Chapter One What Are You Really Afraid Of?
Are you afraid of getting sued because you can't pay your credit card bills? Very few people want to be sued, but the fact is that if you don't pay your monthly credit card bills on a regular basis, well you might be able to run, but you sure aren't going to be able to hide for too long. The odds are pretty good that sooner or later, you're going to get sued.
Most clients who come to me with fear in their hearts have that intense fear because they are being sued for not paying their credit card bills, and they have no idea what they can do about it or what is going to happen next. I have written this Guide to help people take the fear out of being sued for credit card debt, and yes, I believe I can accomplish this goal.
I suspect that most people fear being sued because they have no idea how a lawsuit works, and they have all of these wrong beliefs as to what the ultimate consequences of the lawsuit can be. For example, let's assume one of my clients just got served with a big pile of papers that indicates he is being sued by Bank of America (BOA) because he owes them $10,000 on his credit card, and he simply doesn't have the ability to pay them. My typical client would have many questions and doubts which would certainly cause him to be in great fear about this lawsuit. Here are some typical thoughts my client might have:
Can Bank of America take my house if I don't pay them?
Can Bank of America take my car if I don't pay them?
Can I be put into jail if I don't pay them?
Are they going to take my tax refund?
Are they going to take money out of my bank account?
Are they going to take all or part of my weekly paycheck?
Are they going to take my expected stimulus check?
Are they going to take my unemployment benefits?
Are they going to close down my business?
Are they going to take my social security check?
Are they going to take my IRA, my pension, or my retirement account?
Are they going to take my child support check?
Are they going to take my alimony check?
And this list could go on and on and on.
Of the 13 specific questions listed above, which questions do you think would be correctly answered by "yes"?
Well, after you've read my Guide to Taking the Fear Out of Lawsuits, you will know the correct answer to all of those questions and a whole lot more. Many people say that knowledge is power. I say that knowledge is not power unless you use that knowledge for your benefit, and knowledge used wisely can give you the power to overcome your fears and your doubts.
CHAPTER 2 LET'S LEARN SOME LEGAL TERMS If you're getting sued, it helps to learn some legal words that are often used in lawsuits, so let's get started:
DEFENDANT - That's you - if you're getting sued, you have the right to defend yourself, and that's why you are called the defendant.
PLAINTIFF - That's BOA or any other company or person that is suing you.
COMPLAINT - BOA started the lawsuit by filing a document called a Complaint against you. It could be a long document, or it could be short, and the purpose of the Complaint is to let you know exactly what they claim you did or didn't do that gives them the right to sue you. For example, the complaint might say that they issued you a credit card in 2015, that you ran up a bunch of charges over the next five years, that you paid some of them, but there are a lot of charges that you still haven't paid, and therefore you still owe them $10,000, and they want their money. The language they use in the complaint will be more formal than the way I have stated it, but the bottom line is that they are telling the Court and you what they claim they did, and what they claim you did or didn't do that results in their lawsuit against you that states that you now owe them $10,000.
SUMMONS - This is the legal document that puts you on notice that you are being sued by BOA , and that you have the legal right to respond to the lawsuit within 35 days of the date you have been served with the summons and complaint.
ANSWER Just because BOA has filed a Complaint against you and claims that you owe them $10,000, that doesn't mean that they are right. They could be totally wrong. Their records could be all messed up, and it might be that someone else with the same name as you is the guilty party. Or maybe they've made a big mistake and you really only owe them $5000. You have the legal right to defend yourself against the Complaint filed against you, and you do that by preparing and filing a legal document called an Answer. When you prepare your Answer, you will normally be required to either admit or deny each of the charges that have been made against you, You can also write up various legal defenses that you want to assert on your behalf. Unless you're pretty poverty stricken, it's going to cost you some money to file your Answer with the Court. In New Jersey, the fee might be $30, but it also could be $175, depending on the type of lawsuit that has been filed against you.
DEFAULT - If you are going to defend yourself in this lawsuit, you'd better file your Answer on time with the Court. If you don't, you can automatically lose your case, and that means that you have a default entered against you, and you have thus given up your right to a trial on the merits of the case. If you miss that 35 day deadline to file an Answer, there are ways to apply to the Court to vacate the default, but things are going to go a whole lot smoother for you if you just file that Answer on time.
TRIAL - Pretty much everyone knows what this means. If you are contesting the case, you are looking to get your day in court. The trial is a full hearing in front of a judge or a jury. BOA can present witnesses and documents to prove that you owe them the $10,000, and you can present witnesses and documents to demonstrate that BOA is wrong. After hearing all of the evidence, the judge or jury will make a decision.
