Debt Hope: Down and Dirty Survival Strategies Evaluation Version (Complete)

Evaluation Copy – Not for Sale or Redistribution
Table of Contents
Introduction....................................................................................................................i
Chapter 1- The Credit Industry ........................................................................................1
Chapter 2 -- Settlement Strategy......................................................................................8
Step 1 - Assessment.....................................................................................................8
Step 2 – Identification..................................................................................................9
Step 4 – Determine Ownership and Litigiousness ......................................................10
Step 5 – Triage Based on Permanency and Litigiousness ...........................................11
Step 6 – Determine Who To Settle With ....................................................................11
Step 7 – Bank Some Settlement Money for Hard Cases Before Paying Easier Cases..13
When to Change Course ............................................................................................13
What if I do get sued?................................................................................................14
Basics of Negotiation.................................................................................................18
Mechanics of Settlement............................................................................................19
Chapter 3 – Bankruptcy.................................................................................................20
Chapter 4 - Nasty Surprises for Debtors.........................................................................29
Re-aging....................................................................................................................30
Renumbering .............................................................................................................30
Lurking .....................................................................................................................31
Report Poisoning .......................................................................................................35
Arbitration.................................................................................................................38
Distant Forum Abuse.................................................................................................39
Phantom Payments and other Limitations Busters......................................................41
Trojan Checks ...........................................................................................................46
Pretexting and Tattletale Insiders ...............................................................................46
Accidentally Becoming a “Ghost” .............................................................................48
Zombie Collections and Repeated Collections on the Same Debt...............................50
The Affidavit of Debt ................................................................................................51
The Perils of Being Unbanked ...................................................................................52
The Perils of Ordering Checks from Checksystems Affiliates ....................................56
The Perils of Banking Out of the Country..................................................................56
Fraudulent Transfer Laws ..........................................................................................57
Loss of State (and Federal) Tax Refunds ...................................................................57
Wage Garnishment ....................................................................................................58
Arrest and Jailing.......................................................................................................58
Badges on a Percentage .............................................................................................60
Judgment Revival ......................................................................................................60
Outrageous Judgment Interest....................................................................................61
Harassment................................................................................................................62
Inspection of Property ...............................................................................................64
Involuntary Bankruptcy .............................................................................................65
Lack of a Judgment Satisfaction ................................................................................65
Creditors who can’t be found.....................................................................................66
After the Judgment .................................................................................................. 121

Conclusion .............................................................................................................. 122
Chapter 7 -- Bogus Solutions and other Pitfalls............................................................ 124
Debt Termination .................................................................................................... 124
Volenti Non Fit Injuria ............................................................................................ 124
Accord and Satisfaction ........................................................................................... 125
Debt Consolidation.................................................................................................. 125
Credit Counselors .................................................................................................... 125
Debt Settlement Companies..................................................................................... 126
Bankruptcy.............................................................................................................. 127
Attorneys................................................................................................................. 127
“Helpful” Collectors ............................................................................................... 128
Credit Repair Companies......................................................................................... 129
Credit Doctors ......................................................................................................... 129
Paper Tripping......................................................................................................... 130
Conclusion .................................................................................................................. 131
Glossary ...................................................................................................................... 133
APPENDIX – SAMPLE SETTLEMENT AGREEMENT ........................................... 138
decision). Individuals who are having trouble with their finances find themselves
suddenly in a dark forest of frightening shadows and spooky noises. They often have no
clue about what to expect, what kind of time frames and deadlines they can expect, or
who they will be dealing with. Some of the denizens of this world are more dangerous
than others. It's hard to know who is who, or which noises must be taken seriously and
which merely belong to phantoms of the past that have no teeth. They have few guides
because they lack the money to pay for the advice they need, and those with the
knowledge of how the forest ecosystem works will generally profit far more by working
for the predators. I have been both predator and prey. I have sued hundreds of individuals
for money damages, and I have myself been sued. I have also counseled hundreds of
people for free on Internet message boards and my comments there have been read by
thousands.
Some individuals' problems are minor, but for a small minority the problems are in fact
intractable and will be lifelong, although even they can often be mitigated. The situation
is seldom as bad as it seems, and there are often simple solutions to the problems at hand.
In some cases, there really isn't even a problem, or there is one that has a high likelihood
of solving itself in a reasonable amount of time if the debtor can just be patient and avoid
taking any action that would make matters worse. Mere uninformed inaction, however
seldom leads to a good solution--there are always things that need to be known, there is
usually something that can be done, and often something that must be done to improve
the outcome. The trick is knowing whether, what, when, how, where and with whom the
problem may be addressed. Over time I have learned who the players are and enough
about how they operate and their respective strengths and vulnerabilities to help anyone
lay out a game plan that will get them out of the credit breakdown lane and back into the
mainstream, if not the fast lane.
Those strategies may not always involve paying all the debt, or for that matter any of it.
This book makes no attempt to judge you for having large debts or defaulted debts. Debts
can come about through irresponsible behavior or through no fault of your own. There
are debts that the bankruptcy laws of this country will wipe out for you, and those that
will not be wiped out in bankruptcy. There are debts that have become too stale to pursue,
and those that will never be stale. There are debts that can be adequately proven by the
creditor and those that cannot. There are assets that a judgment creditor can take from
you whether or not you file bankruptcy, and assets that cannot be taken from you even if
you don't file bankruptcy. And bankruptcy is not the only way that individuals are
relieved of debt--there is also the passage of time, the creditors' loss of key documents,
and the debtors' ability to negotiate for reductions in principal and interest.
Debt is a very personal matter, but you can expect that if you insist on your rights and
you handle your debt problems intelligently, somebody you know who finds out about
how your are doing things will find fault with your tactics or strategy--in fact you may
have several somebodies telling you to do things that are all over the map, from paying
everyone who sticks their hand out to trying to stiff everybody even in the face of strong
evidence that the latter policy isn't quite working out. Don't be thin-skinned--they haven't
walked a mile in your shoes--one of the best things you can do is spend some time on the
ii
Finally, I must include this disclaimer. Because I am not your attorney and you have not
explained your situation to me, this book is not legal advice. In the event your financial
predicament brings you into a circumstance involving a lawyer or a court, you are
strongly urged to obtain competent legal counsel.
Mark S. Hankins
iv
First, it is important to understand that you do not have to actually be behind on your loan
payments for bad things to happen. If you live in the “wrong” zip code, work in the
“wrong” industry or otherwise seem to be a deteriorating credit risk (even if you've never
missed a payment), your mortgage lender, auto lender or credit card company can sell
your account to whomever they please, or just assign the servicing rights to another
company.
Often the sale or assignment is to a company whose methods are much less ethical than
the one you have been doing business with. In 2002, the carmaker Mitsubishi brought in
SST5 to service its leases and loans, and many consumers were surprised by SST's sharp
practices. In other cases, mortgage lenders have sold their loans to companies like Ocwen
or Fairbanks Capital, who seemed hell bent on driving the homeowner into foreclosure by
"losing" payments and other tactics. In fact, in November 2003 the FTC made Fairbanks
Capital disgorge $40 million it collected by failing to post consumers’ mortgage
payments in a timely manner and charging consumers illegal late fees and other
unauthorized fees.6 So in some cases your nonpayment is actually their game playing.
When a consumer gets behind on his or her obligations, the creditor (or "original
creditor"--"OC" for short) will turn first to its internal collections personnel. These are
phone representatives who are trained to get the consumer to pay. Their phone training
(what they do is called the "talk off"—which by law cannot begin until they reach the
“right party”) is in overcoming consumers' objections and finding ways to encourage
consumers to find untapped sources of funds so that the creditor is made whole,
regardless of whether paying actually helps the consumer survive financially. The idea is
to get the consumer's money before it's gone and in the hands of someone else. If the
internal collections department is unsuccessful, the account will probably be passed to an
outside collection agency (“CA”). The CA is a more specialized, more single-purpose
business whose methods are tougher than that of the creditor itself. Remember, the
creditor is at first just trying to get paid and potentially preserve the relationship. Once a
collection agency is in the picture by name (many times the collection agency poses as
the creditor--and the reverse can occur too if the creditor is too cheap to pay a CA's 20%
fee and wants to try hardball collecting without continuing to use its own name),
goodwill is out the window and the calls can come fast, furious and to anyone and
everyone (creditors are allowed to call your neighbors, friends and relatives to try to get
location information on you, but they are not allowed to tell them about the debt--
however this provision of the law is highly abused).
