LAWSUIT DEFENSE

Consumers who choose debt settlement do so because they want to pay their creditors what they can reasonably afford, while avoiding bankruptcy and lawsuits It is inevitable that some debt settlement clients will be sued As some creditors become more aggressive and less amenable to settlement, the frequency of such suits is likely to increase

When served with a collection lawsuit, the consumer has four basic alternatives: (1) Ignore the suit This may be the best option for those who are "judgment proof" (meaning that the creditor will be unable to collect a judgment when it gets one.) (2) Settle the lawsuit with a lump sum payoff This will usually require a payment of the entire balance with only a small discount (3) Settle through a payment plan (4) File a bankruptcy This is what the consumer wanted to avoid in the first place - and it's not as easy as it used to be (5) Defend the lawsuit

As collection lawsuits become more frequent, more consumers are choosing this last alternative, of defending the suit. Here are some of the defenses that can be raised by a consumer against a credit card lawsuit.

SERVICE OF PROCESS

The United States Constitution provides that no one shall be deprived of "life, liberty or property without due process of law" Due process means an established course for judicial proceedings designed to safeguard the legal rights of the individual A major principle of due process is that parties whose rights are to be affected are entitled to be heard by the court, and in order to enjoy that right, must first be notified The way that defendants in collection lawsuits are notified is by service of a summons and complaint.

Requirements vary by state as to what will constitute valid service Personal service is almost always acceptable Most states also allow service at a person's residence or place of employment If no other type of service can be made, a court can also order service by publication in a local newspaper.

Until proper notice is given to the defendant, the court lacks jurisdiction to enter a judgment A judgment entered without valid service of process is void, and can, upon the proper motion, be vacated

A not-too-uncommon technique among process servers working for bill collectors is to pretend to serve the defendant without ever doing so The defendant, not hearing about the lawsuit, never responds Then the creditor, using the process server's sworn statement that the defendant was served, obtains a default judgment against the defendant, who may not find out about the judgment until years later when his wages are being garnished.

Then, it will be up to the defendant to file a motion with the court to vacate the judgment, and to be successful in such a motion, must convince the court that he never was served

One of the worst cases of bogus service I've seen is a process server's declaration that he personally served the defendant, at the defendant's residence, at 7:00 a.m. on a certain date It turned out that the address for the defendant's "residence" was a drug store that rented out personal mail boxes, and that this drug store never opened before 9:00 a.m

STATUTE OF LIMITATIONS

This refers to the time in which a creditor must file a lawsuit, or be forever barred from suing The limitation period varies from state to state In California, it is four years in most cases There are several websites that list the statute of limitations for all states, including http://www.cardreport.com/ and http://www.fair-debt-collection.com/, but I can't vouch for the accuracy of these.

The question may arise, which state law will apply - that of the credit card company's state or that of the consumer? In the absence of an agreement to the contrary, the statute of limitation that generally applies is that of the state where the lawsuit is filed Normally, this is the debtor's home state, since the FDCPA generally requires that lawsuits be filed in the county were the debtor resides.

Once the time limit has passed, the debt is no longer LEGALLY collectable This does not mean that the creditor can't continue to ASK the debtor to pay Attempting to collect a time barred debt is not a violation of the FDCPA, unless the creditor also threatens to bring, or actually does bring a lawsuit

Creditors do, however, occasionally sue on time barred debts I had a recent case where a debtor had had a judgment entered against her many years previously She contended that the debt was well over five years old at the time the lawsuit was filed After suggesting to the creditor's attorney that there might be an FDCPA violation, a favorable settlement of the judgment was reached

Also, a debt can be reported on one's credit for seven years (or longer in some cases), even though the statute of limitation has passed This will give some debtors the incentive to settle time barred debts.

IS THE DEFENDANT LIABLE FOR THE DEBT?

Sometimes creditors sue parties who are not legally liable for the debt For example, the owner of an incorporated business may not be personally liable for a bill incurred by the business unless the owner signed a personal guarantee for the bill Similarly, one spouse may not be liable for credit card charges and other debts incurred by the other spouse

Also, if a credit card is issued to Mary, and she orders a second card for her son Joe, who is then listed jointly on all the billing statements, Joe may not be liable for the credit card charges that Mary incurred, unless he signed a personal guarantee for those debts.

CAN THE CREDITOR PROVE THE CASE?

If the lawsuit actually goes to trial, the plaintiff has the burden of proof, and cannot get a judgment without adequate admissible evidence to prove the debt is owed This will require at least one witness to testify under oath and be subject to cross-examination

Generally, a witness can only testify about matters of his or her personal knowledge - what the witness actually observed - rather than what the witness heard another person say, which is called "hearsay"

An exception to the hearsay rule allows business records to be admitted into evidence in certain circumstances In California, the following criteria must be met in order for a business record to be admitted: (a) The writing was made in the regular course of a business (b) The writing was made at or near the time of the act, condition, or event (c) The custodian or other qualified witness testifies to its identity and the mode of its preparation; and (d) The sources of information and method and time of preparation were such as to indicate its trustworthiness.

In some cases, a creditor may have all the billing statements, but may not have any witness who can testify as to how and when those records were made In other cases, a creditor may not have any documentation at all to verify the debt In either of these circumstances, the creditor should lose if the matter goes to trial.

CONCLUSION

This article has addressed some, but by no means all, of the defenses that may be available to consumer sued by a creditor Before a defendant decides to simply settle a lawsuit, or file bankruptcy, or give up on a debt settlement plan, one should at least first consult with a local attorney to explore the possibility of defending the lawsuit.

If you've been served with a lawsuit, call us at 877-776-7715 for a free evaluation of your options.