he owed, his lawyer told the court that the debt collectors had come after him three times, the last time after the statute of limitations had expired.  He won over $400,000 in damages, legal fees and costs.

The basic lesson is to fight back.  Do not let the collection machine roll over you!

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