If collection efforts are unsuccessful, typically the original creditor must "charge off" the
account within 180 days if it is a credit card, and 120 days if it is a closed-end loan
secured by collateral (bank creditors are governed by Rule 5000,7 formally known as the
"Uniform Retail Credit Classification And Account Management Policy"). Charging off
is the act of making a pair of accounting entries that say the creditor no longer expects to
5
http://www.sst-mo.com/
6
http://www.ftc.gov/opa/2007/08/sps.shtm
7
http://www.fdic.gov/regulations/laws/rules/5000-1000.html
2
along with other defaulted accounts and sell it to the next JDB. Ability to pay is gauged
by what a debtor is paying other creditors (these figures appear monthly on a credit
report), and by the employment and income figures reported by the debtor on credit
applications. If the debtor were to apply for credit at potential creditors claiming to be
unemployed with zero income (whether employed or not), making sure (by checking with
online credit boards regarding which creditors pull from which CRAs) that the credit
pulls would cover all three CRAs, that data would wind up on all 3 credit reports and
collection activity would be minimized.
Junk debt buyers are similar in some ways to original creditors, but in other more
important ways they are very different. The key difference is that for the original creditor,
a defaulted account is exceptional. The JDB is typically buying nothing but defaulted
accounts (although in some circumstances, a creditor that is having money troubles of its
own sells some or all of its accounts to multiple other firms and packages some weaker
performing accounts with the defaulted ones rather than with the other performing
accounts—in such cases the performing accounts grouped with the nonperforming ones
are expected to default, and the consumers are often treated that way regardless of the fact
that the account is in good standing). The JDB knows that no recovery will be had on
most of the defaulted accounts purchased, and the discount on the debt is accordingly up
to 98%. Accounts that have copious documentation and whose borrowers are otherwise
high quality (say, homeowners with jobs) sometimes sell for only a 60% discount. In
most cases JDBs look for a "liquidation rate" in the range of three times the face value of
what they have bought. That means that their gross profit margin is in the range of 200%.
If they bought the portfolio for 3%--they triple their money within a year or so by
recovering 9%.8 Recently debt buyers have been holding off on buying portfolios because
they expect the economy to remain soft and debt prices to drop.9
Once a creditor sells a charged off account to a JDB, the latter then steps into the shoes of
the original creditor. The largest JDBs are multi-billion dollar operations, and although
you may not have heard their names, they are well known in the industry. These names
include LVNV Funding, Unifund, Asset Acceptance, Portfolio Recovery and Cavalry
Portfolio. As we will discuss later, JDBs use a variety of strategies to collect debt, and
they may act on their own or use a collection agency. Although many states subject JDBs
to the same strictures as collection agents, some do not. In states where JDBs are not
effectively regulated such as Arizona and Michigan, they often make use of abusive
practices to collect. Many JDBs will also rotate the defaulted account through an endless
list of collection agencies, each of which will have its own approach. If they do not
receive payment, the JDBs have the aforementioned four choices: sit, sue, settle or sell.
Only the option of suing remains to be discussed.
The creditors' next stop may be a collections lawyer. Or at least it may look that way to a
consumer. Unfortunately, there is a great deal of chicanery practiced by creditors in this
regard. On the one hand, they may simply invent a letterhead that seems to be from a law
office (without ever directly claiming to be a law office or a lawyer--although collectors
8
http://www.insidearm.com/go/arm-analysis/liquidation-rates-can-be-higher/
9
http://www.tfgi.com/200908/buyers-of-bad-debt-wait-out-consumer-worries/
4
(if at all) upon sale of the home (although in Florida the lien is not enforceable against the
homestead even on sale and even the proceeds of the sale are exempt from attachment
unless the creditor can show that the debtor does not intend to reinvest them in another
Florida homestead).14 Liens can also be placed on personal property (anything other than
real estate) in many states. That means that debtors cannot legally sell their art or coin
collections, etc. without the creditor receiving payment. If the creditor is not paid, the
purchaser may have to give up the item or pay its value to the creditor, and in addition the
debtor may be further criminally liable for selling property that was subject to the lien. In
some states such as Florida a personal property lien will not extend to vehicles, which
must be levied on and seized by a separate process.
Creditors may be able to levy on a vehicle if its value in excess of any loan balance on it
exceeds the state's exemption amount (although they might also work from the federal
bankruptcy exemption amount of $3,225 if they believe you will declare bankruptcy), and
in some states they can pick up the vehicle at that point, while in other states the
Department of Motor Vehicles will send the debtor a letter demanding that the debtor
send in the title to the vehicle. In the latter case the debtor may be unable to continue to
renew the car's registration (or in the case of New Jersey, may have to do so in person),
while in a case where the creditor has a right to pick up the car, if the creditor can't find
the car the debtor may be threatened with contempt if the debtor does not give it up. In
states where personal property liens cover vehicles, a new lender can in some cases get
burned by an old lien: if a debtor with an existing personal property lien buys a car on
credit, the old lienholder has priority over the new and can seize it and sell the car,
leaving the new auto lender with an unsecured debt owed by a pedestrian.
Finally, to help the creditor find these assets, the debtor is subject to discovery in aid of
execution. A creditor can send the debtor interrogatories and a request for production of
records (including tax returns), often on a standard form promulgated by the court, and
the debtor must tell the creditor what assets he or she has and where they are, as well as
provide things like bank statements, canceled checks and the aforementioned tax returns.
There is no right to privacy that will protect the debtor from divulging all. Although some
property may be exempt from execution or levy and certain types of trusts may be
entirely untouchable, the debtor still must make the disclosure--refusal to go under oath
may be punished as contempt, and lying about material facts when questioned under oath
is perjury, also unresponsiveness while under oath may also be subject to the court's
contempt powers. If the creditor isn't satisfied with what the debtor provides, the debtor
may be brought in for a deposition to further explain his or her financial picture.
Although the debtor must be truthful, the debtor need not answer questions that are not
asked and what the debtor does tomorrow with an asset not yet liened that is disclosed to
the creditor today will typically not subject the debtor to consequences. Thus, the debtor
may make his next stop after attending the deposition his bank, where he can withdraw
his money and close his account.
14
http://www.alperlaw.com/constitutional_protection.html
6
Chapter 2 -- Settlement Strategy

"When a man knows he is to be hanged in a fortnight it concentrates his mind wonderfully." - Samuel
Johnson
"I was only ruined twice. Once when I lost a lawsuit, and once when I won." – Voltaire
“A bad settlement is better than a good lawsuit” – legal adage
Action Items: Prioritize the debts that are showing on your credit report, and settle, backburner or omit
them according to their characteristics.
Now that you understand who the players are and how the game works, you need to focus
on the situation you face and what you might do about it. Your first task will be to focus
on what is truly your debt and what isn't. One of the distressing trends of the last few
years is identity theft. Whether it is something that started when you applied for an auto
loan, or something your own family did to you, it's still your problem. One unfortunate
result of having your debt in the hands of collectors is that many collectors hire anyone to
work the phones, and in some cases those folks will steal your identity because your
credit (damaged as it is) is better than theirs. The good news is that FACTA15 (the 2003
revision to the FCRA16) provides you tools to fight identity theft situations. But when you
have problem debt of your own those bad marks on your credit that aren’t yours may
actually be helping you, so you may want to save them until last.
Step 1 - Assessment
Identify each and every tradeline (TL) on your credit reports, and determine where it
originated. In many cases, a CA will be on the report (but not currently reporting) even
though they are no longer working the debt. For each defaulted debt, there should be an
OC TL (either currently reporting or with a charge-off date unless the TL is more than
7.5 years past default), and perhaps also a TL for one or more JDBs who purchased the
debt. Debts seldom report entirely properly, so although a single debt can appear
legitimately a maximum of twice (once for the OC that charged it off, which should show
a zero balance, and once for a CA or JDB that is collecting on the debt), it may appear
again and again and again. Once credit repair becomes your goal (when all significant
TLs are settled or SOL), you will want to review those TLs again for purposes of
prioritizing the order in which you will be attempting to dispute them away. For right
now, you are just going to learn what is what. One important clue will be the section of
the report that discloses the hard and soft pulls. CAs and JDBs that are no longer
associated with an account will not be pulling credit on you anymore once they have been
taken off the case or have sold the account. You should try to determine which TL is
associated with each and every pull that is not coded as a promotional pull. You may find
one or more JDBs or CAs pulling hard and frequently. This is termed poisoning, and its
intent is to suppress your credit score. While you still have defaulted debt, do not worry
15
http://en.wikipedia.org/wiki/Fair_and_Accurate_Credit_Transactions_Act
16
http://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act
8
legitimate TLs (in cases where the relative applied for and received credit properly in
their own name), and cases of outright mistaken identity where an individual has a
similar name and/or birth date. If you do not have defaulted debt of your own, you can
attack any and all of them as part of your credit repair process—and this is the wrong
book for you. Since this book is about resolving serious debt problems, the safest thing to
do is to leave any bad TLs that are not yours on your credit report. Conversely, good TLs
that don't actually belong to you may complicate your settlement process (because
creditors want you to take cash advances on other cards to pay the debts you owe them),
so you want to remove yourself as an authorized user if necessary and dispute them away
as soon as possible (and prior to entering into any negotiations). It may seem
counterintuitive to dispute away good TLs, but try explaining to a collector that you do
not have a visa card with a $10,000 limit and a zero balance to which you could balance
transfer a debt when it says that right on your report!
