Michigan Collection Law Blog

My colleague, David Lerner, has been described by our mutual friends as "blisteringly smart." I have cross swords with Mr. Lerner and have a great deal of respect for his abilities as do most attorneys that know him. Mr. Lerner made the cover of Michigan Lawyers Weekly on February 8, 2010 for his commentary on the case of In Re: Wingerter.

In this case, the debtors had challenged a proof of claim that had been filed by a debt buyer. When the debt buyer could not produce the original documents to support the claim, it withdrew its claim. The debtors were not happy with that result, alone. The debtors asked the court for sanctions against B-Line, the debt buyer for not adequately investigating its claim prior to filing it, pursuant to Bankruptcy Rule 9011(b). B-Line dodged a bullet in the trial court as the judge said that B-Line in fact did not adequately investigate its claim but did not award sanctions.

On appeal, the 6th Circuit court reversed the lower court and held that B-Line's pre-filing investigation was reasonable. The court found the fact that B-Line received a warranty as to the validity of claims it purchased, coupled with B-Line's cursory review of the claims, as persuasive that the claims that B-Line filed in the bankruptcy court, were filed in good faith and in compliance with its pre-filing obligations under Rule 9011(b). While the court did not find that these claims were, in fact valid, the court did find that having received such warranties from its seller, made B-Line's reliance upon the validity of these claims, reasonable and hence, its pre-filing investigation requirements were met in good faith.

Moral of the story to those filing claims on purchased debt in the bankruptcy court.- I am no fan of purchased debt. But if you are filing proofs of claims on these debts in bankruptcy court, be sure that the debt buyer's purchase agreement through which it bought these debts contains warranties that the claims are valid. Furthermore, be sure that your client has thoroughly vetted these claims for obvious anomalies such as incorrect social security numbers and bad addresses.

Query for you consumer lawyers: If this case had gone the other way and the 6th Circuit held that B-Line had violated its duties under Bankruptcy Rule 9011(b), do you think the debtors would be potential plaintiffs for a claim under Fair Debt Collection Practices Act?

Last week I received a call from an "attorney" calling himself David Cook, from Ontario. He asked if I was interested in collecting a $500,000 case against a local steel company. Of course I am interested! But, I don't like pursuing a debtor without knowing my client or the forwarding attorney involved. So I decided to check Mr. Cook out on line at http://www.criminalbusinesslawyers.com/. I reviewed his website in which he held himself out to be an expert in "most areas" of the law. I also noted the numerous grammatical and spelling errors that could not be excused as aberrations of Canadian usage. Now I am on notice that something is amiss here. I asked my secretary to call the Canadian Bar Association to see if there was a David Cook. She called and learned that they would not disclose the identity of other solicitors and barristers to those who were neither.

This morning, I received the following email from Mr. Cook:

Dear Gary, I recieved (sic) an email this morning from Mr. Liguo regarding an email that was sent to him stateing (sic) that the payment has been sent to your office in the full amount that was requested. According to the agreement please deduct your precentage (sic) , my client will be sending me the account information for the transfer of the balance. I will then be sending you the account information for the balance transfer.

Sincerely,

David Cook
481 University Avenue, Suite 510
Toronto, Ontario M5G 2E9
Phone: (647) 831 6954
Fax: (416) 800 9908
Email: attorneydavidcook@aol.es
www.criminalbusinesslawyers.com

Magically, I also received a check from the alleged debtor, Ideal Fabricators, for $550,700 this morning, drawn on a bank called California Bank & Trust. The package arrives from an expediter named "Purolator." The check contains no address for Ideal Fabricators. The package has a return address of Ideal Fabricators, Inc. 481 University Ave, Mississauga, Ontario, M5G2K1. The package contains a cove letter from Ideal Fabricators (no address or telephone number on the letterhead), apologizing for the late payment, informing me that they had a bad year but are now on the road to prosperity. They wish me a good year, too. Am I going to deposit this check?? NOOOOOOOOO!!!!!!!!!

Why not?

This is a scam. I called Ideal Fabricators. The have never head of me, Mr. Cook or the alleged creditor in this case. They never wrote such a check. OK, I think, its time to do my civic duty and get the authorities involved.

I called the F.B.I. this morning and explained that I was the target of this scam, but did not get taken. I was 1 minute into my story when the young lady told me that this is a Secret Service type of case. She gave me the phone number of that agency and I called.

The Secret Service told me that they could not do anything about this case because the alleged bad guy was in Canada. They referred me on to the Federal Trade Commission. The FTC has no more authority to after these bad guys than our heavy hitters such as the F.B.I. or the Secret Service.

Nevertheless, I tried to call the FTC, but could not get through. OK, I tried to do my duty, but no one was interested in helping me. So here I am now, telling you about this scam so I can help you.

I know that in the next few days, I am going to get a call or email from David Cook asking telling me that his client has an immediate financial need and if I would not mind wire transferring the proceeds to a certain bank for him. This is how the scam works. In ordinary circumstances, I go on line and verify whether this check has cleared or not. I will notice that it has cleared and then wire transfer this guy several hundreds of thousands of dollars. When the check comes back as no good, the bank is going to ask me to reimburse it. By not depositing this check, I am going to save a lot of nice people, some large head aches.

LAWYERS - Moral of the Story -

1. Be very careful with whom you do business, especially over the internet. Everyone has a website today. Look your client or referring attorney's website to see if it makes sense. Mr. Cook claims to be an expert in most areas of the law. Pretty impressive, huh? That alone was enough to put me on guard regarding this guy. The bad guy may have gone to great lengths to prove that he is who he purports to be, except for getting an education. "David Cook" had a website to show that he was an attorney, albeit fraught with spelling and grammatical errors.

2. Verify that the debtor actually owes money. Pick up a telephone and call the debtor that you are pursuing. In this case, the "debtor" made a $550,000 check payable to me, without even knowing who I am. I know that the holidays bring about good cheer, but even that has its limits.

3. Stay alert to little things that just don't make sense. For instance, in this case, the client (whom I had never met), purportedly had a its debtor make a check out to me for $500,000 and told me to take my fee of 1/3 from it? Why? I have not even written a demand letter. I believe in the kindness of strangers but, again, this too, has its limits.

4. The scariest thought of this process, besides potentially getting stuck for money that you paid out to con artists, is that you do not have law enforcement agencies to help you. You are on your own. Use your wits, your intelligence and ask as many questions as you need to satisfy yourself that everyone is who they purport to be.

I receive a funky email at least three times a week stating:

a. We, of the Xio Shung (or some other Chinese sounding name) corporation have decided that we need your legal services to represent us in North America..... or

b. After a careful review of your credentials, we have decided to retain your legal services..... or
c. Please respond immediately if you are not in a position to help us. We have an immediate need for legal representation....

Anyways, these are all cons. Do you know how I know? I will tell you:

First, the email is not addressed to me personally. Its addressed to "Dear Attorney." If the prospective client really took the time to review my credentials, you would think that they would at least know my name.

Second, the email is sent from a source that protects the anonymity of the sender such as Yahoo, AOL or gmail. You would think that a big corporation would have its own email url, right?

Third, they rarely provide a website to check out the legitimacy of the company. Today, if you do not have a website, you might as well be Fred Flintsone.

I just read an article where several law firms got sucked into these scams. I always wondered how they worked until now. Once a law firm agrees to work for these crooks, the crooks will send a retainer agreement to the law firm and a few debtor claims. The law firm sends out the demand letters to the debtors and voila, the law firm will get what appears to be a certified check from one of the debtors. The check is actually bogus, but it looks official enough for the attorney to deposit. When funds are made available, usually on the next banking day, the client then says that it has an immediate need for its portion of these proceeds and asks the attorney to wire transfer them. After the attorney does so, he learns that the checks are bogus and he gets stuck holding the bag.