JUDGMENT - The decision is incorporated into a document called the Judgment. If you lose the case, you will have a judgment against you for $10,000. The Judgment is now the official document that indicates to anyone and everyone that you lost the case, and the Court has ruled that you definitely owe this money to BOA . This judgment could become a lien against any real estate you own in the State of New Jersey.
WAGE GARNISHMENT - If you had a judgment entered against you, what happens next? Well, BOA wants to collect that $10,000 but you don't even have $1000 to give them. So what does BOA do? Well, they take steps to enforce that judgment or to collect on that judgment, and one of those steps is to apply for a Wage Garnishment. This means that they are asking the Court to issue an order that they can take 10% of your gross salary out of any paycheck you would normally get from your employer until they are paid in full, including interest, court costs, and maybe even some of their legal fees (although a lot of the time, legal fees are not assessed against you). If the Court agrees, you will have a wage garnishment order entered against you. The Order could be for less than 10% of your gross salary, especially if you object to the application for a wage garnishment, and you can convince the Judge that 10% would create an extreme hardship upon you.
BANK LEVY - After they have the Judgment against you, BOA has the right to find out where you have your bank or credit union accounts. If you've got money in there, BOA can ask a court officer to place a levy on your account. It's sort of like a freeze on the account. It's still your money, but you can't get it. The next step could be that BOA will try to get a court order signed by a judge which will order your bank to turn over the money to them. But you might beat them to the punch if you file an objection to the bank levy and claim your......
EXEMPTION - This is based on the policy that if you have a judgment against you, and you've got money in your bank account, BOA should be able to collect what you owe them, but, on the other hand, it shouldn't leave you totally broke. The government wants you to be able to hold on to at least some money, and not let the bank take every last penny. Therefore we have the law pertaining to Exemptions. In New Jersey it means that the first $1000 in your account is yours to keep, but you first have to file an objection to the bank levy and claim your exemption. If you do so, the Court will usually issue an order that let's you keep up to $1000 in your account . So if you have $1500 in your account, BOA would get $500, and you keep the rest. If you have $800 in your account, BOA gets zero. But, if you do nothing and don't file an objection, BOA gets the whole $800. That's enough legal terminology for now. You'll learn some more later, as needed. CHAPTER 3 SOME REASONS YOU DON'T HAVE TO BE AFRAID If you know anything at all about the legal system, you've probably heard this phrase somewhere along the line: "Presumed innocent, unless proven guilty beyond a reasonable doubt." That particular legal principle applies to criminal cases like robbery, rape, and murder. When a credit card company is suing you for money, that's not a criminal case. The courts call that kind of case a civil case. If you're convicted of a serious crime, there's a good chance you might wind up in the county jail or state or federal prison. But rest assured that nothing like that is going to happen to you lose the case and the civil judge decides that you owe BOA $10,000. I must make full disclosure, however, so I will tell you that there is just a very very very slight chance that you might spend a few hours at the county jail if in the future you don't obey a subsequent order of the judge. I don't want to scare you, so let me explain what I mean. We don't have debtor's prisons in the United States, and you won't go to jail because you can't pay your debts. But the judge does have authority to give you a very slight taste of what its like to be in jail if you intentionally disobey a court order. More on that later, but its really nothing to worry about. It's now time to learn another legal term. This term is known as "burden of proof", and its meaning is pretty simple. It means that the party that is suing you, has to convince the court that they are right. In our example, Bank of America's lawyers have to prove a lot of things.