Step 3 – Remove Stale Accounts
Put the accounts that are out of SOL into a stack that you will pursue aggressively when
the time is right. While you still owe creditors who are within SOL the time is not right to
try to dispute away those accounts. Allowing them to continue to appear on your credit
reports makes you look more destitute, and will allow your negotiations to settle the
accounts that are within the SOL to proceed toward more favorable results. If there is a
filing fee to answer a complaint in your state (California for example), you will want to
accumulate (and segregate) savings that will allow you to pay those filing fees (if
necessary) for each SOL claim--prior to entering negotiations to pay anyone else.
Nothing could be more tragic than defaulting on a case that could have been defended
successfully for lack of a filing fee.
Step 4 – Determine Ownership and Litigiousness
Sort your TL's by who appears to own them: OC, or JDB. You will handle OCs who still
own accounts more gingerly (remembering, for instance that they are not subject to the
FDCPA's restrictions and that they can document their cases relatively easily in the event
they decide to sue), and depending on what your research shows you will prioritize the
ones whose suit threshold is exceeded by the amount owed and especially the ones who
aggressively sue. You will research at your local court clerk's office each party who owns
a debt of yours and attempt to determine whether they have a threshold amount locally
and how aggressively (and successfully) they sue. In order to work out who sues
frequently and who does not you will need to have an idea of the "market share" that each
has of the credit card or installment loan market in the case of OCs, and the relative size
of the JDBs. These are probably going to be very rough estimates on your part unless you
live in a major metropolitan area where lawsuits are frequent enough to really get a good
feel for what each creditor is doing. When you review cases brought by a particular OC
or JDB, you may also notice patterns in how they bring cases. Some will file cases in
batches when one case among the batch is close to the SOL date, others will seem to file
cases one by one when the SOL on each is 30 days away. There are creditors who will
allow single cases to go beyond SOL and either omit to file them or wait to file them until
10
want to consider at least throwing the Accord and Satisfaction Hail Mary as described in
the Chapter 5--Debtors' Secret Weapons unless your review of your state's case law
indicates that there's absolutely no point in it. If your state's courts are reputedly friendly
to JDBs (as with Virginia, which is said to accept affidavits of debt at face value
regardless of the hearsay objection), you will want to do what you can to settle with the
JDBs as well, keeping in mind the option to use the Accord and Satisfaction method with
them as well.
Creditors often balk at deleting TLs in return for payment, at least at the outset of
negotiations. In the industry it is known as credit bartering, although consumers refer to
it as pay-for-delete, or PFD. PFD is claimed by some creditors to be illegal under federal
law. It is not.17 Where it can create a problem for a creditor is that it is a PFD is a
violation of the creditor's contractual duty to furnish complete and accurate information
of their experience with a consumer to the CRA. CRAs can and do audit creditors and
collectors for compliance with their policies, and those found not to be in compliance
could be sanctioned by the CRAs, including losing access to the ability to place TLs.
Inability to place tradelines would be a serious inconvenience for an OC. For a CA or
JDB the inability to place TLs would be a death knell. Nevertheless, such a small
percentage of consumers insist on PFD and PFD is so simple to provide (creditors use an
online system called e-Oscar18 ... they must simply delete the TL and furnish a reason for
doing so by checking a box--unfortunately none of the choices include "the debtor paid
us") that you can expect some creditors and collectors to eventually cave in and agree to
PFD. Their contracts are their problem, not yours.
Some creditors will more readily agree to not update the TL and to fail to respond to any
disputes on your part. Because of the FCRA's requirements, such failure will
automatically cause the TL to be deleted after 30 days. The failure to respond can be
more easily explained as a software glitch or oversight on the creditors' part in the event
the CRA questions it during an audit. It is difficult to research the "non-response" option
on the credit-oriented Internet bulletin boards because it has not acquired a widely agreed
upon name or acronym that makes it easy to search on. In determining which creditors
will agree to it you are largely on your own. Keep in mind that it is actually a superior
option to PFD because it leaves you in control of the timing of the TL's deletion, which
may ease your negotiations with your other creditors by making them believe you are
17
While § 623 of the FCRA prohibits creditors from furnishing inaccurate information,
there is no prohibition on omitting to furnish accurate information. Additionally, since the
consumer is the only aggrieved party who could complain about the failure to furnish
accurate information, this would be a case of volenti non fit injuria even if PFD somehow
did harm a consumer. Regulations in this regard are on the way, and it is possible that
when they take their final form creditors will be further deterred from PFD:
Rebuilding America—One Credit Score at a Time
http://www.cunalendingcouncil.org/news/2866.html
Section 312 of the Fair and Accurate Credit Transactions Act; Proposed Rule
http://www.ftc.gov/os/2007/11/R611017factafrn.pdf
18
http://www.e-oscar.org/
12
will seem like the world is crashing down around them. Nobody needs to tell you that a
lot of emotions can go along with losing things that are important to you.
One of the best things you can do for yourself is understand the potential scenarios as
thoroughly as possible and appraise your situation realistically rather than allowing
circumstances to sweep you along with no hand on the tiller. Often costs and credit
damage can be minimized by selling or turning in that car before it is taken from you, or
short-selling or deeding your home to the lender in lieu of foreclosure,19 or resigning a
job you will not be able to keep because of your financial troubles before your employer
would be forced to fire you. The ability and desire to control one's circumstances is one
of the hallmarks that distinguishes humanity from animals, but so is the absence of the
animals' natural surrender reflex--humans will fight on even when it doesn't make sense
to do so. The latter can lead to damaging confrontations that could be profitably avoided
by both parties.
Reducing the costs that you might have to pay at the back end should be part of your
settlement strategy at the front end. If that means you give up some property or engage a
credit counseling service or file bankruptcy sooner rather than later, you had better focus
on doing what needs to be done.
What if I do get sued?
A lawsuit in court is the last resort of the creditor. Creditors want to collect with a phone
call or letter, they do not want to have to harass, cajole, etc. Of course they do those
things too, and when those things fail, they have the same four choices: sit, sell, settle or
sue. Considering settlement first: a creditor may be willing to accept less than is owed,
and if a debtor fully understands the implications and negotiates the amount to be paid,
the tax consequences, the credit reporting consequences and the finality of the settlement,
it may benefit both sides to do that. Or the creditor may simply sell the debt to a JDB,
who may take their crack at collecting in full before themselves being faced with the
same choices. But most OCs and JDBs will either go to court in the appropriate case or
they will sell accounts that seem lawsuit-worthy to a specialty JDB who makes it a
practice to go to court—among first-placement JDBs names like LVNV Funding, Asset
Acceptance and Portfolio Recovery are particularly frequent fliers in courtrooms across
the nation. Of course, so long as the creditor is just sitting you are not necessarily going
to do anything more than sit too.
Since this is the section about lawsuits, we'll say your opponent is pursuing the option to
sue. Once an attorney has received your file from a creditor, you will likely get a letter or
two and perhaps a series of phone calls attempting to get you to pay the debt. The first
thing that you must do is verify that you are dealing with the real thing. Collection
agencies are well known for posing as attorneys when they think they can get away with
it. Sometimes their calls and letters give the impression they are attorneys, other times
19
For instance, after a foreclosureou are locked out of getting a conforming mortgage for 5-7 years, but a
short sale would only lock you out for 2 years. http://www.loansafe.org/how-long-after-foreclosure-can-i-
purchase-a-home
14
determine whether and on what basis you continue to negotiate. Assuming the lawyer
does everything by the book, you will either receive a summons in the mail or hand
delivered by a process server or perhaps even a sheriff's deputy or other official. Your
receipt of that summons is the official moment when a clock begins to tick for you to
respond to the lawsuit, either by sending both the court and the opposing attorney an
answer and/or other motions and affirmative defenses, or by showing up in court on a
particular date.