Moral of the Story - Doing business over the internet can be tricky and scary. There are rewards to be had for the wise attorney and pitfalls for that very same attorney as well. As attorneys, we are a pretty smart lot. However, there are always thieves, crooks and other scan artists that can out think us. To protect ourselves, we need to pause before we accept new engagements. We certainly need to set up procedures and protocols before transferring money or property to anyone with whose identity we have not verified. Be careful.

I never blog about pending litigation but in this case, I am going to make an exception.

I have filed an Fair Debt Collection Practices Act case against a collection agency. Allegedly, that agency called my client and threatened him with a wage garnishment if he did not pay the debt. Since the agency did not have a judgment, its threat of a wage garnishment is a per se violation of the FDCPA.

A few days ago, I received a telephone call from the agency's attorney. He said that the threats that my client allegedly received from the agency, never happened (yeah...right....). And then, he emailed me an audio file of the conversation between our clients. His agency was well protected by having that audio file. I am still waiting to hear back from my client about his response to that audio file, but I am pretty confident that if he does respond, he is not going to have enough good information to convince me to continue representing him. While I am no fan of collection agencies, I tip my hat to this agency because it was smart enough to take precautions to protect itself. I am certain that the money it saved today by staving off my lawsuit was enough to pay for its recording system. Nice job, agency!

Moral of the story to collection agencies - Invest is a decent audio recording system so that when your agents contact debtors, that you can prove that no violation of the FDCPA took place. These audio recording systems are cheap enough that when they save you from one lawsuit, they will have paid for themselves.

Its not very often that I get to cross paths with American Heroes such as Captain Stephen P. Dunn. He is an attorney with Howard and Howard and is also active in the United States Armed forces, protecting our country including my family and me. I will always be indebted to Captain Dunn for his courage and his performance to our country. Thank you, Captain Dunn, for keeping our country safe.

Captain Dunn co-wrote an article in the Michigan Bar Journal of August 2008 that talked about the Servicemembers Civil Relief Act at 50 USC Appendix 501-596 which provides special protections for our protectors in the armed forces. In 2003, the Soldiers and Sailors Civil Relief Act was completely re-written, and re-named the Servicemembers Civil Relief Act. The bill was signed into law by President Bush on December 19, 2003. Captain Dunn pointed out several provisions of the act that I thought that i would share with you, my readers. Here are the major points that I am relaying to you from Captain Dunn's article:

Creditors cannot charge more than 6% interest to service members before they enter active duty. Captain Dunn reports that creditors must forgive interest greater than 6 percent on such debts or obligations. This provision applies the when the service members entry into active duty materially affects his or her ability to repay the debt or obligation. It applies to nearly all debts before activity duty with the exception of federally subsidized education loans.

Servicemembers can stay lawsuits against them for a period of not less than 90 days. If a Servicemember gets sued, he can simply write a letter to the court asking the lawsuit to be stayed if his or her active duty interferes with his ability to appear in court This does not apply to criminal cases.

Servicemembers and their dependents can terminate a residential or motor vehicle lease upon the servicemember's deployment , permanent change of station (including retirement and separation), or entry into active duty. Captain Dunn advises that the servicemember or his family must write a letter to the landlord or lessor of his intent to terminate the lease of the deployment or entry into active duty. The letter should also contain a copy of the servicemember's orders or a letter from the commander if the orders are not available.

Penalties for violation of the Servicemembers Relief Act. Captain Dunn reports that the Act can be used not only as a shield against lawsuits but also as a sword. The Act can be used to sue landlords for damages, plus costs and attorneys' fees which can be substantial.

Continue reading "What collectors and attorneys don't know about the Servicemembers Civil Relief Act can sink them" »

I have talked about this issue once before, but a case just popped up showing me that not all of you are listening to my warning. Debt Collectors beware....a consumer does NOT have to posit a dispute to a consumer debt in writing. The Fair Debt Collection Practices Act ("FDCPA") has no such requirement. As debt collectors, we may all want our interactions with consumer/debtors to be in writing, but alas we do not live in a perfect world. See Richeson v Javitch, Block and Rathbone, 576 F. Supp2d 861 (2008).

In Richeson, the Plaintiff consumer alleged he was the victim of identity theft in connection with the debt that JBR was hired to pursue. JBR sent him a letter that stated:

Balance Due - $ 10,141,27

This law firm represents the above creditor concerning the above balance due, which was placed with use for collection and such other action as necessary to protect our client's interests.

Although we are a law firm, at this time, no attorney has evaluated your case, or made any recommendations regarding the validity of the creditor's claims, or personally reviewed the circumstances of your account. If you fail to contact this office, our client may consider additional remedies to recover the balance due.

To discuss this matter, please contact: Shannon Green at (800) 837-4601 (toll free) weekdays during business hours.

Unless you, within thirty days after receipt of this notice, dispute the validity of this debt, or any portion thereof, the debt will be assumed to be valid by us. If you notify us in writing within the thirty-day period that the debt, or any portion thereof, is disputed, we will obtain verification of the debt and a copy of such verification will be mailed to you by us. Upon your written request within the thirty-day period, we will provide you with the name and address of the original creditor, if different from the current creditor.

We as a debt collector are attempting to collect a debt and any information obtained will be used for that purpose.

Our request that you contact us by telephone does not affect the requirement under federal law that to obtain verification of the debt, you are required to notify us of a dispute in writing.

The court looked to the two requirements that JBR had under the FXCPA. The first requirement to inform the consumer that JBR will assume the debt to be valid unless notified by the consumer. The FDCPA does NOT require the consumer to posit a dispute to the debt in writing. But....the FDCPA requires a collector to inform a consumer that if the consumer wants written validation of the debt, that the consumer must make this demand in writing. In this case, the court noted that JBR complied with both notice requirements and did not violate the first requirement by demanding that the consumer posit his dispute in writing.

Moral of the story:

As a debt collector, be aware of the two separate and distinct notices that you must give the consumer. The debt collector must inform the consumer of his right to dispute the debt. The consumer does NOT need to provide this notice in writing. The second notice requirement requires the debt collector to inform the consumer of his right to get written verification of the debt. This requirement requires a written request from the consumer. Do not get these two requirements mixed up.

This time of year, I am pleasantly reminded of our office wide directive to treat debtors as our customers. Over the years, I have seen debt collectors use old school techniques of yelling at debtors and threatening them with legal action amongst other things. I have also seen debt collectors treat debtors with respect and courtesy as we would use with our clients. Many years ago, I came to the conclusion that there is little difference between our clients and their debtors. We talked to both of them with the same degree of courtesy and respect. The difference in collection results is astounding. Treating people kindly as if you were talking with your family member results in larger collections and frankly, a greater commitment by debtors to satisfy your client's obligation.

I also found that by giving debtors a break by allowing them to miss a payment or two, (as long as they call in advance) buys you the kind of goodwill from the debtor that a debt collector cannot get through threats and intimidation. On larger balances, we like to "partner" with our debtors to get an obligation paid off or otherwise satisfied in a fashion that makes everyone feel good about the deal.

I only tell you this because many of the cards and a few of the holiday gifts that my office receives this time of year, come from our debtors. That makes me feel very very good about what we do and how we do it. I am passing this along to you because in these hard economic times, everyone needs a break and a little kindness goes a long way.

While I may have put this post under Debt Collection Tricks and Traps on my blog, it is really neither a trick nor a trap. Its just good business to treat people with respect. Unfortunately, I just couldn't find a better category for this post.

