Service of a summons in a collection suit seems often to be the prod that gets procrastinating debtors into my office to file bankruptcy. Yet it is not the emergency that they think. Their financial world will not end if a judgment is entered before they file bankruptcy.

These collection actions are usually on credit card debts and almost always the client admits the debt and has no defense to the suit. Therefore, filing a truthful answer would do little to alter the situation.

Second, the debt is just as dischargeable in bankruptcy if embodied in a judgment as it is as a monthly bill in default. There is no loss of rights should the judgment be entered before commencement of the bankruptcy case.

Procedurally, even when the defendant (the person who has been sued) fails to timely answer, the plaintiff must jump through several more hoops just to get the piece of paper that is the judgment, and still more hoops to compel some sort of payment on that judgment. It all takes time, and it is usually not nearly as important to the plaintiff as to the defendant.
If you are served with a summons, take a deep breath. It probably signals that you need to file and you need to face up to that fact, but it doesn’t mean the world ends in 30 days, when the answer is due.

Gather up all of your bills, your paystubs, and your last tax return, and see a bankruptcy lawyer.

More on lawsuits

Cathy Moran

My blood boils when I read tripe like this pitch from a lender promoting a debt consolidation loan: it’s not a loan, says the headline, it’s a way out of debt. I’m sorry, but that’s baloney.

About sixth grade, I learned that 3+7 and 5+5 both equaled 10. No matter what order the numbers came in, they still totaled the same sum.

Likewise, a consumer is no better off if, instead of having five accounts of $2,000 each, they have one account of $10,000. They still owe $10,000. As my colleague Kurt O’Keefe wrote, you can’t borrow your way out of debt.

My clients, to a man (or woman), want to pay their debts. They are looking for any alternative to bankruptcy. But to call more borrowing a “way out of debt” is like consulting the Humpty Dumpty for financial advice. He, at least, was open that words ” mean just what I choose them to mean”.

The return receipt on my “do not contact” letter to ATT arrived at my office showing receipt on July 6th. Between July 7 and July 10, we got seven calls at home about the disputed account; on July 12th, we got a call from NCO who announce that the account has been turned over to them for collection.

As of yet, I have no contact information for NCO. When I get it, I will repeat my “do not contact” letter and invite them to call my lawyers, Moran Law Group, to discuss resolution of the dispute.

Check back for updates. The beginning of the tale.

Read the conclusion.

I’m being hounded by bill collectors; or, more precisely, ATT’s long distance arm. You see, I called up and canceled my long distance service at home after seeing that my marvelous “plan” cost me $13 a month whether or not I made any long distance calls. The guy in the call center overseas tried to talk me out of canceling, but I insisted.

Only it seems he didn’t cancel the service as directed and I continued to get bills, which I refuse to pay. The bill for something I didn’t want is now up to $43. Over the past couple of weeks, we’ve gotten 6-10 calls a day from ATT.

Usually, our phone is dialed by a computer program and there is dead air when you pick up the phone. If you wait on the phone long enough, either a recorded voice tells you “this is an important message from ATT” or you get the guy with the script in the call center in India who cannot/will not address the dispute. He only wants to know when I will pay. “Never” doesn’t seem to be in his vocabulary.
I often advise clients who must wait to file a bankruptcy case to utilize their rights under California’s Rosenthal Act to tell creditors not to contact them. California’s law imports a bundle of consumer rights from the federal Fair Debt Collection Practices Act and applies them to the original creditor as well as third party collectors. The federal act only applies to debt collectors and not to the original creditor.

Though I’ve been handing out a sample letter to invoke the right to be free of harassing calls for several years now, but have no real feed back on whether creditors and collectors actually honor the right to peace at home.

So, I’ve become an experiment in my own practice: I sent ATT a do-not-contact letter on July 2, return receipt requested. By sending it RRR, I will have proof of when ATT gets my letter. We are keeping a log at home of each of these ATT collection calls, so I can cross check receipt of the letter with the calls we get.

Stay tuned for the next episode of consumer vs. The Phone Company (for those of you who’ve seen the old movie The President’s Analyst.) See Part Two: Taking my own advice

Debt collectors have noticed and decried the growing understanding of debtors about their rights to fair debt collection. Federal law in the form of the Fair Debt Collection Practices Act regulates the conduct of third party collectors. Those protections apply everywhere and more and more attorneys are learning how to assert those rights on behalf of their clients.
Californians have an expanded set of rights as debtors under the Rosenthal Fair Debt Collection Act: this law applies the rights created in the federal FDCPA to the original creditor as well as the third party collector.

One of the most useful aspect of the California statute for many of my clients is the right it creates to be left alone: the right to be free of collection calls and letters. There are a couple of limited exceptions, but overall, it empowers the debtor to escape incessant collection efforts.

If you need freedom from debt collectors, write them invoking your right not to be contacted with reference to the Rosenthal Act, date it; sign it; keep a copy, and send it off. Two things may happen: the creditor obeys the law and you get peace at home; or they violate the law, and you have a right to sue for the violation, including the right to collect your attorneys fees to do so. Won’t the role reversal of debtor becoming creditor really make the collectors mad?