That you signed the original documents establishing your credit card account;
That you made various purchases, and that you charged them to your credit card;
That you made certain payments, and were properly credited for those payments;
That you missed certain payments, and those missed payments have been properly accounted for by BOA;
That they properly billed you at the correct interest rate;
hat they properly billed you for any late payment charges;
That they properly calculated the exact amount that they claim you owe them. Bank of America has the burden to prove their case against you. In civil cases, the standard of proof is somewhat lower than proof beyond a reasonable doubt. The standard is called "proof by a preponderance of the evidence." We don't need to give you all of the details on what exactly that means right now. The point is that if you are being sued, you don't have to prove that you don't owe the money. Sure, you can present any and all valid defenses you have, but the bottom line is that the burden to prove the case is upon BOA . There are very specific elements that they have to prove to the court, and if they fail to meet their burden of proof, guess what? You win the case, even though you didn't present any defense whatsoever. But wouldn't we expect that Bank of America would have all of their records concerning your transactions, and wouldn't they be bringing them to court so that they can prove their case? Well, in order to properly answer that question, it would be a good idea for us to give you a little more information as to how these kind of cases work. We've been working under the assumption that since you got your credit card from BOA, and since you owe money to BOA, you must be getting sued by BOA, right? Well, the truth is that more often than not, you will be sued by a company other than Bank of America. But you've done all of your credit card business with Bank of America, so how can it be that you are getting sued by a different company? Well, Chapter 4 will explain all of that, as we introduce you to a couple of other new legal terms: "debt buying" and "debt buyers". CHAPTER 4 MORE REASONS YOU DON'T HAVE TO BE AFRAID Have you ever heard of "debt buying"? If you haven't, you might be surprised to learn that debt buying is a very big business. Many debt buying companies are publicly traded companies, and they make lots of money. Let's quote a definition right from Wikepedia: " A debt buyer is a company, sometimes a collection agency, a private debt collection law firm, or a private investor that purchases delinquent or charged-off debts from a creditor or lender for a percentage of the face value of the debt based on the potential collectability of the accounts. " Here's and example of how it works. Do you think you're the only person in the country who owes Bank of America $10,000? There could be thousands and thousands of such people. Bank of America is not necessarily interested in suing all of those people. It would much rather get all of that debt off its books and get a tax credit. An easy way for BOA to do this is to bundle a large amount of their customer's accounts into one gigantic package and sell it all to a debt buyer company. Let's assume that BOA sells the whole package to a debt buyer company named DBY for ten cents on a dollar. So for present purposes let's say that your debt to BOA was sold by BOA to DBY as part of a large package of debts owed to BOA. And let's further assume that when we add up the amount that the people owed to BOA on their various account s, the total comes to $1 million. How much did DBY pay for the right to try to collect on all of those accounts? The answer is that a debt buyer usually buys debts from creditors at a very significant discount. Debt buying is actually a multi billion dollar industry, and debt buyers buy debts cheap, so don't be surprised if DBY bought $1 million of delinquent accounts from BOA for $100,000, meaning they paid just ten cents on a dollar. Once the deal has been finalized, BOA has sold DBY the right to collect the full remaining outstanding balance that you owe, and the right to collect fully on all other accounts in that big package of debts. Bank of America sold that big bundle of debts at a loss, so they will get a nice tax write off, and they no longer have to worry about those non paying customers anymore. Once DBY owns your debt, BOA is totally out of the picture, and BOA no longer has the right to sue you. So, although you have never done any business whatsoever with DBY, and you probably have no idea who they are, they do have the legal right to sue you. Yes, they can sue you, but the more important question is, can they win the lawsuit? In our next chapter, you will learn various ways that you just might win a lawsuit filed against you by DBY. CHAPTER 5 LET'S BEAT DBY In chapter 3 we told you about the burden of proof. Now we'll show you how that concept becomes very important when your case goes to trial. Keep in mind that when DBY bought your debt from BOA, your account was just one of thousands in a big bundle that was purchased by DBY. Also keep in mind that you were doing business with BOA for five years, and that resulted in at least 60 monthly statements that had been issued to you over those five years. Furthermore, when you signed up for your credit card 5 five years ago, you signed a cardmember agreement which set forth the legal rights and responsibilities of BOA and yourself. So what happens when you go to court? Well, for one thing, you might be able to resolve your case without the need for a trial. Remember that DBY bought your debt for ten cents on a dollar. If you really owe the debt, and you can settle for $4000 instead of paying $10,000, you have just saved $6000, and DBY just made a pretty quick $3000 profit. You might have to pay income taxes on the $6000 you just saved, but there may also be ways to legally avoid it. Now let's assume you can't settle. Is it time to start worrying? Well, not just yet. You actually have a very legitimate chance to win this case if DBY can't prove every necessary legal element of their case against you. T here are a number of potential defenses that you might be able to assert against DB Y, so let's explore some possible trial scenarios.
Does DBY have the original cardmember agreement you signed back in 2015? DBY bought your debt from BOA, but did they also get your original signed cardmember agreement? It's pretty doubtful, especially considering that they bought your debt as part of a huge bundle of other debts. If DBY can't produce the original cardmember agreement at the time of trial, the judge might just immediately throw the case out of court. That means you win.
How do we really know that DBY has the legal right to sue you? If DBY made a legal deal with BOA to buy your debt, they would be expected to have the legal right to sue you. But how do we know that DBY really bought your debt from BOA? Well, there would normally be a legally signed agreement between DBY and BOA, and the judge would expect to see that agreement, because if DBY doesn't have the legal right sue you, well to put it quite simply, they shouldn't have sued you. So if DBYcan't produce the agreement they signed with BOA which gave them the right to sue you, just point that out to the judge, and he should dismiss the case against you.
