In's & Outs Of Dealing With Creditors

Pod Cast On Dealing With Credit Card Debt & Creditors.

John Mastriani and Christopher Thornhill, the consumer protection debt relief experts for the Mastriani law firm, joined Gary Knight on Ask the Experts. The date was January 21 and the topic was resolving credit card debt, and dealing with creditors, in general. The topic’s an important one, as Americans own close to a trillion dollars’ worth of credit card debt and nearly $1.5 trillion in student loan debt. The country’s citizens are struggling with debt and creditors at a staggering level. Fortunately, there are solutions available to people facing a worsening financial situation or a lawsuit.

Shouldn’t I just pay off the debt instead of paying an attorney?

There is a misconception that when it comes to debt lawsuits, the defendant will either pay nothing or will have to pay 100 percent of the sum. It’s rare for a defendant to face the latter, in that there are numerous tactics available to the debt defense attorney. These tactics can be utilized to reduce the debt to some degree, so it is possible to leave a case with some obligation to the debt, but still save money with an attorney’s assistance. In truth, it’s not just possible, but common.

Reputable debt defense attorneys know that their clients are already up against a wall financially, so they often offer a free consultation to anyone struggling with debt, including credit card debt. During this consultation, the attorney will decide whether or not to take the case, and the defendant will have a clear idea of what they are facing should the attorney take the case.

The alternative to hiring a debt defense attorney is to fight the case alone. This usually does not end well for the defendant, as they will continue to be harassed by creditors, may not understand how to properly answer a lawsuit, and will have little information about how the laws can be used to their advantage. In effect, they are flying blind in an area where intricate knowledge of procedure and jurisprudence will win out.

Will my credit be damaged by fighting a debt collection lawsuit? Shouldn’t I just pay what I can to preserve it?

It’s true that pushing back against a debt collection lawsuit can have ramifications on the defendant’s credit. However, excellent, even perfect credit will not help a defendant whose income is maxed out paying down debt. Although a healthy credit score is essential to attaining financing, so is available income. If the defendant has no room to pay more, they will only stall the inevitable, and not have a financing advantage in the meantime.

The problem with prioritizing credit over debt load is that a single unexpected, and expensive, event can cause a downward spiral that is impossible to come out of. Debt defense attorneys see this all the time. Well-meaning individuals hope that they can pay down the debt, or at least delay financial hardship, by paying down the minimums. But these payments are largely going to interest, with little going toward the principal. As such, choosing this road out of debt is long, winding and uncertain.

Are student loans treated the same way as credit card debt?

It’s rare for state and federal governments to sue for student loan debt, as they have a lot of accounts to deal with, and they have a lot of other tools in recovering that debt. A tax refund, for example, may be applied to federal student loan debt if it is outstanding.

However, an increasing number of students are taking out loans through a Sallie Mae loan program or through another private loan source. These loans can, and often are, sued on if they pass into default. This can come as a surprise to students, but it does happen. When it does, it’s usually because the account was purchased by a third party debt buyer.

Can a creditor really garnish my wages?

Texas is one of the few states where debt collection is particularly tough. That is to the defendant’s advantage, of course, and why it is essential to have a true legal expert on call, and not just a debt consolidation firm.

However, aggressive debt collection practices can and will be taken if the collector wins a judgment against the defendant. And a default judgment is rendered if the defendant doesn’t respond to notice of a lawsuit. Should the collector win this judgment, they have several tools available in stepping up the pressure. For example:

  1. Wage garnishment – Yes, a collector with a judgment can garnish the defendant’s wages. As soon as that money is deposited into the bank account, it is fair game for the collector.
  2. Foreclosure – Most items attained through secured debt, like a home or automobile, cannot be confiscated and sold, even with a judgment. However, if the defendant owns assets, including land or a property left behind by a family member, the collector can foreclose or use that asset to pay down the debt. And to add insult to injury, the collector only has to make a modest effort in attaining fair market value for the asset. In the overwhelming majority of cases, such assets are sold for pennies on the dollar, so even an extremely valuable property may be completely swallowed up by a debt collection lawsuit.
  3. Post-judgment discovery – In a way, a judgment acts like a crowbar that the collector can use to pry into the defendant’s financial life. With a judgment in hand, they can force the defendant to reveal other assets they have that might be applicable to the debt, in order to liquidate them into funds.

