Expert: Creditwrench - 6/10/2009

Question
Thank you so much for your time and service. I am writing to you on my
parents' behalf. They have found themselves in a very bad situation upon
taking the advice given to them by Legal Aid of North Texas (a non-profit
agency that offers free legal services for those who qualify. My dad was sick
for several years and has accumulated a large amount of medical debt. He
has also not worked while accumulating this debt due to the same illness but
he does collect $800 a month in disability. My mom works as a custodian and
makes about (25K). Over the past years they have used their credit cards to
pay for a lot of medical bills and expenses. Now they are over their heads in
medical and credit card bills. The amazing thing about my parents is that
through it all they never once made even a late payment and have maintained
an excellent credit score. Three months they went to Legal Aid to ask for help
starting the bankruptcy process. I was with them. We were explicitly told by
the lawyer that they would not help us because all our accounts were current.
He explicitly said we needed to be behind by at least 90 days to qualify for
help. My parents were very reluctant to let their accounts go into poor
standing but they stopped paying and accepted responsibility for the
collection calls to come. Now that they have complied by letting their
accounts get 90 days past due, we went back to Legal Aid and, even though
everything else is as it was, they are refusing to accept our case. My parents
are very overwhelmed with the calls of course but also because they don't
know where to go next. Do they begin repaying on the late accounts? Do we
look for a lawyer? How can we find one that is cost effective? We need urgent
help.

Answer
There are basically only two ways to address their problems. The first and most desirable way is to quickly pay all that they are behind and get those cards up to date and paid down as far as possible. If they have been saving the money they were formerly paying the credit card companies they will be in fairly good shape to do that. Although their credit is damaged they could rebuild it in a couple of years if they have the cash to do so, quit spending to the greatest extent possible and saving as much cash as possible. Of course, that is bad advice as far as the economy is concerned. More and more Americans are doing just that these days. People saving money in record numbers is bad for the economy because it means a greatly reduced demand for goods and services but it is the best thing for the individual. You can't borrow your way to prosperity and a great retirement. The second way to address their problems is to simply give up the idea of paying what they owe, letting the phone calls roll in and get ready for the inevitable lawsuits and the really heavy handed collection efforts such as garnishment of wages, seizure of bank accounts, liens against their home, vehicles and any other personal property such as boats, TVs, furniture and whatever else they may have of value. Or at least those are the apparent remedies creditors have under the law. Yes, that seems to be a horrible alternative on the surface of it but the reality is that it doesn't have to be that way. The reality is that people are learning that they can fight back and win without having to pay lawyers to get them out of the mess and they don't have to file bankruptcy either. People are learning that they can put a quick end to the phone calls and harassment, and although they will most likely lose in local courts they can take the debt collectors and their lawyers to federal court and whip the daylights out of them in federal courts. They don't need lawyers and they most likely will never see the inside of a federal courthouse, never have to argue their case in court. It is all done over the internet. They are doing it in such record numbers that the debt collectors have had to set up a private data base of people who have sued them in federal court and won so that they can avoid the people most likely to sue them and avoid the inevitable loses they would probably suffer if they pursued those people whose names appear in their data base. On average, over 500 new cases against debt collectors and their attorneys are filed in federal courts every month. Those people win almost every time and the average cost to the debt collector is about $3800 plus their attorney fees, court costs and other expenses. Many win a great deal more. One of my students just won $80,000 against one of the nations largest banks and previously won another for over $6,000 total. None of my students have ever lost a federal case. On the other hand, I can probably count the number of times my students have won in local courts on one hand. There is a good reason for that seeming disparity and that reason is simply that when a debtor is sued in local courts the only question before the court is whether or not the defendant owes the money and if not why not. Dumb patriot or internet arguments found on some message board or egroup won't work. They go nowhere fast. On the other hand, the reason they win in federal courts is equally simple because the only question before the court is whether the defendant(s) broke the law in their attempts to collect from the debtor. Dumb arguments such as "Your Honor, the plaintiff owes us money and we have a judgment against the plaintiff to prove it" won't work either for the simple reason that the only question before the court is whether or not the defendant(s) broke the law in their attempts to collect the debt. So how do they break the law in their attempts to collect the debt? There are numerous. Did they harass the debtor too much. Did they properly validate the debt after having received a demand that they do so? If they didn't did they attempt to collect without having provided the demanded validation? Failing to validate isn't a violation but continued collection activity without providing the demanded validation is. Did they properly advise the debtor that they are debt collectors with each phone call or other communication? Did they provide the debtor with some form of false and misleading information? Did they threaten the debtor with prison or other criminal complaint? Did they threaten to do that which is illegal for them to do or that which they had no intention of doing? And many, many more possible ways they can and routinely do violate federal and state law. People who know the law can use it to get themselves out of their predicaments and do so very easily. Those who fail to learn or fail to avail themselves of their remedies under the law will end up in deep trouble every time. But even if they fail to learn the law and fail to defend their rights under the law there are still ways to prevent any possibility of garnishment of wages and any possibility that assets can be seized by anyone other than the tax collectors, IRS included or student loans. The tax man can always get his money one way or the other and so can any other branch of government, local, state or federal. So what your parents want to do is up to them. But above all you should advise them to stay away from bankruptcy, debt consolidation schemes, lawyers and any kind of patriot nut job theories. I must admit that there are a few good lawyers out there who will do an honest and effective job of helping people such as your parents and their numbers are growing rapidly but even so they are handicapped by their code of ethics which will not allow them to do many of the things that the consumer can do on his own without lawyers if he will just take the time and trouble to learn. It don't take lots of money to learn them either.