Sometimes the filing you receive will lack a case number. That happens in states like
Minnesota and Washington that have versions of what is termed "pocket service." Don't
be fooled: if you fail to respond, you will find a default judgment entered against you. In
other states a court filing isn't official until it gets a case number. The attorney should
clearly indicate whether the complaint you receive is just a courtesy copy of something
he expects to file, but that doesn't always happen. One way to double check is to use your
local court's online docket system to verify that a case has begun. If there isn't a website
you can go to, you should also call the court clerk's office and attempt to verify what the
situation is. In New York, an Urban Justice Center study in 2006 found that in 99 percent
of a sampling of default judgments that the evidence used to obtain the judgment did not
meet the state's legal standards. Do not allow a default judgment to happen.
At this early stage of the litigation, there are a couple of attorney dirty tricks you need to
know about. One is to file in another county, perhaps one all the way across the state, and
serve you in the county where you live. If that happens, you will need to try to have the
case moved on the grounds of improper venue, or perhaps forum non conveniens, a
weaker argument used when venue is technically proper that sometimes prevails in
getting a court to transfer the case. Another dirty trick is sewer service. In short, sewer
service is the use of a disreputable process server who will provide a false return of
service and claim you were served when you weren't. Sometimes these process servers
will even obtain a detail or two about the description of your home or a physical
description of you that may or may not be accurate and may or may not have been
obtained by actually observing you or your home.
If sewer service is used, any default judgment that is obtained is presumptively valid, but
is voidable by the court upon your proper showing that there was fraud. The problem is
that you may not be believed, and in any case if the judgment creditor has already
garnished your bank account or seized your vehicle (two easy and quick ways to target
your assets without necessarily putting you under oath to reveal them) you may be
lacking in the funds needed to hire an attorney to undo such a complication. In some
states, such as Texas, creditors' lawyers also routinely attack bank accounts at the outset
of cases, rather than attempting to do so after judgment has been obtained. The states
where this happens are typically states where post-judgment remedies are weaker than
usual, resulting in the state's case law evolving to allow for tactics that states with
stronger post-judgment remedies would view as unfairly surprising.
One way to avoid a sewer service situation is to keep a watch over the online
plaintiff/defendant indexes of your own county and perhaps also any counties where you
16
works for a little extra money handling these matters for the court. In practice, the
mediator will hammer on the weaknesses of both sides' cases (assuming there are
weaknesses in both you and your opponent's cases—and that’s a pretty good bet when
there has been no dismissal or summary judgment) and attempt to cajole both into
moving closer together in reaching a final figure for an agreed lump sum or installment
settlement. If a settlement is not reached, the mediator will prepare a report, and that
report will either detail why each side was reasonable in its positions (and potentially
how the judge might resolve disputes on key factual or legal issues), or it will make clear
to the judge that one side or the other was unreasonable. You should avoid being seen as
the unreasonable party.
Don't assume that mediation is your last chance to negotiate. If you don't reach a solution
there, trial is still down the road and the creditor must continue to face the prospect that
you will continue to be difficult to collect from, will declare bankruptcy, move out of
state or even die--possibilities that are always on the table unless you either can't declare
bankruptcy or won't be able to discharge the debt. Negotiations can occur at any time
before trial, during trial or after trial, or even years down the road on a judgment the
creditor has had trouble collecting on. At each stage you want to know as best you can
where you stand and where the creditor stands from both a legal and a practical
standpoint.
Basics of Negotiation
Whether you are negotiating with an OC, a CA, a JDB or an attorney or attorney's
paralegal, there are key things to remember. One is that you are an amateur going up
against professionals. You will be disadvantaged in terms of experience. Where you are
not disadvantaged is in terms of motivation: dollars you pay will be leaving your pocket
and you need the finality of quietus with respect to the matter. For your opponent the
claim is one of a number they are working, and they might well just move along to the
next one and leave this one for another day if agreement cannot be reached. Unless you
are under oath, not everything you tell them needs to be the truth so long as it is not
obvious to them from the information they have in hand that it is clearly a lie. Your job is
to "poor mouth" yourself: you don't have money, someone other than you may be willing
to give you a little money now (but not anytime down the road), but only if you are able
to drive a hard bargain for not just the amount of money paid, but for the way the claim
will report or not report on your credit, for the tax consequences, and for the finality you
need. Your mysterious “rich uncle” has told you he wants to teach you to fix it, not just
tamp it down while leaving loose ends—and he isn’t willing to pay for anything less.
If you are going to negotiate in person you need to read up on body language because you
will need to try to control your own verbal and nonverbal "tells" as well as discern your
opponents' tells. It's a detailed subject that this book cannot hope to cover. Suffice it to
say that your nervousness or apparent coolness may be misinterpreted by your opponent
(to your advantage or disadvantage), but you should know about well-understood body
language like posture, position of hands, eye contact, teeth clenching, picking imaginary
lint from clothing, etc.
18
Chapter 3 – Bankruptcy
Don't be afraid to take a big step if one is indicated. You can't cross a chasm in two small jumps.
-- David Lloyd George, British prime minister
Never complain and never explain. -- Benjamin Disraeli, British prime minister
Morality is a private and costly luxury. -- Henry B. Adams
Action Items: Understand the Right Times to File Bankruptcy; its Consequences, What else you might do,
and Which Bankruptcy benefits are not what they used to be.
Since this is not a bankruptcy book I am not going to touch on every aspect of
bankruptcy, just give a brief overview of what it can and cannot do, and why you might
or might not want to use it at a particular time. The Bankruptcy20 process is an option for
serious debt that should neither be underestimated nor rushed into without full
understanding of its operation. In a large number of cases it will provide the debtor with
the best alternative, but in other cases it will either not provide the best result or it will
leave the debtor in a position that is not a major improvement while also depriving the
debtor of the opportunity to use it again (at a time when it might be more needed) for
many years in the future.
When you file for bankruptcy, you invoke a federal law to protect you from your
creditors. In return for that protection, you agree to make a full disclosure of what you
own, and to turn over to a bankruptcy trustee whatever you own that is not exempt so that
the non-exempt property can be sold and the proceeds distributed to creditors. The federal
bankruptcy code contains a list of exemptions. State laws also have exemptions from
creditors, which can be invoked without declaring bankruptcy. Some state laws also
allow (or even mandate) that state law exemptions be used in place of the federal
bankruptcy exemptions in bankruptcy court. If you make the proper disclosures and turn
over the requisite property, the bankruptcy court will discharge (wipe out) some or all of
your debt (some debts cannot be discharged in bankruptcy at all, other debts may or may
not be discharged depending on certain factors, while discharge of some other types of
debt such as credit card debt requires you to complete a Chapter 13 plan rather than a
Chapter 7 liquidation). If the judge in bankruptcy court decides that you have not
complied with your duties, you will be denied a discharge and your bankruptcy case will
be dismissed, with the result that your creditors will come after you just as hard as before
if not harder. Your bankruptcy discharge could also be revoked within the first year (this
happens when you fail to comply with a post-discharge condition placed by the trustee--
for instance, you might be required to turn over your tax refund). You could even be
prosecuted for bankruptcy fraud (and this can happen even after a discharge has seasoned
for a year—the laws were written with the understanding that fraud is a crime of hidden
falsehood, and statutes of limitations on it don’t begin to run until it is discovered or
should have been discovered). The debtor who goes through bankruptcy and re-emerges
20
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States
20
stage bankruptcy is advisable when your financial circumstances have drastically and
suddenly changed for the worse even though you have always paid your bills on time and
expect to be able to do so again for the foreseeable future once you shed some debt you
did not anticipate. The financial challenge may be a sudden and very expensive illness
from which you quickly recover, or a discovery of toxic waste you didn't put there on a
piece of property you own, or the sudden collapse of a customer who was indispensable
to your business. No matter what the circumstance, if you expect it to be crushing but
temporary, early stage bankruptcy allows you to emerge with a reasonably good credit
rating, and it should only be considered if it will be filed before your credit is seriously
damaged. Freed of obligations you could not perform in any case, the idea is for you be
able to pursue opportunities in the future without being concerned about specters of past
issues returning to haunt you.
The second circumstance in which bankruptcy is clearly advantageous is emergent stage

bankruptcy. Bankruptcy in the emergent stage would be done as you are recovering from
a long period of financial hardship. In fact, the timing and reason for the bankruptcy
would be that growth of your nonexempt assets threatened to exceed the exemptions
available for them in your state. Once assets exceed exemption amounts, creditors who
sue you may recover those assets from you in state court, or if they already have
judgments they can (in very rare cases) take you into involuntary bankruptcy23 and
recover the assets in federal bankruptcy court. Emergent-stage bankruptcy forestalls that
possibility.