Continue reading "A better way to collect....show respect to your customers" »

Steve Harms, one of the giants in the legal debt collection community, spoke at the recent ICLE program. He spoke on the issue of attorney liens. Like us at Nitzkin and Associates, he does a lot of collection work for attorneys. He raised some very interesting points and gave us these tips for collecting fees for other attorneys:

1. Wait 2 years after the last day of service before suing the client. Once the 2 year statute of limitations for malpractice has run, you can sue. Note that malpractice can be used as an offset to the Plaintiff’s bill, it cannot be used as a counterclaim. Some judges do not care for this technique, but that is just tough because the statute of limitations is what it is.

2. Offer your client a discount to pay early. Everyone loves a discount. Remember, you will most likely kill a pile of time pursuing the debt yourself. Alternatively, you will end up paying 1/3 of what your attorney collects if you outsource the collection of this debt. Put your pride aside and make a business decision to recover as much as you can from this debt.

3. Be aggressive about collecting your bills. Remember the squeaky wheel gets the grease. Issue monthly statements. Keep your name and your bill in front of their face on at least a monthly basis and enclose a self addressed stamped envelope. Make it easy for your client to pay.

4. Charge interest on your bills. Make sure that you have a written fee agreement that provides for interest. In fact, for some of you, I would strongly advise, get a written fee agreement. The days of providing legal services on a handshake and expecting to get paid are long gone. People have lawyers today and they are not afraid to use 'em.

5. Make telephone calls to collect. Statistics show that the telephone is still the strongest tool short of litigation to collect a bill. As a corollary, be courteous when calling the client. Allow them to spew off about why they have not paid your bill. People like a forum to be heard. When you call a client for payment, YOU ARE THAT FORUM. Be courteous and listen to what they have to say. When the client is done speaking, circle back to how the two of you can team up to resolve the problem that stands between the two of you. Be flexible and creative and of course, send a confirming email or letter that discusses the agreed upon resolution. If the client wants a break, give it to them.

6. Progress bill – People hate to receive lump sum bills. Send monthly progress bills to the client. Do not let the client get too far ahead of you. I would advise no more than 30 days. If the client has not paid last months bills within 30 days, you should really examine how much more credit you are going to extend to the client.

A recent speaker at the Michigan Institute of Continuing Legal Education had talked about suing on purchased debt. He said that a debt buyer does not have to produce a witness from the originating creditor in order to prove his case at trial. While that may be true, its equally true that most debt buyers do not get enough information to successfully sue on their debts. For example, most debt sellers do not have supporting credit card statements and/or even credit card contracts. Usually, they just sell a spreadsheet of names, addresses, social security numbers and balances due to unsuspecting debt buyers.

Another major fact is that everyone in the industry knows that Asset Acceptance is the proverbial 600 lb gorilla in this business. Asset Acceptance gets first crack at almost all newly charged off debt. They have relationships and contracts with major banks and such. Everything that they reject goes into the open market to eventually be pursued by other asset purchasers.

I was a bit disturbed when this ICLE speaker informed the audience that it is not necessary to produce a witness on behalf of the originating creditor. As an example, the following colloquy could be expected when a debtor’s attorney cross examines the Plaintiff’s witness. You can easily see how a debt buyer’s witness at trial would crumble.

Debtor’s counsel (“DC”): Who do you work for?
Plaintiff’s witness (“PW”): ABC Debt purchasing company.
DC: How much did you purchase this debt for?
PW: $300.
DC: According to your complaint, you state that my client owes you $5,000. Is that true?
PW: Yes.
DC: Because your company purchased the debt, it did not originate this debt, did it?
PW: No.
DC: Do you have any personal knowledge to show that my client incurred $5,000?
PW: No.
DC: Do you have any signed credit card statements to show that my client incurred this debt?
PW: No.
DC: Do you have any signed agreement between Chase and my client to show that he agreed to pay these charges?
PW: No.
DC: Do you have a breakdown between principal and interest as to how you arrive at the $5,000 balance?
PW: No.
DC: So, to recap, you testifying that you have no personal knowledge of the alleged debt. no documents to support it and no accounting as to how you arrive at that number, right?

What court is going to award a Plaintiff anything on this? All you have is a witness who can testify that he bought something that was allegedly a debt that was owed by a debtor. That witness cannot testify that the debt is actually owed by the debtor or that debtor even had a contract to pay for these debts.

Buying debt, in my opinion, is a con. It is so tempting to purchase a $10,000 for a measly $600. Boy, if someone purchases that debt and collects it all, they stand to make $9,400. Now wake up. If a debtors attorney stands up to a debt purchaser in court, the debtor purchaser usually ends up eating the $600 purchase price plus costs. Worse yet, because purchased debt is already in default when acquired by the purchaser, it is governed by the Fair Debt Collection Practices Act. This opens a host of new problems for the debt buyer which I will discuss in subsequent posts.

My good friend and colleague, Howard Young works for the dark side. He is an asset protection planning attorney. Recently, he spoke at the Institute of Continuing Legal Education Seminar on Debt Collection. He said that he represents wealthy individuals and that if he does his job right, we will collect nothing from his clients. He then gave us ideas and examples of how he advises his clients to protect their assets.

I walked away from that seminar with two concepts that I want to share with you:

1. Discretionary Spendthrift Trusts – This is a trust where someone puts money into a trust for a debtor.

As you may already know, a trust has three parties. The first is a settlor/grantor who gives money or property to someone called a trustee. The second party is the trustee who takes legal title to the property and manages it pursuant to a contract between the settlor/grantor and the trustee. The third party is the beneficiary.

Anyways, these trusts are written to contain language that specifically states that no creditor has a right to reach its assets. These trusts are enforceable and perfectly legal. They are also written to direct the trustee to use his or her discretion to pay bills and debts of the beneficiary. This trust can rent an apartment, own a home and obtain credit cards that it can allow the debtor to use. This is perfectly legal.

A Discretionary Spendthrift trust is used to manage money coming to a debtor from someone else. Examples of such funds are inheritances and gifts. Hence, the trustee has the right to select which debts of the beneficiary he will pay.

Note that the money that is used to settle this trust cannot come from the debtor at a time when the debtor has already incurred a large debt that would otherwise make him insolvent. This is the kind of trust that can be used with the debtor's money only before he incurs such a debt. After he incurs a large judgment, any such transfer of his funds may be viewed as a fraudulent transfer.

2.. Domestic Asset Protection Trust. This is a cool kind of a trust. The language in these trusts sometimes contain a provision that prohibits a distribution made under duress. In one case, a debtor was ordered by a court to direct the trust company to release funds to him to pay a judgment. The debtor said that he could not do so due to the terms of the trust and the local laws of the jurisdiction under which the trust was governed. He was held in contempt and sent to jail for a lengthy time. He appealed stating that it was impossible for him to perform the order issued by the trial court since the express language of the trust prohibited distributions directed by court order. Talk about being between a rock and a hard place.

Alaska was the first U.S. state to adopt laws that allow for trusts similar to those in the Caribbean. It’s a “self-settled” trust where a debtor can set up a trust for himself and make himself the beneficiary. There are now about 12 states that allow this including Delaware. Currently, Michigan is not one such jurisdiction that allows such a self settled trust. But that does not mean that a Michigan debtor cannot set up such a trust under the laws of one of the twelve states that allow such a trust.

However, in order for such a trust to put assets outside of a creditors reach, this sort of trust must be set up before a debtor gets into trouble.Otherwise, any assets transferred to this would be nothing other than a fraudulent transfer.

You can put in all kinds of assets into a trust such as passive assets and even active assets such as a business. This is very helpful because you can still run your business as you wish even though the legal owner of the business is the trust.

