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Debtor's Defense


Defense of the Collection Case

You have just been served with court papers claiming that you owe thousands of dollars to some unknown creditor. While you don’t recognize the name of the plaintiff who brought this complaint against you, you do realize that there is a credit card bill that you have not been able to pay after the company substantially increased its interest rates and minimum payment demand. What should you do? Now is not the time to panic. A lawsuit has been brought against you, and it is now time to sit back and carefully consider your own legal options.


Time to Act

If a complaint and summons has been served upon you, the worst thing to do is to do nothing. If you fail to have an answer filed on your behalf and thereby contest the proceeding, a default and default judgment will eventually be entered. You will not have your day in court, and you will not be able to negotiate any equitable settlement. An answer and affirmative defenses must be filed!


How much time do you have to file an answer? It depends upon which state the lawsuit was filed. Normally, one can review the summons and the deadline to answer will be boldly displayed on the summons. Depending on your state and the manner in which you were served, the deadline to answer the complaint will normally be between 10 days and 30 days.


What if you do not file an answer in a timely manner? Normally a creditor will attempt to enter a default and a default judgment. In other words, the creditor will state to the court that it should get everything that it had requested in the complaint since you have failed to contest the case. Even if the amount of indebtedness is either in dispute, or the credit charge was unauthorized, a default and default judgment will usually be entered any time that you do not act in a timely manner. While in certain circumstances a default judgment can be set aside, do not limit your legal options by failing to act in a timely manner.


What happens after a default judgment is entered? Usually, the creditor will ask the court to include interest on the indebtedness and also award attorney fees. After the judgment is entered, the attorney for the creditor will then attempt to collect on the judgment. The legal options of the debt buyer for enforcement depends upon the state in which you reside. In some states, the creditor can attempt to garnish up to 25% of your wages. In other states, a lien can be placed on your property, or your bank accounts are attached. Do not subject yourself to enforcement proceeding by doing nothing. It is time to act!

It is time to act!


Debt Buyers

How large is the debt buying industry? It was reported that over that over $110 Billion in face amount of debts were purchased in 2005. While there are no current numbers available, it has been estimated that the amount of debt sold each year has greatly exceeded this 2005 amount. It appears that credit card debt comprises about three quarters of the debt sold, followed by automobile loans, cellphone bills and then revolving retail accounts. How much do the purchasers pay to receive the right to collect on these debts? It depends on a number of various factors. These factors include the age of the debt, the current economic cycle, and the history of the repayment. Usually, the debt purchaser pays between 2-15% of the face value to acquire the right to collect the entire obligation. In other words, the debt buyer may pay the original creditor as little as $100.00 for the right to sue and collect from you $5,000.00.


Is it easy for the debt buyer to prove its case and collect a money judgment? The simple answer is “no”. There are a number of elements that the debt buyer must prove by a preponderance of the evidence in order to obtain the right to collect on any judgment. Due to the nature of an industry which normally lacks appropriate records and does not have available necessary witnesses, the debt buyer has a difficult time proving its case. Since the debt buyer is the party that elected to litigate in a courtroom setting, it is all together fitting and proper for one to make the debt buyer prove each and every element of its case.



In order for the court to have subject matter jurisdiction, the plaintiff (debt buyer) must have standing to sue. In other words, the plaintiff must own the debt. The debt buyer must prove by a preponderance of the evidence that it has acquired the subject account. To do this, usually the debt buyer will introduce a Bill of Sale showing that it acquired a number of debt accounts.


But does the Bill of Sale appropriately reflect the subject account?Normally, these accounts go through a number of sales from the original creditor to a number of different debt buyers.


Has the debt buyer introduced sufficient evidence concerning a particular account to show a chain of title that flows directly from the original creditor to the plaintiff?Each state has specific laws that require the introduction of specific evidence in a specific manner to meet this burden of proof. If the debt buyer cannot prove standing by competent evidence, then the court must dismiss the case.


Proof of a Valid Contract

In order to prevail on a contract theory, the debt buyer must prove the existence of a valid contract between the parties. However, debt buyers generally have a difficult time proving the existence of a valid contract with competent and admissible evidence since they were not party to the original agreement. To avoid this pitfall, debt buyers try several methods to obfuscate this issue. First, they try to introduce a signed credit card application and claim that the application is a valid contract. If an application is the contract, what are the material terms of this contact since the application does not have the material terms?


Next, the debt buyer will try to introduce a generic contract which contains various general terms and conditions and call this the contract. Since the generic contract does not have the debtor’s signature, there is no proof that the generic terms should apply to this specific debtor. Some courts have found that to prevail, the debt buyer must introduce the actual provisions agreed to, including any amendments, and not merely photocopy the general terms of some fictitious contract.


Finally, the debt buyer may argue that the debtor used the credit card, and this proves the existence of a valid contract. However, the mere use of a credit card has been found by some courts to be insufficient since the material terms of the contract cannot be determined by mere use.


Other Defenses

While debt buyers may try other theories of recovery in addition to breach of contract, there are also other defenses that may be applicable to each claim. Is the debt buyer’s affidavit sufficiently drafted? Has a statute of limitations been violated thereby precluding the initiation of any claim? How can a debt buyer claim “unjust enrichment” when it cannot prove by competent evidence how any credit card payments were allocated between interest, principal, and late fees? How can a debt buyer rely upon principles of equity when it has failed to prove how much it paid in the acquisition of the debt? Has the debt buyer complied with the provisions of the Fair Credit Billing Act? Has there been compliance with the Federal Truth in Lending Act? Has there been strict compliance with the Business Records Exception to the hearsay rule?


The laws of each state must be carefully reviewed in these matters to determine which defense, if any, is applicable to your situation. While no one can guarantee ultimate victory in each case, there is one thing that can be guaranteed. It is of paramount importance for you to act with dispatch to protect your interests. Do not fail to act in a timely manner and allow a default judgment to be entered against you. If a default judgment has been entered, you can still protect your interests in most cases. However, delays and inattention on your part may cause an adverse result.