How to Fight Claims on Old Debt
Posted By Steven J. Richardson on May 18, 2010
In this bad economy, more and more creditors are selling off their old debt to entities called “factors,” who then sue to collect. The creditor wins because they get paid money they might not have ever received, while the factor wins because they buy the debt at a discount, then go after the debtor for the full amount. However, there are flaws in this plan that can help out a beleaguered debtor.
First of all, as I mentioned before, this situation usually arises where there is old debt. If it is too old, the debtor wins under the Statute of Limitations. The time to bring suit in New Jersey on the breach of the terms of a “note” (of which a credit card is a form of note or financing) is six (6) years, while a contract strictly for the sale of goods is four (4). Therefore, if enough time has passed, the creditor may not be able to collect at all. What I recommend to clients is that if you get a demand letter from a creditor you do not recognize, respond in writing within thirty (30) days of receipt demanding a verification of debt. Under the Federal Fair Debt Collection Practices Act, the factor is required to identify the original creditor. Then check to see if that creditor is still listed on any of your three credit reports (Experian, Transunion, or Equifax). If it is not, it may be too old to report, and thus too old to sue for collection. At the very least, if that creditor should sue you, you should file an answering pleading and assert a statute of limitations defense. If you are correct about the timing, the claim could be barred by the court!
The second flaw is one that is rooted in the reality that although the factor now stands in the legal shoes of the creditor, it still isn’t the creditor. In other words, they may have a legal right to bring suit for collection, but they may not have the ability to prove their case if you force them to try it before a judge. Factors usually forward the claim to an attorney for suit, knowing that in the vast majority of cases, the debtors do not file an answer, and they will win by default, and without ever having to go to court. But what happens if you file an answer denying that you owe them anything (or at least the balance they are claiming is due)? Many times, the factor will not produce a witness at trial, either because they are out of state, the balance is too small to warrant it, or for any number of reasons. No witness, no case! Even if they do produce a witness, that person will probably not have the requisite personal knowledge to testify as to the facts necessary to prove their case or lay a proper foundation for the documents necessary to get into evidence (i.e. seen by the judge). I recommend to clients in this situation to file an answer (asserting the statute of limitations, if appropriate) and then show up at trial, demanding to talk to their witness. In other words, call their bluff! In all likelihood, they may either back down entirely, or agree to a token settlement. Either way, it is worth your effort.
Just debts should be paid, but that doesn’t mean that you shouldn’t stand up for your rights. Sometimes, the “little guy” can win!
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