The third moment when bankruptcy may be appropriate is what I term the contingency
bankruptcy. The contingency bankruptcy is undertaken when some event (such as a
garnishment or an asset seizure) occurs that you either need to see undone, or that you
simply feel will lead to an unjust result unless the proceeds of that asset or the amount
you are paying on that garnishment instead were to be distributed instead among your
creditors according to their priorities. If you learn that a rich relative is expected to die
soon and leave you a substantial amount of money, you might also want to file
bankruptcy sooner rather than after such an event occurs. You might also file a Chapter
13 to relieve a co-signer of having to pay for a debt that you were the primary obligor on,
and that would be another example of a contingency filing.
Leaving aside the moments when bankruptcy is clearly called for, you may want to
consider bankruptcy on an optional basis as a matter of planning. For instance, if your
employment or marriage prospects could hinge on you not having lingering debts,
bankruptcy may be an option to pursue at some early point instead of continuing forward
in life as things stand in the hope that the statute of limitations will expire on outstanding
debts or judgments, or that such debts or judgments will not follow you from a state you
move away from to a state you move into. Or perhaps the rich relative from the
contingency scenario isn't dying but wants to make a large gift to you. You can ask them
23
http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States -
Voluntary_versus_involuntary_bankruptcy
22
phone call) is required before filing bankruptcy. Although your bankruptcy attorney will
likely steer you to a company that can do the job, you can also find a list of approved
credit counselors on the Department of Justice’s website.26
If you are considering going bankrupt, beware the free initial consultation with an
attorney. If the decision to go bankrupt or not is at all a close one, only a thorough
analysis which includes a means test and a 22C disposable income analysis will tell the
tale. Without that the only certain thing for an over median income earner without
significant business debt is that you would be in a Chapter 13 at the minimum for 3 years
but not more than 5 years. It is also important to repeat here that if you enter the
bankruptcy process and do not complete it and obtain a discharge, your creditors will be
free to pursue you as though there had never been a bankruptcy. Former bankrupts are
also often discriminated against in the job market (although the bankruptcy code forbids
it) by using a loophole: you are denied the job not because of the fact of your bankruptcy,
but because of the accounts you included in it. It seems a distinction without a difference,
but in a right-to-work state it is enough to deny you the job. Because bankruptcy stays on
your record essentially forever27 (although it will be on your consumer credit reports for
only ten years), you may want to instead enter credit counseling, tailor your own
settlement program or duke it out with each creditor if and when necessary during the
course of the seven and a half year CRA reporting period. If you can avoid judgments
and problems caused by cascading defaults during that time, your credit can be clean at
the end.
One reason actually filing bankruptcy may not be necessary if you are truly destitute is
the bankruptcy score. You see, your creditors have access to credit scoring on you
because they hold your debt and have a right under the FCRA to check your credit
reports. One type of score they can and do purchase is a score offered by the CRAs that
predicts whether you will go bankrupt. If the score is poor enough, the creditors don't
even prioritize their claim against you for active pursuit, they just back-burner it
(becoming lurkers) and subscribe to a "collection triggers"28 type service in the hope that
somewhere down the road you will get a new job and apply for credit, or otherwise
resurface as an individual with "an improved ability to pay." In both the Chapter 4--Nasty
Surprises and Chapter 5--Debtors' Secret Weapons I describe some ways to avoid raising
your credit score (or providing other triggers) until the coast is clear to do so.
Economists have a name for omitting to file bankruptcy when you could do so: "informal
bankruptcy." The term was proposed by Amanda E. Dawsey and Lawrence M. Ausubel
of the University of Maryland and the University of North Carolina in a paper by the
same title they co-authored in 2004.29 They suggested that approximately half of the
debtors who cannot pay their debts pursue an informal bankruptcy strategy rather than a
formal bankruptcy strategy, based on their analysis of credit card charge-offs. They
26
http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm
27
Bankruptcy will always show up on PRDs, including the government’s own PACER database
(http://en.wikipedia.org/wiki/PACER_(law))
28
http://www.experian.com/products/collection_triggers.html
29
http://www.ausubel.com/creditcard-papers/informal-bankruptcy.pdf
24
they can collect. The collectors pursue traditional phone and mail strategies, credit
reporting strategies or both--any of which are improper. The nub of the controversy is
that once you have gone bankrupt, any of your creditors whose debts were discharged are
legally required to list those debts as "included (discharged) in bankruptcy" ("IIB") when
they report to the credit bureaus (if they continue to report at all). However, one of the
hidden pitfalls for those who go bankrupt is the Junk Debt Buyer or Original Creditor
who refuses to report correctly. For some debtors, the misreporting will motivate them to
reaffirm debt in order to settle with the debt's new owner. That's exactly what the junk
debt buyers want.
As mentioned above, there is a ready market for the debt of individuals who have been
discharged in bankruptcy. Keep in mind that this debt is theoretically worthless. Because
the debt is no longer owned by the original creditor with whom the debtor might want to
renew a relationship, the likelihood that a debtor would want to reaffirm the debt or
otherwise pay a settlement should be practically nil. Maybe one debtor in a thousand
would have a change in fortune for the better and feel some moral obligation to make
good on the debt with a third party who had purchased the debt for a pittance knowing
full well it was that of a bankrupt individual. So how do these buyers intend to get paid?
It's a fair question, since the creditors have absolutely no legal leverage. The only
possible answer is that these buyers intend improperly and illegally to use some practical
tactic, such as false credit reporting to effect a circumvention of the protections that
bankruptcy was intended to provide. The aforementioned article described how the most
well known business that provides a marketplace for buying and selling defaulted debt
promised that it would no longer facilitate such transactions. Presumably the low value of
the portfolios involved and the inescapable inference that any value at all reflected only
what could be obtained by improper means drove the market-maker's decision to break its
association with that shadowy corner of the industry.
Nonetheless, unless and until states (and/or the federal government) outlaw the practice,
the disreputable JDBs and the major creditors looking to unload bankruptcy accounts will
continue to find each other, and the collectors will continue to improperly pursue the
former debtors. Former debtors facing such tactics can go back to bankruptcy court and
ask the judge to stop the creditors from violating their discharge. The good news for the
debtors is that courts will fine the creditors and award the debtors their attorneys' fees in
the cases. Where the debtors have felt compelled to pay up by improper pressure (such as
where a lurking strategy on the part of a JDB has allowed it to pounce and disrupt a home
purchase), the court will also order the money paid by the former debtor to be returned.
However, most former debtors don't understand their rights or fail to pursue them, and
some overworked or unhelpful bankruptcy lawyers won't give their clients' post-
discharge matters the attention they deserve, even where there is money to be made for
the attorney.
It is important to realize that the FDCPA provides debtors with some protections that are
similar to the permanent injunction that bankruptcy gives, but the protections are not
enforced in the no-nonsense atmosphere of bankruptcy court and statutory damages are
26
creditor who filed an involuntary petition and then couldn’t locate the debtor to move
the case forward.
Although it can often be shown that an involuntary bankruptcy attack was improper,
there is also an interesting though ultimately unavailing argument that has been made
when creditors forced some individuals into involuntary bankruptcy. Under BAPCPA,
the bankruptcy courts have been deprived of the jurisdiction to even hear the
bankruptcy case of a debtor who has not completed the required financial counseling.
Interestingly, the law contained a glitch inasmuch as it did not account for the case of
an involuntarily bankrupt person, who conceivably could have used their unwillingness
to obtain credit counseling as a means to deprive the bankruptcy court of jurisdiction
over them. Commentators speculated that in the appropriate case bankruptcy courts
would simply ignore the mandate (or would order the debtor to obtain the counseling
and use their contempt powers to see that the mandate is carried out), and so far they
have been right. What courts have done is refused to read the two statutory sections to
reach what they considered to be an absurd result, instead excusing the counseling
requirement.34 As I mentioned before, bankruptcy courts are no-nonsense places.
Bankruptcy has its place, but so do other techniques of resolving debt problems, and
bankruptcy is a card that the debtor does not need to play unless and until its strategic
advantage is clear. The bottom line is that bankruptcy is a tool that is mostly for the
direst of emergencies, and nobody should enter into it without a careful analysis of its
potential consequences. In general if you understand your financial picture you will
have certainty that you either need it or you don't. If you don't need it, you typically
will know whether you want it or not, and you will know why you want it. If you do not
feel certainty, it is not the time to move forward.
