THE THREAT TO SUE YOU
California Civil Code section 1788.13(j) provides that it is a violation of the law for a debt collector to make:
“The false representation that a legal proceeding has been, is about to be, or will be instituted unless payment of a consumer debt is made.”
A lawsuit in California must be filed by an attorney licensed to practice law in California. The attorney must have a State Bar number registered with the California State Bar. If the collector is calling from another state, it is unlikely that the account is in the hands of a California attorney. Ask for the name of the attorney and his/her California Bar number. If the debt collector will not identify the lawyer, that debt collector is (1) lying, and (2) violating the law.
In order to garnish your wages or to levy upon a bank account or other property, the debt collector must file a lawsuit. In California, the court filing fee is $225.00, $370.00 or $390.00. Collection agencies cannot use Small Claims Court. You must be served with Summons and Complaint. You have 30 days to file an “Answer”, or other responsive pleading, with the court. You have the right to demand production of relevant documents. You may take one, or maybe more, depositions, including the deposition of a knowledgeable representative of the creditor. A business entity must produce its “person most knowledgeable” if you serve a proper deposition notice. Do you think that a credit card company will want to have their witness fly out from Delaware or Virginia just to testify at a deposition?
When collection agencies sue consumers, they litigate on the cheap. They hire inexpensive lawyers who lend their name to hundreds of lawsuits prepared by legal assistants. Because, most often, they get a default judgment, most of their paperwork is done by assistants. You can rarely even get to the attorney whose name is on their pleadings to talk to you on the phone. However, when a collection agency or credit card company is a defendant in a lawsuit filed by a consumer, it usually hires a large, expensive law firm who assigns a team of lawyers, kills lots of trees, and runs up large bills.
If you are sued by a collection agency, you have a right to a trial, often including a jury trial. If a judgment is entered against you, the court does not actually require that you pay the creditor. The court can only enter a civil judgment, which is a piece of paper, placed in the court’s file, that states that you owe the money. For $15.00 you can get this piece of paper certified and for another $20.00 or $30.00 get it recorded in the office of the County Recorder. Other than deciding that you owe the money, the judge will not order you to pay anything. If, at a later time, the creditor tries to garnish your wages or levy on your bank account, you will have an opportunity to go to court to explain that because of your financial condition, you cannot afford to pay anything, or you would like to make payments.
After entry of a judgment against you, the creditor must locate your assets. You have a right to keep “exempt” assets. These include at least 75% of your wages or what you need for necessities, whichever is more. You have a right to file a Claim of Exemption to reduce or stop the garnishment. The creditor can request a court hearing to oppose your Claim of Exemption. If they do, they get to pay a lawyer to attend the court hearing and you can explain why you need everything you have to pay for the necessities of life.
The creditor cannot garnish money received from social security, veterans benefits, disability benefits, alimony, child support, unemployment insurance and other sources. Unless of unusually high value, a judgment creditor cannot levy upon your furniture, clothing, household goods, books, household pets, “tools of trade”, prosthetic devices, works of art by or of the debtor or debtor’s family, and other “necessities of life.” See California Code of Civil Procedure sections 703.010, et seq., and 706.010, et seq. You may keep up to $2,300.00 in equity in a motor vehicle. There is a homestead exemption if you own a home or a trailer.
If you file an Answer, there will be ample opportunity to negotiate during and after the litigation process. You can threaten bankruptcy, plead hardship or dispute liability on the underlying debt.
BANKRUPTCY
At this time my office does not regularly file consumer bankruptcy cases. I have found that bankruptcy is most useful if you have something to protect, other than your FICO score. If you are absolutely indigent, there is no point of filing BK. Even without filing BK, you can keep the homestead exemption on your house, most household goods, a car up to a certain value, retirement and disability income, and most personal items. There are many law firms who file numerous consumer bankruptcy cases. You can try doing it yourself with the help of a paralegal. But I suggest that you retain a bankruptcy attorney. At the very least, allow a bankruptcy attorney to review a copy of the papers prepared by a paralegal before you file them. Be sure that you include all possible claimants, even if you do not believe that you owe them anything.
The filing of a Bankruptcy Petition causes an injunction to issue, prohibiting any debt collector from taking any collection action except through the Bankruptcy Court. All garnishments and levies will cease. All telephone calls must cease.
You cannot keep any of your credit cards. Anything that you have that is not exempt will become the property of the Bankruptcy Trustee. The Trustee will sell it and distribute the proceeds in accordance with the priorities set forth in the Bankruptcy Code. With court approval, you can keep assets that you are paying on, such as your house and your car.
Except for some tax liens, criminal court fines, court-ordered criminal restitution, student loans, drunk driving judgments, embezzlement judgments, child support, attorney’s fees that a court ordered you to pay to your spouse’s divorce lawyer, and a few other types of debts, all of your debts are discharged. If you file Chapter 13 rather than Chapter 7, you might be able to get a payment plan applicable to non-dischargeable debts. No collection agency can still pursue you for a debt that has been discharged in bankruptcy. See 11 U.S.C. 523.