Doug Jacobs’ post answering the question “do I have to file on all of my debts”, pushes my semantics button. Doug was, in all innocence, paraphrasing clients, who imagine that bankruptcy represents a choice by the debtor of which debts he wants to discharge. Wrong!

The popular usage of “filing bankruptcy on” certain debts suggests that debtors get to pick and choose which debts are listed in their cases. Not!

People file bankruptcy; people don’t file “on debts“. A person who is a debtor in a bankruptcy proceeding is expected to list all of their debts, under penalty of perjury. At the beginning of the case, the debtor does not get to pick and choose which creditors are included in the filing.

The debtor can elect to reaffirm debts that they want to repay and are willing to be legally liable for. Better, from my perspective, a debtor can voluntarily repay debts they feel morally obligated to repay, without a reaffirmation.

Words are important to lawyers; words shape and reflect how we think about the world. Make my day by getting this terminology right.

My colleague Rachel Foley explains the limited circumstances when debt is enforceable after a bankruptcy discharge.

Despite the fact that credit card debt has been discharged in bankruptcy, odds are that some discharged debt will surface years after a bankruptcy discharge with a demand for payment. Debtors tend to come back to their lawyers and claim the lawyer screwed up, if this debt survived. The truth is that the debt didn’t survive: it is unenforceable and the original creditor never bothered to tell the debt buyer who purchased the worthless debt. It’s the debtor who is subjected to the distress of worrying that the discharge didn’t kill off all of his debt.

Bottom line, attempts to collect discharged debt violate the discharge injunction Debtors should be prepared to copy debt buyers with copies of the discharge and list of creditors showing the original creditors. A second contact after such notice may entitle the debtor to damages for violation of the discharge.

A basic principle of law is that each person is only personally liable for debts they create: marriage does not automatically make the spouses liable for each others debts. An exception is debts for necessities of life.

In California, a marriage can be seen as comprising three entities (wouldn’t you know it in California): husband, wife, and the community property. California law assumes that assets acquired during marriage are community property. The entirety of the community property is liable for the debts of either spouse.

Under this system, then, if husband contracts a debt, husband’s creditor can reach both halves of the community property to satisfy that debt. If the parties don’t have community property, as by reason of a pre nuptial agreement, then the creditor can reach only the husband’s earnings and assets. If the spouses divorce, the community is terminated. Once the community property is divided in the divorce, that former community property becomes the separate property of the recipient spouse.

More about community property in bankruptcy.

I wrote earlier about the erroneous assumptions that clients make when they are served with a suit for money owed. The first is that there is an immediate, life changing emergency. The second, which I want to explore today, is that they have a court date some months in the future. Wrong.

California law provides that a defendant, the person sued, has 30 days from the service of the summons in which to answer the complaint. The answer tells the other side and the court what are the disputed issues in the suit. Does the defendant claim he’s not the person who owes the money? that the amount of money is incorrectly stated? that he’s paid it in full? Unless the parties settle, the court will decide those disputed issues at trial.

However, if the defendant does not answer the complaint, the court assumes that the defendant does not dispute the contentions of the complaint. If there is not dispute, and the plaintiff has followed the procedural rules, the court will enter a judgment for the plaintiff just as soon as the plaintiff submitts the correct papers. There is no need for that hearing date in the papers if there is no properly teed up dispute for the court to resolve.

So, the moral of this story is that the defendant must file a timely answer to the complaint in order to prevent entry of a default judgment for the relief sought in the prayer of the complaint.

If the defendant agrees that they owe the money, which is most often the case among my clients, then the real issue is what to do about debts you can’t pay. We discuss their bankruptcy options.

Cathy Moran

Bankruptcy in Brief

What often brings a prospective bankruptcy client to my office is the filing of a collection suit by a creditor. Almost invariably, the client has leapt to two incorrect assumptions: one is that the world as they know it is coming to an end; and two, they don’t have to do anything until the date set for the case management conference, months down the road.

On the issue of the implications of a lawsuit, it is a step toward a judgment in favor of the creditor. A judgment is a determination that the debtor owes the amount of the debt and usually the creditor’s expenses to get the judgment. A judgment entitles the judgment creditor to enlist the coercive power of the state to collect that judgment by levy, lien or garnishment.

A judgment in California does not automatically constitute a lien on the debtor’s assets, as it does in Georgia where my colleague Jonathan Ginsberg practices. Jonathan writes that a judgment creditor is automatically a secured creditor.

In California a creditor with a judgment must take an additional step to create a judgment lien. A judgment lien on real estate is created when an abstract of judgment, issued by the court after entry of judgment, is recorded in the records of the county recorder. A judgment lien on personal property is created by filing a notice of judgment with the Secretary of State.

A judgment lien allows a creditor to execute on that lien through the courts. In that process, even outside of bankruptcy, the judgment debtor may claim an exemption in certain kinds of property. The California state exemptions are set out in Bankruptcy in Brief.

In short, getting a judgment is just a step toward actually taking something from the judgment debtor. All these steps take time and cost the creditor something. The filing of a suit may be a good indicator that the client needs to do something proactive about their financial situation but it is not an emergency.

More about the second erroneous assumption tomorrow.