34
In Re Sims, 08-41668 (Bankr. D. Kan. Jan. 7, 2009) Doc. # 20
http://www.ksb.uscourts.gov/images/ksb_opinions/JMK_08-41668-20.pdf
28
Re-aging
Under the Fair Credit Reporting Act (FCRA), every delinquent credit account has a
Date of Last Activity (DOLA). This date is 180 days after the last payment that brought
the account current before the last default that was never caught up again (which is
called the "Date of First Delinquency" or DOFD). Theoretically, the DOLA sets an
absolute bar to the reporting of a particular tradeline past seven and one half years from
the date it became a bad debt (although a separate public record tradeline may appear if
the debt has been successfully sued upon). However as a practical matter, the DOLA is
often shifted by original creditors without justification, and likewise collection agencies
and junk debt buyers (JDBs) seem to have no qualms about improperly setting it to the
date they received the account from another party, or in fact to any date they please.35
Your key defense to re-aging is to keep meticulous records, even when things you
would rather not be reminded of come into play. If you can prove what the DOLA
should be listed as, you can compel the CRAs (in court if necessary) to correct or
remove any negative tradeline with an erroneous DOLA. If you can prove that a
creditor manipulated the DOLA to keep the tradeline appearing on your reports past the
point of obsolescence, you have them on an FDCPA violation; and you are entitled to
sue them for money.
Re-aging in the context that it was just used is actually a secondary meaning of the
term, but it is the most common term used for this particular collector abuse. The other
re-aging is actually a good thing, and it refers to a creditor’s decision to return a
defaulted account to good standing under the FDIC’s Rule 5000 regarding debt
classification when the defaulting debtor has again been making regular payments. It is
similar to rehabilitation36 for student loans, however the key difference is that while
student loans can always be rehabilitated no matter how many prior rehabilitation
attempts have failed,37 there are limits on how many times and how often a bank can re-
age other types of defaulted debt.
Renumbering
Accounts appear on credit reports with account numbers. Once an account has become
obsolete, the CRAs won’t report an account with that number from that creditor. Does
that stop every creditor from reporting? Of course not, because all the unscrupulous
creditor needs to do is change the account number and the account can be placed on
your reports again. Is there a way to stop this? There is, but only if you have kept good
records.
35
‘Zombie’ Debt is Hard to Kill
http://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/ZombieDebtCollectorsDigUpYourOld
Mistakes.aspx
36
http://www.ed.gov/offices/OSFAP/DCS/rehabilitation.html
37
Caveat: Student loan rehabilitation depends on the availability of a market for the rehabilitated loan, and
the financial crisis has dried up that market for the moment.
http://www.reuters.com/article/pressRelease/idUS118892+09-Mar-2009+MW20090309
30
tradelines will appear to other creditors, and what those other creditors might do. In a
situation where there is a debt that is close to the statute of limitations that is not being
paid off, the debtor might want to either hold off on settling any other account that is
within the statute of limitations until the account that is not being settled reaches expiry,
or settle the non-expiring account only if it can be deleted from the credit reports rather
than being reported as settled (or if the creditor agrees not to update the TL and that it
will not respond to any CRA disputes it receives--such an agreement leaves you
effectively in control of the TL's eventual disappearance, but in the meantime you can
leave it there to discourage other creditors). If it is necessary for the account to report as
settled, the debtor may be safer foregoing negotiating for the best possible notation,
preferring instead to have the account show clearly on the report that it was settled for
less than was owed.
An account settled for full payment that reflects such a fact on the tradeline acts as a
dinner bell for other creditors (the concept is similar to the schoolteacher who asks a
child caught chewing gum whether he brought enough for everyone—if you don’t have
enough money for everyone, it isn’t safe to be spied settling with anyone—especially at
100 cents on the dollar). Deletion of a tradeline is not such a dinner bell, although if the
consumer’s score is substantially improved by the deletion the consumer may cross a
threshold that leads to increased collection activity by one or more other creditors. And
for the debtor who still has other debt problems, the ideal would be to have the TL not
update, but with an agreement with the creditor that they would not respond to any
disputes you might make with the CRAs—which leaves the timing of the TL’s deletion
in your hands. Think of it this way: say you see five people standing by the rail on a
fishing pier and you are trying to decide whether to drop your hook into the water. If
one of the people is hauling in a fish, you may conclude the fish are biting, but if
suddenly one goes away and there are only four people standing there any motivation
that you had to go fishing would be by virtue of the rail being less crowded, not the fact
that the fish are biting--and if the fifth one was just a realistic dummy still standing
there but the real fisherman was gone (along with his fish), you might never notice that
there would now be room at the rail for you. Celebrities, major corporations and
wealthy people keep the details of cases they settle secret,38 and you should try to do so
as well--at least until all of your problems have been tackled.
The second scenario for lurking occurs when the debtor intends to buy a home. Since
the passage of the FCRA in 1970, creditors no longer have the advantage of having
tradelines that are over seven years old showing up on reports, and they typically don’t
have the right to go to court on those accounts (or rather, their right is easily defeated
by the statute of limitations defense), but that doesn’t stop them. They order lists of hot
prospects for mortgages (which are typically generated based on drawing from a list of
those individuals who have had their credit pulled by a potential mortgage lender) from
the CRAs and match them against their lists of debtors. When they make a match,
whatever moldy old accounts they have get spanking new account numbers and phony,
reaged DOLAs and they’re dropped onto the debtor’s reports.
38
The Confidential Settlement http://www.attorneys-usa.com/settlement/confidential.html
32
debts and judgments. In short, Choicepoint has a solution in mind that it would like to
sell to lenders, and the study was produced as a tool to sell it.
What Choicepoint wants lenders to do is vet you using their public record reports in
addition to the usual tri-merge, either during the application process or perhaps on a
spot-check basis with respect to particular mortgage brokers as a way to make sure the
brokers are making adequate efforts to ferret out the things that might not show up on
credit reports and might not be put on applications by homebuyers. The fact is that title
companies will only be looking for liens that could keep a mortgage lender from
being the first lien holder on a borrower's home. The ordinary credit report (not the
RMCR, or "full factual", which is available for mortgages over $150,000 but
customarily has not been used often) will only go back seven years. For any particular
borrower there could easily be debts and judgments not showing up that the lender
won't know about without more detailed and searching reports.
While the FBI currently lacks the resources to pursue "fraud for land"41 cases (where
the mortgage applicant is simply hiding the fact that they are unqualified) and can only
pursue "fraud for money" cases (where the fraudsters are acting in an organized way to
exploit weaknesses in the system and leave banks holding properties worth much less
than was apparent), state prosecutors can and will pursue these cases where appropriate,
and the lender also has the right to make the loan immediately due and payable
("accelerate" the loan) so that you can be foreclosed on if you can't come up with all the
cash right away.
The bottom line is that anything you owe that for some reason isn't appearing in the
usual places that lenders look does not give license to omit that item from a form 1003
mortgage application (except for out-of-statute debts incurred in Wisconsin and
Mississippi). In one case, a new homeowner had somehow even managed to get a
mortgage with an unexpired judgment hanging over his head. The judgment should
have appeared on the credit report but did not, and the title company did not pick it up.
What happened next? A major creditors' law firm in his state suddenly sent an
information subpoena to the mortgage lender, evidently looking for the asset disclosure
on the mortgage application so that the judgment creditor could attach a bank or
brokerage account. Not only was the creditor able to look into an asset declaration that
wasn't made under threat of seizure (which meant that it was much more likely to be
fully accurate, if not optimistic), but also the mortgage lender was essentially on notice
at that point that the borrower had defrauded it during the underwriting process,
perhaps leading to the use of the aforementioned acceleration clause.
Although large JDBs have spent millions on their own internal data mining42
capabilities, now even the smaller fry have access to the same kind of processing power
on a pay-as-you-go basis. Experian markets a service called "Collection Triggers" to
collectors, and TransUnion calls theirs "Triggers for Collection." Essentially when
41
http://articles.latimes.com/2008/aug/25/business/fi-mortgagefraud25
42
http://en.wikipedia.org/wiki/Data_mining
34
Local Lawsuits, Sewer Service, Affirmative Defenses and Presuit or Prejudgment

Attachment
Lawsuits are treated more fully in Chapter 6--Court, however a few of the more
surprising issues and issues that require you to pay strict attention to what you are doing
are also covered here.
Creditors who have exhausted all other collection possibilities can sue you for their
money. You need to understand what it means to be sued, and what you can do to fight
back. A lawsuit begins when a complaint is filed with the court (exception: states like
Minnesota and Washington have pocket service,44 which permits an attorney to serve a
complaint on a debtor but pay no filing fee and get no case number--regardless of that,
if the debtor does not answer the attorney can then file the case and get a default
judgment). Once the lawsuit is filed, you must either appear at a pretrial hearing (for
small claims cases) or file a formal answer (which may need to be sworn in some cases)
and affirmative defenses unless you are filing instead a motion to dismiss or another
type of motion that comes before the answer.