Is bankruptcy an option?

It depends. Bankruptcy is generally considered a last resort for the defendant. There are two primary forms of bankruptcy in Texas – Chapter 7 and Chapter 13. Of the two, Chapter 7 is more favorable to the debtor, as their assets are liquidated and used to pay off what can be paid off. The rest is discharged, except for any secured debts that the defendant wishes to hold onto, like a home or vehicle. This process is immediate and may be an option for people with a lot of credit card debt and few assets.

Chapter 13 bankruptcy is harder to manage and does not dismiss the debts right away. Instead, the debtor has to provide a 3-5 year repayment plan to their creditors, using their future income to do so. If the debtor maintains the payment plan terms over that timeline, the rest of the debt is discharged, save for any secured debts that the debtor wants to keep. While Chapter 13 eventually gets some debts wiped out, it takes years to do so, and the debtor has to continue paying in the meantime. This may be a poor option compared to taking on a debt collection lawsuit.

Is a debt consolidation firm a viable alternative to a debt defense attorney?

Debt consolidation firms are big on advertising and promises, and short on results. There’s a few reasons for this, including:

  1. They are not law firms – Debt consolidation firms may have an attorney on hand for certain scenarios, but they cannot match the legal expertise of a debt defense attorney. Debt consolidation firms often know little more about the law than their clients.
  2. They may have no local presence – This is an extension of the first point. If the debt consolidation firm has no local presence, how could they be familiar with how local jurisdictions operate? The truth is, they can’t, and this leaves their client at a disadvantage.
  3. They often leave their clients hanging –As a debt consolidation firm requires their clients to pay them (so the firm can manage their client’s money), they may just up and stop working for their client, while keeping the money. Debt defense attorneys occasionally have to make legal demands to get that money back from the consolidation firm.

A debt defense attorney will not ask their clients to pay them in order to redirect that money to creditors. Debt defense attorneys are not money managers.

How can a debt defense attorney protect me from aggressive collectors?

Once a debt defense attorney takes a case, one of the first things that attorney will do is send notice to all of their client’s creditors, notifying them that the client is being represented. At this point, the collector can no longer contact the defendant. They must contact the attorney instead.

And once the attorney files a dispute, the collectors can no longer attempt to collect on the debt until they validate that debt.

This, in effect, puts up a barrier between the defendant and the collector. The attorney’s resistance can wear down a creditor to the point where they are willing to settle. The extra time can also be helpful in giving the client additional room in coming up with funds needed to settle.

Of course, if the attorney believes the case can be won at trial, the attorney will prioritize this over just stalling the collectors. But the interference can give a defendant room to breathe and relax.

And if the collector violates fair debt collection practices, the attorney will use this as a weapon against the collector. A collector must be on their best behavior around a debt defense attorney, or they will pay for it.

What do I do when I receive a notice for a lawsuit?

The first thing to do is take a deep breath and don’t panic. Don’t put the notice aside, don’t block it out of your mind. It’s tempting to forget all about it, but this will only result in a missed opportunity to dispute the debt, and effectively accept a default judgment.

Read the notice, and even if you are innocent of everything the notice claims, contact a debt defense attorney for a consultation. This should be free and the attorney will provide a proper answer to the notice’s claims.

What if I have a judgment against me?

A debt defense attorney can even help people who have been hit with a judgment lien. Do not accept the consequences that come with a judgment because they can be devastating. And they may never go away, because a judgment can be renewed with ease, and they last for years. It’s possible for someone to suddenly lose assets or wages over a judgment that was awarded many years ago. Even if someone ends up in this situation, a debt defense attorney can still provide assistance, and possibly reopen the case.

A further examination into the original lawsuit can reveal details that puts the defendant into a more advantageous position. For example, if the process server didn’t properly serve the lawsuit papers to the defendant, the judgment will be overturned. These are the kind of details that a debt defense attorney will focus in on.

Few words can inspire the kind of dread that “you’ve been served” will. But it’s not the end of the road. Debt collection lawsuits can be fought and, in many cases, won. But effectively fighting a debt collection lawsuit will take knowledge, and that’s the kind of knowledge that only comes with an experienced and reputable debt defense attorney.