There is still a trustee. You are allowed to name your own trust distribution advisor. You name you family member or a good friend. This person tells the trustee when to make distributions to you. You can even veto any distribution made to you. You have to have a qualified trustee in the state in which the trust is settled.

Conclusion.

These trusts represent an amazing set of powers that are retained by the debtor while putting the asset beyond the reach of the creditors. Care must be exercised not only in the drafting of these trust documents, but also with their funding. A trust does not do much for someone unless assets are legally transferred to it at a time when the beneficiary is insolvent.

us. In fact, it will only make even incur larger attorneys' fees.

My advise to my fellow collection attorneys. When taking a creditor's examination, always ask if the debtor is the beneficiary of a trust of any kind. Also ask the debtor if he owns any assets that were transferred into a trust in the previous five years. If the answer is "yes", get a copy of the trust agreement and review to see if the trust is well written or if its weak. If the latter, then attack the trust as a fraudulent transfer or as an alter ego of the beneficiary. I would also subpoena the trustee to find out what role she has in the trust and whether she has any assets in her care and custody that can be attacked.

There is a great article in today's Wall Street Journal that talks about credit repair companies. While the industry is rife with charlatans, I have come across some credit repair companies that are quite legitimate.

For example, I have recently met the owners of Credit 1 in Pontiac, Michigan. Credit 1 charges one fee for consumers who want Credit 1 to fix their credit. Credit 1 charges a lesser fee to consumers who take Credit 1's free credit repair classes and learn how to fix their credit. I think this is a great idea. I recently spoke at a Credit 1 class and was very impressed with Credit 1's methods for credit repair. Credit 1 is a very reputable company whose staff is very dedicated to achieving legitimate results for its clients.

The Wall Street Journal article, unfortunately is like most other articles about credit repair companies. The author excoriates the industry. While the author makes several legitimate points, I think he paints with a rather broad brush. Not all credit repair agencies are illegitimate. I am thankful that I have been given the opportunity to see one such credit repair company that works hard for the benefit of its customers.

If you would like more information about Credit 1 USA, you call Mr. Maurice Taylor at (866) 502-7242.

I love defending people against debt buyers because the Plaintiffs case is as strong as a house of cards in a hurricane. Debt buyers buy judgments, credit card charge offs and other sordid garbage debt for pennies on the dollar. Hell, there are even debt buyers that buy debt that has already been through a collection agency or two. Usually, when a debt buyer purchases his paper, he gets little more than the judgments or a spreadsheet showing the balances due. What does this mean for the consumer that is sued? Everything. The debtor buyer has no proof that the consumer owes anything other than some shmoe's word for it that the debt was owed in the first instance. Recently, someone got wise to the idea that an attorney who sues on this crap and does not have the goods to show that the debt is actually owed, may be violating the Fair Debt Collection Practices Act. I can't wait to share this case with you.

In Isom v Javitch Block and Rathbone ("Javitch"), the defendant is a law firm that had sued Ms. Isom in state court for a debt that was purchased by some company called Direct Merchants. Javitch attached an affidavit to its complaint that had been prepared by Direct Merchants. When Ms. Isom demanded discovery in the state court case, Javitch simply dismissed the case. Why? Because it did not have any proof to show that its client was entitled to any money from Ms. Isom. Now, its Ms. Isom's turn.

She sued Javitch in federal court and asked for class action status. She alleged that because Javitch had sued her without having any documentation to show that she owed the debt that Javitch had violated the Fair Debt Collection Practices Act. Ms. Isom alleged in her complaint that Javitch attached a false affidavit signed by Direct Merchants that said that Direct Merchants had personal knowledge of the balance due by Ms. Isom. The court held that because Ms. Isom alleged fraud her complaint against Javitch, that she has enough of a case to go to trial. The court denied Javitch's Motion to Dismiss Ms. Isom's claim.

In analyzing Ms. Isom's case, the court noted two lines of cases that dealt with the issue of whether a debt collector violates the FDCPA by suing a debtor without having substantial supporting documentation for its case. In Delawder v Platinum Financial, the U.S. District Court denied the Defendant's Motion to Dismiss. In Delawder, the Plaintiff alleged that the debt collector had committed fraud because the affidavit in support of its case misrepresented the amount of the debt or the debt collector's legal claim upon the debt.

The second line of cases involved Harvey v Great Seneca Financial in which the Plaintiff alleged that the filing of a suit to collect a consumer debt without the means of proving that debt was a violation of the FDCPA. The court in Harvey dismissed the action stating that Plaintiffs do not need to prove their cases at the time that the lawsuit is filed. However, in Harvey, the Plaintiff did not allege that the affidavit attached was false.

In Ms. Isom's case, she alleged that the affidavit that was attached to the complaint against her in state court was false. She alleged that there was no way that the Plaintiff had "personal knowledge" of her debt to the original creditor. The court found that Ms. Isom's case should proceed to trial on the issue of whether the Defendant's affidavit was false and if so, whether it violated sections 1692e and 1692f of the FDCPA; the Act's prohibitions against false or misleading representations and against unfair collection practices, respectively.

Javitch pled to the court that it should not be held responsible for an affidavit that its client had signed in support of the complaint. Judge Barrett would have no part of that argument. Javitch's attempt to side step the FDCPA bullet was foiled when Judge Barrett correctly pointed out that it was Javitch that signed the complaint and attached the affidavit in support of its complaint. Javitch, as a third party collector, has to take responsibility for its own actions.

ATTORNEYS FOR DEBT BUYERS BEWARE. Remember that you are responsible to verify that the debt and every part of the debt that you are collecting is legitimate. The days of suing debtors without having proper documentation and hoping for a default judgment is like playing Russian Roulette. You are bound to piss off some debtor who reads my blog and knows his rights. Now, you have to doubly (if there is such a word), that the affidavit that you are attaching to your complaint is accurate. The FDCPA makes you a guarantor of sorts that the affidavit is bona fide.

In March of 2007, the U S Court of Appeals for the 6th circuit decided Mabbitt v Midwestern Audit Services. This was a very interesting case.

Ms. Mabbitt and her sister shared a home on Leota Blvd. Consumers Energy provided gas to that space. The bill was in Ms. Mabbitt's name. When she got over $900 in arrears, Consumers threatened to shut off her gas. She and her sister moved to a new space on Lake Ridge Drive.

At this new space, the lease was in the names of both sisters but the Consumers power bill was in the sister's name alone. Consumers got wise to this move and informed its collection agency, Midwestern Audit. The collection agency sent the sister a notice stating that Consumers had observed that a prior obligation existed for Ms. Mabbitt and that that balance would be transferred as a beginning balance on the sister's account with Consumers ("Balance Transfer Letter").

Ms. Mabbitt sued for violation of the Fair Debt Collection Practices Act. She was upset that Consumers had disclosed "her business" to her sister in the Balance Transfer Letter. The legal basis for her claim was that Midwest Audit had disclosed her debt to an unauthorized third party in violation of 15 U.S.C. 1692c(b).

The court held that Midwest Audit's letter advising of the balance transfer was not a communication "in connection with the collection of a debt." The court first looked at 15 U.S.C. 1692c(b), which governs communications in connection with the collection of a debt. The court then compared Midwestern Audit's initial demand letter with the Balance Transfer Letter and noted that the former was in connection with the collection of a debt while the latter was not. The court held that the Balance Transfer Letter was not an attempt to collect a debt. Rather, it was an attempt by a business to inform customers that a previous debt has been transferred to a current account without having to follow the dictates of the FDCPA. To hold otherwise would prevent business from seeking a peaceful resolution of debts and would do nothing to achieve the stated purpose of the FDCPA which is to eliminate abusive debt collection practices by debt collector." Yeah...so was I!!!