Affirmative defenses45 are claims on your part that say "yes but" to their case, even
assuming it is provable on their part. The most frequently used affirmative defense with
respect to consumer debt is the Statute of Limitations defense, which takes advantage
of state law that limits the number of years the creditor can wait before filing the case.
Other affirmative defenses include unconscionability46 (a legal doctrine that will
invalidate certain provisions of an agreement or even the entire agreement if it shocks
the conscience of the court in its one-sidedness), accord and satisfaction, waiver,
violation of public policy and dozens of others. If you do not plead an affirmative
defense even though it is available to you, you lose it automatically—courts only
occasionally will notice on their own that one could have been plead and then rule in
favor of you sua sponte (Latin for “on its own”).
Creditors' attorneys often win default judgments because of sewer service, which is
simply a term for a fraudulent return of service by a process server. Process servers are
supposed to find the defendant and personally serve him or her (or someone in
the defendant's household over a certain age) with the lawsuit. In some cases, states
permit methods of service that are not guaranteed to provide actual notice of the
lawsuit to the debtor. These kinds of service are often termed nail and mail, meaning
the process server needs to affix a copy of the complaint to the defendant's door and
mail a copy as well. In small claims, service can often be effected by certified mail,
return receipt requested.
Sewer service is surprisingly common. In July, 2009 the New York Attorney General
filed a lawsuit seeking to have the New York court system statewide throw out an
44
http://caveatemptorblog.com/pocket-service-and-pre-judgment-garnishment/
45
http://en.wikipedia.org/wiki/Affirmative_defense
46
http://en.wikipedia.org/wiki/Unconscionability
36
Arbitration
Many credit card accounts now contain an arbitration49 clause. This clause basically
allows the creditor to bypass the court system for purposes of assigning liability and
damages, returning to it only for purposes of enforcing the findings of an arbitrator.
This system favors the creditor at the expense of the debtor. In most cases, the debtor
will be denied the opportunity to mount a meaningful defense in an arbitration
proceeding, and in some states the arbitrators may not even have to recognize the
statute of limitations defense. If an arbitrator enters an arbitration award, a debtor
typically has ninety days to file a lawsuit against the creditor in order to overturn the
arbitration award.50 If the debtor fails to do this and the arbitration award is confirmed
by a court, the creditor then has the ability to quickly get a real, enforceable court
judgment and may pursue all post-judgment remedies in order to get paid.
In the event you are haled into arbitration, you may choose to file a written response,
and the arbitration may take place based on the documentation that you provided
without a hearing, or there may be a hearing held which you are permitted to attend
telephonically. Some states restrict the use of arbitration, and if you are a resident of a
state that has done so it may make sense for you to file a refusal to arbitrate with the
arbitrators. In many cases this will trigger a lawsuit, so don’t assume that refusing to
arbitrate will end the dispute.
If a credit card agreement contains an arbitration clause, it typically allows either party
to invoke it when a dispute arises. In the event you are sued by a creditor and you
determine that the attorney is a very effective one and the court is one where you do not
anticipate achieving success in your defense, you may want to consider invoking the
arbitration clause at the outset of the litigation in order to shunt the proceedings into a
forum where you may have a better chance of a successful defense. Because arbitration
proceedings typically are very quick from start to finish, you probably do not want to
do this if delaying the case is your goal. Any delay you achieve will only be
momentary, and will probably be less delay than if you left the lawsuit on track.
Despite this, there are anecdotal reports from Wisconsin that demanding arbitration will
stop a debt case cold due to the fact that existing case law in the state makes it almost
impossible to confirm an arbitration award because arbitration does not conform to the
unwaivable Wisconsin Consumer Act. You may want to look into whether your state
has similar protections and precedent.
Additionally, there is little agreement nationwide with respect to whether the statute of
limitations must be respected in arbitration. In a case that you can fight in court on
statute of limitations grounds you may want to stay out of arbitration for that reason
alone.
49
http://en.wikipedia.org/wiki/Arbitration
50
http://www.law.upenn.edu/bll/archives/ulc/uarba/arbitrat1213.htm
38
court and seek to vacate an improperly entered default judgment. Bear in mind that in
cases of improper service, that time limit doesn't begin to tick, if it ticks at all, until you
find out (or reasonably should have found out) that you have a judgment against you.
If a distant judgment is obtained, or if you move out of state after a judgment is

rendered against you, the creditor must use additional legal measures to enforce that
judgment in the state where you now reside. That enforcement mechanism is typically
the Uniform Enforcement of Foreign Judgments Act (UEFJA).54 Versions of the act are
on the books in all states except California, Indiana, Massachusetts, and Vermont. In
California foreign judgments are subject to the Uniform Foreign Money-Judgments
Recognition Act. In New York the procedure is to file a "Motion in Lieu of Complaint"
based on the foreign judgment. In all states a creditor may instead choose to file a
domestication action, which is an older, less streamlined procedure that will
nevertheless result in the foreign judgment having validity in your state. Because the
UEFJA was designed primarily to aid in collecting child support, collection attorneys in
consumer cases were somewhat behind the times in focusing on what it could do for
them. They also make less use of it than they could because when a case crosses state
lines it typically means that another attorney will have to work it. Attorneys can be
reluctant to make choices that will result in splitting their fees with another attorney
even where the result of failing to do so is that both attorneys collect nothing. Note that
this is not the case where law firms have grown into (or acquired) firms in other states
(or are enthusiastic members of multi-state networks). A multi-state, regional, or
nationwide law firm can be very dangerous to you. Thankfully there are not many of
them, and they can afford to be very selective in pursuing only the larger cases with the
best chance of collection.
The UEFJA provides safeguards against invalid foreign judgments being domesticated
to your state. A judgment debtor has a defense against a foreign judgment in situations
where the distant court was not impartial, did not provide due process, lacked personal
jurisdiction or subject matter jurisdiction, did not provide sufficient advance notice for
the debtor to appear and defend, was fraudulent, was against the public policy of the
debtor's state, where the judgment conflicts with another judgment, where the judgment
is contrary to an existing settlement agreement, where the distant court was a seriously
inconvenient place to appear and defend, or where the judgment is an attempt to
enforce the tax laws of the foreign state. It is also possible that the foreign judgment is
too old to enforce in your current state of residence, either under the laws of the foreign
state or the laws of your current state. But if you receive notice that a judgment is being
domesticated to your state under the UEFJA, it is up to you to file opposing papers and
make your case that the terms of the UEFJA do not allow the domestication.
A key misuse of the UEFJA is to take a judgment rendered in a state where wages
cannot be garnished against a resident of that state and file it in a distant state where the
debtor has never set foot. Why would a creditor do such a thing? Because the debtor
works for an employer who also has a presence in that distant state, and that distant
54
http://en.wikipedia.org/wiki/Enforcement_of_foreign_judgments
40
In some states a simple acknowledgement of the debt will overcome the SOL defense,
and in those states (and other states too), consumer unfriendly judges often browbeat
debtors into making that acknowledgement and giving up their rights by glowering at
them while asking: "This is your debt, isn't it?" You don't have a Fifth Amendment
right to refuse to answer because that right would only apply if your liberty were at
stake. It would be perjury to say "no" while knowing the true answer would be "yes."
Even if you believe the correct answer is "no" you might want to avoid saying so in a
direct manner because you might not be believed or you might in fact be mistaken A
strong "no" may simply not be enough, and you want to avoid a back-and-forth with the
judge if possible. He is the "trier of fact" just as a jury would be, and he doesn't have to
believe you. A more nuanced answer would be something similar to "I'm not willing to
swear that something that was defaulted on X number of years ago is or isn't mine, but I
do maintain that even if it were mine it would be beyond the statute of limitations." It's
long-winded, and a snappish judge might cut you off, but it's your best option. Judges,
however, aren't your only worry when using the statute of limitations.
Creditors react to the statutes of limitations the same way a running back reacts to a
defensive player between him and the goal line. They are going to try to run over the
obstacle or around it because it's between them and getting paid. Seldom will you find a
collector just giving up when the debtor says the account is too old or a creditor's
attorney bringing an out-of-statute case to court without at least some colorable fact or
argument to try to make the debtor believe they can convince the court of something
that will defeat the debtor's potential statute of limitations affirmative defense. What
can defeat the debtor's claim? That is a matter for statutes and for case law to
determine.
One of the most popular limitations-busting tools is the "courtesy payment" or

"phantom payment." The first type of payment is a payment actually made by the
debtor. The creditor calls up the debtor and in the course of the conversation cadges a
small "good faith" payment, say between $5 and $50. In many states this sort of
payment can temporarily toll--or better yet for the creditor--restart the statute of
limitations clock. In other cases, the creditor has no contact with the debtor, so the
creditor must put a phantom payment on the books. This can be as simple as a
fraudulent accounting entry, or it may take the form of a more elaborate ruse: one
collection agent was found to have been trotting down to the corner convenience store
for small money orders and mailing them to his own business in debtors’ names.