Does DBY actually have all of the documents and records they need to prove their case against you? If DBY wants to win the case against you, they'd better come to court with complete and accurate billing statements. DBY will have to demonstrate that BOA gave you proper credit for all of the payments that you made, and that BOA also properly calculated all interest and any late charges. DBY is also going to need accurate billing statements to demonstrate all of the charges you supposedly made on your credit card. Will they be able to do this? DBY may very well not have all of this stuff, because, remember that they bought your debt account together with thousands of others, and when they sue people for credit card debt, the vast majority of people never file an answer and lose by default. Please realize that when a defendant loses by default, DBY automatically wins, even if they can't provide all of the documents that they would have to submit into evidence if there was a full trial. The moral of this story is that if you are getting sued, make sure to file an answer and make the debt buyer prove their case in court. If you don't file an answer, how are you ever going to have a chance to win?
Have you ever heard of the statute of limitations? In our DBY example, we have assumed that DBY is suing you in 2020, not too many months after you stopped paying BOA. In reality, however, many debt buyers don't buy debts until several years have passed since the defendant made a payment on his credit card debt, and they might spend a couple of years trying to make a settlement with the debtor before spending money to hire attorneys to file a lawsuit. And the reality is that sometimes the debt buyer will wait too long before they sue the debtor. In New Jersey, there is a six year time limit for suing on credit card debt. That's what's known as the statute of limitations. If DBY sued you after the applicable six year time period has expired, all you have to do is bring that to the attention of the judge, and you should easily win your case. CHAPTER 6 WHAT HAPPENS IF YOU LOSE? We hope that you don't have to read this chapter, but there is always a risk that you might lose your case. If so, is that the time to really start worrying? Well, not necessarily. For one thing, you can file an appeal, but appeals can be costly and are usually hard to win. But the truth is that you still have options. Earlier we talked about settling your case before trial. In reality, you almost always have the right to try to settle your case. It could be before trial, during trial, or after trial. Sometimes if you tell DBY that you are considering an appeal, they might be willing to settle for less than the full amount, because they are going to incur attorney fees for an appeal, and there is also the chance that they might lose. OK, what if they won't settle, and they want all of that $10,000? Well, now its up to them to try to collect, and we can answer some of the 13 questions we asked in Chapter 1. Let's assume you work full time, and you have a checking account with $500 in it. You own your house which is worth $150,000, and you owe the mortgage company $140,000. You own your car which is worth $10,000, and you owe $7000 to pay it off. You've also got a legally qualified retirement plan with $50,000 in it, and an IRA worth $10,000. That's it, you don't own anything else of any significant value besides clothing, furniture, a little jewelry, and some other inexpensive personal possessions. If you sold all of that stuff, you'd be lucky to get $2500. Obviously, you can't pay them anything close to $10,000. Here's the best they can do - they can make some kind of affordable deal with you that you will pay them a monthly amount for a long period of time until the $10,000 is fully paid off. Or they can offer to settle for a lump sum payment. Once they realize that you don't own a lot of stuff and don't make a lot of money, they might decide that they don't want to wait years and years to get their money a little bit at a time. They might say, why don't you try to borrow $5000 somewhere, and they will take a lump sum payment of $5000, and release you from the rest of the judgment. Maybe you can't borrow $5000 from one person, but maybe you could borrow $500 from 10 people. You don't know if you don't try. Next, let's assume that no settlement can be achieved. Are any of your assets or possessions in danger of being lost? I really don't think so. Here's the best that DBY can do.
They can apply for a wage garnishment. The worst that would happen is that they could take 10% of your gross pay before taxes out of every paycheck. You have the right to write a letter to the judge and ask her if she would decrease the order due to hardship, and the judge might change the order to permit DBY to take only 5% of your gross paycheck.
As long as you've got less than $1000 in your bank account, they couldn't touch that money. They might try to freeze it, but if they do, you immediately object based on your New Jersey legal exemption, and the judge should rule in your favor.
They can't touch your pension or your IRA.
If you ever get unemployment, social security, welfare, worker's compensation benefits, or that hoped for additional stimulus check, don't worry, they can't touch any of those things either.
It is very very very unlikely that they would ever try to force a sale of your home or your car or anything else.
The only way you would ever be in jeopardy of possibly going to jail would be if you somehow willfully disobeyed a court order requiring you to give DBY some personal financial information, and I'm pretty sure you wouldn't do that, would you? One more thing. You may or may not know that I've filed bankruptcy for thousands of people, and I would say that the gentleman in this example looks like an excellent candidate for a chapter 7 bankruptcy, especially if he has a bunch of other credit card and other debts. If he filed a successful chapter 7 bankruptcy, he'd keep all of his property, and be out of debt in about 4 months. If you'd like to learn more about chapter 7, I'm happy to tell you all about it whenever you decide to call me .