First of all, the court conveniently overlooked the fact that the letter was not sent by Consumers Energy, the creditor. Rather it was sent by its collection agency; an entity that is governed by the FDCPA. I would think that any actions or communications taken by a collection agency would be governed by the FDCPA. Was Midwest simply trying to be nice to Ms. Mabbitt's sister by graciously informing her of the balance transfer? C'mon! Midwestern is in the business of collecting debts and this was a debt that it was trying to collect. Did Midwestern walk away from its commission fee because the balance was now transfered to the sister's account? Do cows really jump over the moon? O.K. now that we have that issue solved, lets talk about the second issue this case presents.

What the hell is the difference between a debt collector merely informing someone of her payment options vs asking her to pay her bill? Give up? So do I. The court seems to think that this is the difference between a communication that is "in connection with the collection of a debt" and one that is merely a business's attempt to offer payment options without getting mired in the FDCPA. Boy, I sure did not see this coming. I wonder if Congress saw this coming when they promulgated the FDCPA.

I am a lawyer that collects debts for a living. I confess that I am appalled by this ruling. How about you?

If you owe money on a credit card that has been turned over to a collection agency, chances are excellent that the collection agency is not only pursuing you but any authorized user. Be careful about this and know the difference between an authorized user and a co-signer. One of these persons is liable on the debt and the other is NOT. Collection agencies love to blur the distinction because they really don't care from whom the money comes to pay the debt. If they can harass someone successfully into paying the debt, all the better. You read my blog. You follow my blog. You are an intelligent person and are educated about your rights.

A co-signer is someone who agrees to be liable for a debt to the same as extent as debtor who originally applied for and obtained the credit. For example, many parents co-sign for their kid's cars. If the kid stops making the payment, the parent gets dunned for the money.

An authorized user of a credit card is simply someone who has permission to charge goods and services to the debtor's account. This person is NOT liable on the underlying debt.

If you get a car from a collection agency demanding payment for a debt on a credit card, simply asking the nice collector to provide you with proof as to your status on the debt; e.g. co-signer or authorized user. If the collector cannot produce any such proof, ask them to have no further contact with you and to have a nice day. Yes, this can all be accomplished nicely.

I follow a number of blogs. There is a great deal of good information on the web that keeps me current about the state of the law. Unfortunately, there are also a number of quacks that spew baseless information with such authority that one might be lulled into believing its true. I found two such nuggets this morning. I won't mention the blog by name, but I will tell identify the two statement the author has put forth that are simply wrong. He states:

1. If a debt collector insists on payment in full (as every decent collector does), he violates the Fair Debt Collection Practices Act when he refuses to take payments even though he is authorized to do so.

RESPONSE: WRONG. The debt collector may be authorized by his client to accept a payment plan from the debtor, but that does not mean that he has to negotiate one. In fact, most clients simply give their debt collectors some blanket authorization and direct the debt collector to use her discretion to make the best deal possible. In short, just because a collector has the authority to accept a payment plan does not mean that he is required to make one.

2. If a debt collector sends the debtor a notice that refers to a Form 1099, the debt collector has per se, violated the FDCPA because the IRS is not involved.

RESPONSE: WRONG. In fact, when a debt is compromised from its original balance, the IRS has recently required that the collector issue a 1099-C for the difference between the debt as owed and the balance for which it was settled. These rules came about a few years ago and affects both the creditor who has a duty to report debt forgiveness over $600 and debtors who now have to report the debt reduction.

While there is a lot of good information on the 'net, there is also a lot of bad information as well. Just beware of the source of the information to see if its reliable and if the author has the credentials that would give you faith in what he says.

In order to pull someone's credit report, the debt collector has to have a federally permissible purpose according to the Fair Credit Reporting Act. OK...we all know that. We cannot go spelunking for our ex-girlfriends and such for amusement. As a general rule, it used to be that a collector could pull a credit report on any debtor. This is an easy concept. This is not the law anymore.

The 9th Circuit Court of Appeals recently decided Pintos v Pacific Creditors Association. In that case Ms. Pintos' car was towed. She failed or refused to pay the towing company so they sold her car. Apparently, the car did not fetch enough money to pay her towing bill. The towing company turned the debt over to Pacific Creditors Association ("PCA"). PCA pulled her credit report. The 9th Circuit held that this was a mistake. Under the Fair and Accurate Credit Credit Transactions Act ("FACTA") the newest revision of the Fair Credit Reporting Act, a collector may only pull a credit report in connection with a "credit transaction." Ms Pintos did not ask the towing company for credit; rather she helped herself to it. Ms. Pintos lost her claim at the trial court but not in the Court of Appeals.

FACTA became law in 2003. Prior to FACTA, we only had the the Fair Credit and Reporting Act ("FCRA"). Under FCRA, the defendant PCA, would not have been in violation of the law for pulling Pintos' credit report. Under FACTA, it is in violation of the law.

Yesterday, I got a CYA letter from Transunion advising me of this issue. I can see why it is up in arms. Ms. Pintos not only sued PCA, but also sued Experian for providing her credit bureau to PCA.

MORAL OF THE STORY - Before pulling a credit bureau in connection with a consumer transaction, take note of whether the transaction at issue was a voluntary request for credit that has gone bad or whether it was an involuntary debt incurred by the debtor. If it is the former, you may legally pull a credit bureau. If it is the latter, you had better think twice before doing so.

The United States District Court here in the 6th Circuit recently decided Jerman v Carlisle, 502 F Supp 2nd 686 (2007). While this is not an appellate decision, it may very well be a harbinger of the 6th circuit court of appeals' sentiment may lay with respect to the issue of whether a summons and complaint is an initial communication under the federal Fair Debt Collection Practices Act.

Until now, this issue has been unsettled in this circuit. Under the FDCPA, a debt collector has to send a validation notice to the debtor within 5 days of its initial communication with the debtor. Hence, if a law firm files a lawsuit to foreclose on a mortgage, it must send out a validation notice within 5 days of serving the complaint for foreclosure on the homeowners. This holding should be noted by every law firm that does mortgage foreclosures.

Law firms and attorneys that only dabble in debt collection and foreclosure BEWARE....many of you will most likely see a wave of FDCPA lawsuits naming you as defendants. While you may not want to get involved in the pre-suit "collection process" , you cannot avoid the strictures of the Fair Debt Collection Practices Act by refusing to call the debtor before you file suit. If you have had no pre-suit contact with the debtor, then your lawsuit IS the initial communication with the debtor. You MUST then send out a validation notice. The Jermane holding is a wake up call to every attorney and law firm that if you are going to sue someone on a consumer debt, you better send that consumer a validation letter within 5 days of serving the consumer with the complaint.

Here is a post that is going to win me absolutely no friends with the credit card industry or even my colleagues. But what the hell...here it goes.

Are you delinquent with your credit card debt? Is the credit card company dunning you? You should know that it is highly unlikely that they will compromise this debt. If you want to save your credit rating, do your best to make a deal. BUT...if you are not as concerned about your credit rating (translation...this ain't the only debt on your record), then here is my advise....IGNORE THEM. Simply tell them once, kindly, not to contact you. If it is a consumer type debt, then under the Fair Debt Collection Practices Act, they have to comply. They will then take one of 3 possible actions against you:

1. They will refer your debt to a collection agency which is good news for you),
2. They will refer it to law firm to file suit against you (which is even better news for you) or
3. They will sell your debt to a third party (which is great news for you.) Here is why...

1. If the credit card company refers your balance to a collection agency, the agency typically has some settlement authority with which to make a deal with you. They usually have far more authority to compromise your debt than the collector at the credit card company did. If you can make a deal at this point, you might want to consider it. But, if you want to screw with them a little, then just tell the nice collector from the agency to not call you anymore and wait for the debt to go to a law firm or a debt buyer.

