Owe money? Watch Out for Debt Collection Lawsuit

NEW YORK (MainStreet) — Would it ever occur to you in a million years that taking the advice of the judge in your debt collection court case might not be in your best interest? Well, that's just what's happening in courtrooms across the U.S. as judges look for short-cuts to clear their growing debt-collections dockets (daily list of cases), hence the term, "Rocket Docket."

You may see or hear the official terms "pre-trial mediation" or "resolution conference" used in court notices and in court precincts that are adopting short-cut strategies, and Texas lawyer Jerry Jarzombek, who specializes in protecting defendants against abusive debt collection tactics, has seen this trend grow first-hand.

"Once in court, most people will take the advice of a judge who instructs them to pay a fee and go out into another room or even a hallway, with only the debt collector's lawyer, to settle their debt collections case," Jarzombek says, adding there's absolutely no requirement and it's often not in your best interest to settle your case on-the-spot, even if the judge advises it.

So, what's the problem with on-the-spot pre-trial mediation?

If you're being sued by a debt-collector, you should know that debt collectors buy debt very cheaply once it is written off by the original lender such as a credit card company or a bank. Debt collectors make it very profitable by suing the consumer to collect the full amount, without checking whether the debt, or even the amount, is valid, says Jarzombek. Obtaining a court judgment against a consumer gives the debt collector even more power to collect the debt by garnishing your bank account and worse.

Last year, the Consumer Financial Protection Bureau (CFPB) overhauled debt collection regulations making them stricter for both original creditors and these debt buyers. But the CFPB stops just short of what happens to debt collections defendants in court and denied to give Mainstreet a statement about this "pre-trial mediation" or "resolution conference" short-cut court practice.

"Most folks being sued for debt collections can't afford to miss work to appear in court, don't know how to contact the court and don't understand the negative effects of ignoring the notice to appear in court," says Jarzombek. "What happens in court with these debt collection lawsuits may differ depending on the state or even the county, but the consumer is almost always walking into the line of fire and does not know it."

Jarzombek explains there is no advantage for the debtor in complying with a for-fee, on-the-spot pre-trial mediation or a resolution conference, especially if you are disputing any part of the debt.

"When a debt is sold many times, there is a weak chain title for the debt," says Jarzombek. "Both ownership and the facts of the debt -- dates, amounts, fees and interest -- must be proven by the plaintiff for him to win a debt collection judgment in court against you. Many mistakes get carried over when debts are sold that can cause the case to be dismissed in court with no judgment against you."

Jarzombek said he once won a case dismissal for a defendant when the plaintiff listed the credit card number of a MasterCard (which began with a 5) in the affidavit. "I noticed the 5 instead of a 4, which would have began my client's original Visa credit card," he said. "The dismissal was that simple."

What are your options once you are in the courtroom?

Once in front of the judge, you have exactly three options, explains Jarzombek.

  • 1. Comply with the "pre-trial mediation" or "resolution conference" and settle your debt with the debt collector's layer, often for a fee, outside the court-room and without a judge present, on that day.
  • 2. Approach the bench and ask for a future trial date, especially if you are disputing any part of the debt.
  • 3. Ask for an outside mediation on another day with a trained mediator.

The CFPB advises that you bring copies (never originals) of all your records and communications about the debt and with the debt collector when you meet with a lawyer, to court and to any mediations.

On-the-spot mediation is different from a true mediation proceeding

If you read American Banker (and you probably don't), you would have seen a scathing article specifically describing consumer experiences with these practices in court. The accounts receivables industry rebutted that pre-trial mediation or resolution conferences allow you a final direct contact with the creditor to settle your debt to avoid default judgements.

Jarzombek warns that this in-court short-cut is better than a default judgment incurred by ignoring the lawsuit entirely, but debtors often pay more than they have to.

A true outside mediation proceeding requires the presence of all the parties: The corporate representative of the debt collector (who has more power to make decisions regarding your settlement) with their lawyer and you, the defendant, with or without a lawyer, explains Jarzombek.

He has also seen the bona fide county mediation program actually cost $15 in one precinct while the on-the-spot pre-trial mediations (resolution conferences) cost $50. With the pre-trial mediations (resolution conferences), the consumer does not know the rules or to what extent the debt collector's lawyer is authorized to settle.

Another little known fact: The debt buyer/collector is not required to report to the credit bureaus, (but if he does report, it must be accurate). To boot, since a mediated resolution doesn't become a matter of public record like a court judgment, you can request that the trade line be removed from your credit report as part of your settlement. The plaintiff's lawyer alone is usually not authorized to grant that request in an on-the-spot pre-trial mediation.

Should you get a lawyer?

At the point that you are standing court being sued to pay a credit card debt, your debt has likely been "charged off" by the original creditor and has been sold to a debt collector, often many times.

Since the damage to your credit report is likely done, and you are no longer paying back the original creditor, your goal in court is to pay as little as possible to settle the case with as little additional damage to your credit report as possible.

Would you rather pay your own lawyer a smaller amount than you are being sued for and get the best possible settlement (often $0) for yourself and for protecting your credit and your bank account?

Or, would you rather be at the mercy of the debt collector's lawyer whose job is to get the highest settlement possible on-the-spot?

The CFPB urges you to consult an attorney in your state if you are sued by a debt collector. Some attorneys may offer reduced fees for debt collections cases, as Jarzombek does. Ask prospective attorneys about their experience with the Fair Debt Collection Practices Act and debt collection lawsuits, advises Jarzombek.

If you think you cannot afford to pay the debt or a lawyer, the CFPB advises you check with the court or The Legal Services Corporation which maintains an online list of legal aid programs in each state.

If you have hired a lawyer, notify the debt collector of your lawyer's information and instruct them to contact only your lawyer with this letter template from the CFPB.

Be wary of debt collection scams, too

The Center for Responsible Lending warns there are companies who will contact you promising to get you out of debt but do nothing but charge you fees. This warning from the Office of the Comptroller of the Currency states, "You cannot eliminate an obligation to pay a debt, simply by paying someone a fee regardless of the amount you owe."

When it comes to debt collections law suits, don't take short-cuts.

--Written by Naomi Mannino for MainStreet

More from Credit Cards

LendingTree CEO Focused on App and Digitized Mortgage Experience

LendingTree CEO Focused on App and Digitized Mortgage Experience

Is PayPal Safe? Yes, and Here's Why

Is PayPal Safe? Yes, and Here's Why

How to Save Money: Daily, Weekly and Lifelong Habits

How to Save Money: Daily, Weekly and Lifelong Habits

How to Get a Credit Card For The First Time

How to Get a Credit Card For The First Time

Citigroup Finance Chief Sees 'Flattish' Trading Revenue in Second Quarter

Citigroup Finance Chief Sees 'Flattish' Trading Revenue in Second Quarter