2. Law firms - typically don't like suing on credit card debt. Why? Because if you present any kind of a defense to it, you may actually get out of paying the debt altogether. I know of several judges in Michigan that hate this kind of debt coming into their courtroom. Moreover, unless the debt is really really high, it is unlikely that the credit card company is going to send a witness to trial. If you demand a trial and don't back down, the law firm will go to some pretty great lengths to make a deal with you.

3. Credit card purchasers. This is the Tri-fecta for a debtor. First of all, these credit card purchasers usually do NOT get the back data on their debts. Thus when they take you to court, tell the judge that you want "discovery." This means that you want the debt buyer to come across with a copy of the contract that you signed when you opened the account. They almost never have this information. When you demand this discovery and the law firm comes up short,l they will bend over backwards to make a deal with you. There is a sizable debt collection law firm in West Bloomfield that does a brisk business in credit card collections. When debtors demand discovery, this firm will usually come across with a paltry offer or simply dismiss their case.

There you have it. Credit card debt is highly manageable depending on the level of risk you are willing to take and also depending on who is collecting the debt. If you can stand the heat, I would suggest that you wait until the debt falls into the hands of a third party. You can make your best deal at that level.

I attended the State Bar of Michigan convention this week. It was fabulous. Among the top speakers was a practice management coach named Dustin Cole. His company, Attorneys Master Class, teaches attorneys how to run their practices efficiently. He opened my eyes to so many things this week that my head was spinning when I left his seminar. The ONLY thing he said that I do NOT agree with is that attorneys should never sue for their legal fees. He is wrong. Attorneys should sue for their fees when a client is going to stiff them. Here is how you do it to minimize your risks:

1. When you have decided that you are going to have to sue the client for your fees, send the client a termination letter. In that letter, inform the client that as of today, you are no longer going to represent him and that he should get other counsel. In that letter state that you have not been paid and that the client is in breach of your contract. This way, you have established a date for which you are no longer representing the client. If you are in the midst of litigation on behalf the client, file a Motion to Withdraw. Come to court with an order for the judge to sign that day after she grants your motion. Sent the client a copy of that order if the client does not come to court along with your termination letter.

2. Do not sue until the statute of limitations for malpractice has run in your state. In Michigan the statute of limitations for a malpractice suit is two years from the date of last service or six months from when the malpractice was or should have been discovered by the client. Lawsuits for attorneys fees are usually responded to by vindictive clients with a malpractice action and/or a grievance. Lets talk about these:

Grievance - There are two kinds of attorneys in this world; those who have been grieved and those who will be grieved. Many of us have cross over that threshold a long time ago. As long as you did nothing wrong, don't sweat a grievance. It should not be a deterrent to you pursuing your fees.

Malpractice counterclaim - A client may file a counterclaim for malpractice AFTER the statute of limitations has run. However, because the statute has run, the award on his claim can only be an offset to your claims against him. His malpractice counterclaim award cannot exceed the award you obtain against the client. Hence, even if you did do something that hurt your client, your exposure is limited by waiting two years. Moreover, if you have malpractice insurance, then you have no exposure other than your deductible.

I represent a number of law firms and we follow these rules when pursuing claims against clients. It makes suing a client for fees less perilous and more profitable. Is that the name of the game?

My good friend, Howard Young, is a seasoned and brilliant lawyer. His firm, Weisman Young Schloss and Ruemenapp, P.C. is a group of highly respected business, transaction, and litigation attorneys. The bad news is he works on the opposite side of the table from me. Amongst his specialties (and he has many), is helping people hide their assets.

Howard recently emailed me the following article that he wrote and I wanted to share it with you, not just because Howard is my friend, but because he has some very interesting things to say from an asset protection perspective. I have reproduced his article, verbatim, with his express permission as follows:

CAN AN ORCHESTRATED DIVORCE BE USED AS AN ASSET PROTECTION DEVICE

For years clients under extreme financial distress have asked whether getting a divorce from their spouse will allow them to avoid paying creditors. The typical scenario involves a husband who has guaranteed significant loans to his real estate development company but now, because of deteriorated conditions in the home sales market, is being called upon by the bank to make good on his guaranty as the primary obligor is insolvent. Wife, with a wink and a nod, retains divorce counsel and files for divorce. Negotiations between wife's lawyer and husband's lawyer are amazingly easy as husband agrees to convey all or substantially all of his assets to his wife as part of the property settlement. The bank's lawyers look on in dismay as they recognize they cannot intercede in the divorce proceedings and, thus, may be faced with an insolvent guarantor-but one who may have transferred millions of dollars to his wife in the form of a property settlement. Now, in a case of first impression [footnote 1], the Michigan Court of Appeals has held that a court can review the division of marital assets in a divorce proceeding in the context of a fraudulent transfer claim.
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Footnote 1 Estes v. Titus, 478 Mich. 864, 731 N.W.2d 423 (May 25, 2007).
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The origin of the claim in Estes is not your usual business transaction. Jeff Titus was sentenced to mandatory life imprisonment for shooting Douglas Estes and another hunter two days into the 1990 firearm deer-hunting season. Plaintiff Jan Estes, who was Douglas Estes's wife and the personal representative of his estate, filed a wrongful death action against Jeff Titus. Less than 2 months after the wrongful death action was filed, Julie Titus, Jeff Titus's wife, filed for divorce and was awarded substantially all of the marital assets. Jan tried to intervene in the divorce action claiming that the property-settlement provisions constituted a fraud upon Jeff Titus's creditors, but Jan's Motion was denied. Jan appealed to the Court of Appeals.

The Court of Appeals agreed with the trial court that it did not have jurisdiction to intervene in the divorce case or to modify the judgment of a sister court. However, the Court did find that Jan stated a valid claim under the Uniform Fraudulent Transfer Act and, therefore, the trial court has jurisdiction under that Act to grant relief with respect to property that Jeff Titus transferred pursuant to the agreed-upon division of marital property incorporated into the terms of the divorce judgment. The important distinction made by the appellate court is that any trial court orders under the UFTA would not operate to modify the divorce judgment; they would operate against persons and property within the trial court's jurisdiction. The court concluded that a transfer of marital assets pursuant to a settlement incorporated in an uncontested divorce judgment may be a fraudulent transfer under UFTA with respect to a transferring spouse.

The court found support for its conclusion in both Oklahoma and Oregon cases as well as in California. It then proceeded to analyze whether Jan alleged sufficient facts to present a justiciable claim that the settlement constituted a fraudulent transfer. The court analyzed the Michigan version of the UFTA and found she would be entitled to recover under the facts alleged; namely, (i) even though the alleged fraudulent transfer took place prior to the judgment in the wrongful death claim under MCL 566.35, the claim arose before the transfer was made (ii) the transfer was made without receiving a reasonably equivalent value in exchange and (iii) the debtor became insolvent as a result of the transfer. Also, the transfer to insider provision of MCL 566.35(2) would apply since the transfer to a spouse is a transfer to an insider under MCL 566.31(k).

EDITOR'S NOTE: It is now fairly evident that a transfer of property pursuant to an orchestrated divorce (or marriage for that matter… in such case in the guise of a transfer of property as partial consideration for a party entering into a prenuptial agreement), may well constitute a fraudulent transfer under Michigan's UFTA. (C) Howard Young, 2007.

Many years ago, I heard attorney Manny Neuburger talk about the power of using an offer of judgment in the defense of a Fair Debt Collection Practices Act claim. Manny is a Texas attorney and a giant when it comes to the defense of FDCPA cases. He said that one of the best defense techniques that a defendant can interpose in litigation is an offer of judgment.

Under an offer of judgment under FRCP 68, the defendant offers to give the Plaintiff a judgment for a certain amount. There are great tactical advantages to this. First, if the offer of judgment is accepted, the Defendant is able to cap its damages. Secondly, if the offer is accepted, the Defendant is also able to effectively end the litigation and curb further attorneys' fees in its defense. Thirdly, if the offer is NOT accepted, then the Plaintiff runs the risk of having to pay the Defendant's attorneys' fees if the Plaintiff does not get a judgment that is greater than the offer made in the offer of judgment. But wait...now there is more.

The United States District Court for Western District of Kentucky recently held in Tallon v Lloyd and McDaniel et al, (3:06CV-314-H) that when a defendant makes a good enough offer of judgment, that it can actually get a case dismissed on the grounds of mootness. That is great news for defense counsel in FDCPA litigation. In a nutshell, one of the defendants was a law firm that was accused of violating the FDCPA by sending garnishments to several banks in an area local to the Plaintiff/Debtor. The debtor sued stating that the blind garnishments violated the FDCPA. The court held that inasmuch as the Defendant offered to pay the Plaintiff the maximum that the Plaintiff could recover in this litigation, that the case should be dismissed on the basis of mootness. The court reasoned that the defendants have offered to satisfy all of the Plaintiff's monetary claims and the Plaintiff's claims are now moot. Even though the Plaintiff did not accept the Defendant's offer of judgment, the court appears to have made that acceptance on behalf of the Plaintiff anyway.

The court granted the Defendant's Motion to Dismiss the case by entering a judgment in favor of the Plaintiff for the $1,055; the amount of the offer of judgment. The court stated that it would enter the judgment pursuant to FRCP 68 which is the Offer of Judgment Rule. But, one question not answered by the court is whether it will now assess costs against the Plaintiff for failing to timely accept the offer. After all, the Plaintiff did not better its position in the litigation after failing to accept the offer. I suspect that there will be a subsequent motion to determine these costs.

I am frequently approached by debt buyers to represent them in collecting their newly acquired portfolios. I generally do not accept these kinds of engagements. These debts are generally fraught with lots of problems. If you are contemplating buying debt or if you are being sued on a credit card debt from someone other than the original creditor, read on...I am about to save you a lot of grief. Here are the usual problems with purchased debt:

1. The debt buyer usually does not get any supporting documents to show that the debt is owed by the consumer. If you are a consumer and you get sued by a debt buyer, simply ask the court to order the debt buyer to provide proof of the amount of the debt and a signed contract. 99 percent of the time, the debt buyer cannot produce these documents. This leads to a dismissal of your case.

2. The debt was usually presented to other collection agencies and/or lawyers to collect. They could not collect it and that is why it was sold. Now you are trying to collect it and what happens? Chances are you are not going to be anymore successful than the previous collector. What amazes me is when the debts are represented (misrepresented) as having been presented to only 1 prior collection agency. How do you know that for sure? There is no way to verify this.

3. If the debt was consumer based, then the new owner and collector are both subject to the Fair Debt Collection Practices Act. This Act is so easy to violate. Suing on this debt can easily turn a defendant into a plaintiff. I have frequently sued collection agencies for violating the FDCPA. Usually, as part of the settlement, we have the debt extinguished. We frequently settle these cases not just because the collection agency made an error of some sort, but because if they defend it, attorneys fees in defending the case will cost them thousands of dollars. Even if they successfully beat us in court (to date that has not happened...but even if that fateful day ever came), and the collection agency was awarded attorneys' fees against the debtor, they know that their chances of collecting are essentially nil. They have much to lose and very lttle to gain. Buying debt that is already in default subjects not only the collection law firm to the FDCPA, but it also subjects the debt purchaser to the Act as well.

4. The Fair Credit Reporting Act presents a host of new opportunities for debtors to sue you as well. If the debt purchaser reports the debt on someone's credit bureau, the consumer can dispute it. The debt then has to be flagged by the new purchaser as a disputed debt or the debt purchaser gets into trouble. Here is something else to consider. If the consumer asks the credit bureau to investigate the debt, the debt purchaser better be absolutely sure that the debt is valid or else the purchaser can get into trouble with the consumer and yes...end up paying the consumer's attorneys fees.

5. HIPPA - yes...you must have heard of it by now. Essentially, and in an overstated fashion, if a healthcare professional gives away any of your personal information, they can get into deep trouble with some governmental agency. Note, that presently, there is no private right to recovery, but the government can fine the health care professional up to $50,000 for violating this Act.

Hey...are you still interested in purchasing debt? If not, good. If so, please visit my website as we do legal defense of these Acts and will be glad to defend you....

I am not a big fan of credit repair. In fact, I am downright scared of them. However...I was recently contacted by Marc Chase of My Credit Group. He runs a blog that talks about credit repair services. I liked what he had to say in his email to me. He said "we're working hard as we can to help clean up the industry a little bit On both sides of the fence." I think its a great idea. Credit Reporting Agencies are notorious for frequently reporting incorrect information in consumers' credit bureaus. There is a definite need for credit repair service companies. There is, unfortunately, an equally large need for industry rules, regulations and standards so that a consumer can be reasonably assured that she is working with a company that will aid her in fixing her credit issues.

Marc, I wish you well in your endeavor and look forward to posting good news about positive things you accomplish in this arena.

....that if a debtor contacts you and says that the debtor you are collecting on is a result of identity theft, that you have a duty to: 1. report to your client that the debt may be the result of identiity theft and 2. provide the alleged debtor with all of the information you have on the account? I just found this out recently. I have been looking at the Fair Credit Reporting Act lately ("FCRA"). When it was modified in 2004 by FACTA, this requirement was put into the FCRA. I only bring htis up because it is definitely a trap for the unwary collector. You would think ( or at least, I do) that anything having to do with collectors would be contained in the Fair Debt Collection Practices Act, right? WRONG! So be careful.

However, if you follow my blog, you are more likley to stay out of trouble, right? :)

I just read a very interesting opinion by Judge Cleland in the case of Purnell v Arrow Financial, 2007 U.S. Dist Lexis 7630 (Decided Feb 2007).

The collection agency defendant reported a debt that was disputed by the consumer to Equifax over a period of several months. The court held that each of these reportings to Equifax, without the dispute marker, constituted a discrete violation of the Fair Debt Collection Practices Act. Without boring you with the details, the statute of limitations for an FDCPA action is one year. In this case, however, that statute was renewed every time the collection agency reported the debt without the dispute marker.

Moral of the story to collection agencies - Be careful to report any debt that has a dispute with that dispute marker.

My colleauge, Jonathan Stein, writes a very interesting blog at www.californiadebtblog.com, albeit from a debtor's perspective.

In his blog, Mr. Stein talks about the Statute of Limitations and how to prove it. In his blog, he raises a good point. A debtor who can prove that a debt is out of statute, can escape liability for the debt. But....as a collector, I know that most debtors will default on the complaint and thus, my client has a 9 out of 10 chance of getting a default judgment anyway. Secondly, the Statute of Limitations must be pled as an affirmative defense. Hence, if the debtor does not raise it as a defense, it is waived. Finally, something that many people including other debt collectors don't know, is that the Statute of Limitations is renewed from the date that the debtor last made a payment on the debt.

I encourage everyone to visit Jonathan's blog as it is well written and gives debtors a lot to think about. In fact, he has given me a lot to write about.

I just read a blog post on Arcamax from a William Gallas regarding collection agency intimidation. He gives advise on how to handle a collection agency or law firm that, in my opinion, is simply going to get an uninformed debtor into trouble.

For example, he states that you can stop a collection agency from contacting you by writing a "Cease and Desist" letter. WRONG. First of all, the debt in question has to be one that was incurred for personal, family or household in order for the Fair Debt Collection Practices Act to invoked. If the debt was incurred for business, then the FDCPA is simply not applicable.
Next, even if the FDCPA were applicable, a Cease and Desist letter does not stop collection efforts. A letter from the debtor demanding verification of the debt, if sent within 30 days of the collection agency's demand letter, will stop collection efforts...until...the collection agency provides verification of the debt. This can be as little as an affidavit or letter from the creditor.

Next, Mr. Gallas would have a debtor send a "SWORN DENIAL" notarized to the attorney and the court. Has he ever heard of perjury? An affidavit is almost the same as testimony. If a debtor owes a debt and then sends an affidavit to the court swearing that he does not owe it, all it does is set the stage for a trial. At trial, if the creditor shows that the debt is owed, the debtor has not only made made to look like a liar, but may be held in contempt of court for filing a false affidavit. DON'T DO THAT....If you want to protect yourself, simply file an answer to the complaint denying that you owe the debt. DO NOT SEND IN AN AFFIDAVIT unless you have an attorney who knows what he or she is doing.

Lastly, Mr. Gallas states that "INTIMIDATION is the only weapon that collection agencies and attorneys have in their armory (sic)." He is simply dead wrong. As a collection agency, I have far more than intimidation in my armor. In fact, I don't use intimidation to collect a debt because it is simply counterproductive and disrespectful to the debtor. Instead, I use the legal system including Writs of Garnishment to seize wages and Writs of Execution to seize vehicles. These, of course, are only used as a last resort.

As a collection attorney, my primary weapon is truth and respect towards the person/human being that owes the debt. There is almost always a deal that can be reached through mutual respect and cooperation. It is only when a debtor refuses to be cooperative do I have to resort to my other weapons. But I can honestly say that intimidation is not a weapon that I knowingly use.

My advise to debtors - Don't take advise from a crackpot that is angry and ignorant like Mr. Gallas. His advise will only get you deeper into trouble. If you need help against an aggressive debt collector, call a lawyer. There are lots of lawyers that will help you fight the debt for not a lot of money. As a matter of fact, if you call me for help, I will be happy to give you advise if I don't have a conflict in your case. I would venture to say that most collection attorneys would be happy to help a human being in need.

Just last month (November 2006), the 600 pound gorilla of debt collection, Muller Muller Richard Harms Myers and Sgroi, P.C., lost an important round in an FDCPA action entitled Stolicker v Muller Muller. Get this....Ms. Stolicker had a Capital One credit card. The agreement she signed with Capital One says that if they have to collect against her, Capital One can also collect attorneys' fees and costs of collection. Thats reasonable, right? Not really.

After the Muller firm sued her and she failed to answer, the Muller firm took a default against Stolicker. The Muller firm filed an affidavit stating that Stolicker owed a sum certain. The Muller firm, in its affidavit, stated that Stolicker owed $776.68 as attorneys fee (25% of the principal debt). The United States District Court held that this affidavit was false. By adding attorneys fees in a sum certain when the contract between Stolicker and Capital One did not specify that amount or any particular amount of attorneys fees, amounted to a fundamental change of the underlying contract. The Muller firm is now battling a very large class action suite under the FDCPA . Under the FDCPA, damages in a class action can go as high as $500,000 or 1% of the debt collectors' net worth.

Moral of the Story for Debt Collectors - If you are collecting on any consumer contract that contains a provision for attorneys fees you must make an election to either 1. Prepare a default without the calculation of damages. Have a hearing on damages if your client/witness is local or if it is cost justified to have the client/witness attend such a hearing; or 2. Simply walk away from the amount of attorneys fees.

In this case, the Muller firm was seeking damages against Stolicker for $3,985.25. This is in addition to attorneys' fees of $776.68. This $776.68 will probably be the most expensive money that the firm ever attempted to collect and in the end, it is most unlikely that Muller or its client will see any portion of this $776.68.

On a personal note, I can't say that what the Muller firm did was foreseeably incorrect. I have a great deal of respect for that firm and for Steve Harms. Mr. Harms is a guru in our industry and the author of a book that many of us debt collectors affectionately refer to as "the Bible." While it would seem to me that if a debtor signs a contract agreeing to pay costs and attorneys fees and those fees are charged on a contingency basis of 25%, they should be added to the debtor's account. However, the defense to this position would state that the 25% fee is a contingency fee that only gets paid if money is collected and if no money is collected, then the Capital One suffered no additional costs by way of attorneys fees.

This case illuminates an interesting conundrum. In order to safely steer through the murkey if not altogether dangerous depths of the FDCPA, the better course would be to avoid the attorneys' fees entirely and simply go for the statutorily based damages.

Last year, I wrote a number of articles for the lay/business person about how one can effectively protect one's rights in the collection arena. I recently posted these articles to my website. These articles, are entitled:

1. Collection law firm v Collection agency - where you should place your account.
2. Telltale signs that your customer is not going to pay you;
3. Three things your attorney should discuss with you before you file a lawsuit;
4. How to handle a debt collector who is dunning you for money;
5. To sue or not to sue....that is the question.
6. Pitfalls for the business owner to avoid.

While these articles are not scholarly, they are certainly loaded with good practical information for a business owner or laymen to use. Please peruse and enjoy!

The New York Law Journal reports that a New York law firm sent debt collection letters in violation of the Fair Debt Collection Practices Act.. If the law firm is found liable, it could be made to pay damages of 1 percent of its net worth plus attorneys 'fees. Apparently, the firm is accused of send a validation notice without verifying the balance due. The FDCPA has a requirement of active involvement by an attorney who sends out consumer collectoin notices. This requirement under the FDCPA imposes a large, if not an ambiguous duty upon attorneys involved in consumer collectoin. Just exactly what is meaningful attorney involvement is not defined by the statute. Nevertheless, there are quite a few cases that tell us what it isn't and courts are not hesitant to award damages to consumers along with attorneys fees when an attorneys involvement does not meet the standard that a court may perceive to meet the statute.

There are some things that a Consumer Collection attorney can do to avoid this trap of not complying with the meaningful attorney invovlement under the FDCPA.

1. For attorneys that handle a large volume of cases, make sure that an attorney takes a moment or two to review a file before sending out a demand letter.

2. When a consumer sends in a dispute letter, make sure that an attorney review the letter. Document the file to show that an attorney has reviewed the letter and has responded accordingly. Document the file to show that the attorney has reviewed the response letter as well.

3. Under the FDCPA, when a consumer timely sends in a dispute letter, the attorney must provide confirmation of the debt. Neither the FDCPA nor the FTC define what constitutes accceptable confirmation of the debt. However, an attorney would be well advised not to punt with internally generated documents. Rather, an affidavit from the client or preferrably, a statment of account would remove any doubt concerning an attorneys meaningful involvement in a consumer case.

The bank lobby finally got is way in Congress with the Bankruptcy Abuse Preventon and Consumer Protection Act of 2005. Hell, you would've had to have been living under a rock in October 2005, not to have noticed the flurry of bankruptcy filings made before the deadline of the new Act.

From a collection attorney perspective, the Act is really cool.

Continue reading "Michigan Debt Collection Attorneys finally get a break in the bankruptcy court" »

Michigan adopted the Uniform Enforcement of Fraudulent Transfers Act.( "UFTA"). In a nutshell, UFTA says that if your debtor, while owing you money, transfers his assets to someone else, you can sue that someone else to collect what is owed to you. But the Michigan Court of Appeals recently decided the case of Mather Investors v Maddock and Larson which may cause a new pitfall for collection attorneys.

Continue reading "Michigan Debt Collection Lawyer Tip - Fraudulent Transfers Trick and Trap" »