In an effort to head off activities like these, some states’ case law specifically requires
that payments be made or ratified by the debtor.58 Other state laws do not toll the statute
unless a payment goes toward principal or interest on the debt ... and for debts with
plenty of penalties as part of their balances, a payment would need to be quite large in
order to zero out the fee and penalty category and reach interest, let alone principal--
58
The Law Of Contracts", by William Herbert Page Sec 1692 By Whom Part Payment May Be Made
http://chestofbooks.com/business/law/Law-Of-Contracts-4-3/Sec-1692-By-Whom-Part-Payment-May-Be-
Made.html
42
courtrooms. And even if the judge is open-minded and accepts the SOL defense,
victory on that issue can be pyhrric because of the potential tax consequences.
Due to the application of federal tax laws, using the statute of limitations is not a good
choice to defeat a claim if there are other choices (mainly failure of documentation)
available to because it's likely to be costly in federal taxes. In 2006 the JDBs fought
having to issue IRS forms 1099-c and lost to the IRS in a case called Debt Buyers
Association v. Snow.60 This matters to you because the IRS now expects that anytime a
JDB (or an OC) abandons pursuit of a debt they will be required to send a 1099-c form
forgiving the debt to the debtor within 36 months of their last collection efforts. The
form will require the debtor to take the amount of the debt (as stated by the JDB,
accurate or not) into the debtor's income and pay income tax on it at the debtor's
marginal rate. The debtor will not be able to avoid the imputed income unless a form
982 calculation reduces or eliminates it. Form 982 basically requires the debtor to be
qualified to file a Chapter 7 bankruptcy. If a debtor fights a debt with a JDB on the
grounds that the JDB cannot document the debt rather than on statute of limitations
grounds, the JDB may be deterred from filing a form 1099-c because of the doubt over
the validity of the debt. If a form 1099-c is filed, the debtor can attach evidence of
attempts to obtain validation of the debts along with an explanatory letter disputing the
validity to the debtor’s 1040 form as grounds for refusing to take the item into income.
It may seem odd that an old, burned-out debt can cause you to have to recognize
income and pay tax in some future year (and if the debt changes hands four times, that
future year could be as much as 12 years from the charge-off date). However, it is a
time-honored tax law principle that money you receive as a loan is not income and that
in the event you somehow successfully omit to pay it back it becomes income the
moment you clearly are not going to pay it back. That event might never happen in your
mind, so the IRS uses a more objective standard for when you must recognize the
income: the creditors' issuance of a form 1099-c. And the IRS requires that form to be
issued when any of a number of specified events happen, such as a win by the debtor on
SOL grounds--or in fact on any grounds, but victory on the SOL essentially admits the
existence of the debt, while fighting on documentation does not necessarily indicate
such an admission, and that fact might well be enough to allow you to avoid the
imputation of income.
Some JDBs, particularly the smaller ones, do not routinely issue forms 1099-c despite
the IRS requirement that they do so. Larger JDBs are well equipped to shoulder the
administrative burden of printing and mailing the forms, and since they hold large
blocks of debt, they are a focus for the IRS in gaining compliance; while the small fry
to whom debts typically ultimately devolve are not so important to the IRS. That means
that it is possible that you will never get a form 1099-c unless you inadvertently ask for
it. Smaller JDBs sometimes chatter to one another on the Internet about sending forms
1099-c on a retaliatory basis when a debtor responds to their dunning by claiming the
statute of limitations defense. Your best choice may be to make no response at all if you
60
DEBT BUYERS' ASSOCIATION v. SNOW [Civil Action No. 06-101 (CKK) January 30, 2006]
http://www.ltclg.com/images/dba-opinion.pdf
44
states. The statute of limitations for a contract under seal can be 10, 12, 16 even 20
years. Delaware has no statute of limitations at all for certain documents under seal.
A debtor needs to know whether the contract was signed under the laws of a state
where contracts under seal are a concept that extends the Statute of Limitations, and
needs to know whether the contract was indeed signed under seal. But even if a very
old debt is under seal, there is a concept in the law that may help even where the claim
is technically still within the statute of limitations, and that concept is called laches.
Laches is an equitable principle in the law that says that the plaintiff waited too long. In
certain cases, it can apply even when the statute of limitations has not run because the
debtor was induced by the creditor’s laxity to fail to address the debt. If you haven’t
heard from a creditor in years and years before they sue you (or even try to enforce an
old judgment that is still technically valid), laches may apply.
Trojan Checks
Creditors with judgments (or those contemplating suing) typically would like to know
where the debtor banks. Often they already have this information because they were
paid from that account. But sometimes it has been years since they were last paid, or
the debtor has moved. In either case, the debtor’s banking relationship has likely
changed during the interim. There are a number of ways to find out where someone
banks. One of the easiest is the “Trojan Check.”63 The Trojan check is a small check
the collector causes to be sent to the debtor. It could be as much as $50, but other
collectors boast of having habitually used checks as small as $1.55. The check may say
it’s a refund of an overpayment, or it might say it’s a settlement in a class action, or it
might purport to be a rebate on some merchandise. Sometimes the collector sends the
check directly from its own accounts, but more often the check is either from the
account of an innocuously-named shell corporation formed by the collector just for the
purpose of issuing such checks, or it is from a third-party investigative service that the
collector has hired to send Trojan checks to a few hundred or a few thousand debtors.
Arguably the use of such checks violates the Gramm-Leach-Bliley Act. Unfortunately,
the Act doesn't provide the consumer with any easy way to enforce it against the
violator. The bottom line is that it is a bad practice to deposit any check from a
questionable source. It is also a bad practice to pay anyone with a check unless there is
certainty who they are and what they’re all about—your check is even better than their
check in telling them where you bank.
Pretexting and Tattletale Insiders
Also relevant to issues regarding bank accounts, but really a problem that can come up
in many different situations is that of pretexting. One of the simplest means of finding
something out is to ask. Investigators have asked questions for as long as there have
63
Statement by Robert Douglas before the Committee on Banking and Financial Services
United States House of Representatives Hearing On Identity Theft and Related
Financial Privacy Issues September 13, 2000 http://financialservices.house.gov/banking/91300dou.htm
46
take the bait, particularly if the survey is related to banking and credit
habits. Investigators posing as survey-takers have been known to show up at the door of
the target of the investigation with a bouquet of flowers and a valentine's day teddy
bear to ask how and when a couple got together because it was material to an
investigation.65 A policy of not dealing with survey takers and solicitors is the safest,
whether you are a debtor or not. Friends, neighbors and relatives who were entrusted
with information that could be damaging should also be alerted to the possibility that
they might be rused.
As distressing as the threat of pretexting can be, the thought that a trusted business
would sell a customer out is even more distressing. But it's true. Insiders at banks have
been caught selling information about the banks' customers to collectors and have gone
to jail over it.66 This happens more with larger banks since their insiders can provide
larger lists and that makes their crimes profitable to commit when compared to what a
small-bank insider could expect to receive. It also happens with telephone companies
and even the government.
When the money involved gets large enough, the investigators’ behavior gets really
outrageous. The "Private Investigator to the Stars” Anthony Pellicano67 was tried for
having corrupt insiders working for him not just at businesses but at the police
department as well. Conducting his own defense, he painted himself as a "problem
solver" for his clients, but federal agents had found explosives and illegal wiretapping
evidence in his safe, and his computer passwords included the word "omerta,” a
mafioso term for their code of silence sworn on pain of death. The case against him
began when a reporter tracking a controversial story involving actor Steven Seagall
found a rose, a dead fish and a note that said, "Stop" on the windshield of her parked
car. Investigators may have moved from the seedy offices seen in 1930s detective
movies into gleaming towers in suburban office parks, but they haven't changed how
far they will go to satisfy a client, and for most of them that's well beyond what the law
allows. Pretexting is often the most benign abuse they commit.
Accidentally Becoming a “Ghost”
This topic is a shift of gears because I’m describing a nasty surprise you cause to
yourself. Although this book is not about credit repair (and credit repair should not be
undertaken until all serious defaulted debt issues have been disposed of), a brief note on
a potential nasty surprise that can result from the settlement process is appropriate here.
Consumers intent on repairing their credit need to be aware that one of the dangers of
overdoing PFD or confidentiality agreements is “ghosthood.” It is possible that if the
consumer successfully eliminates negative tradelines, he will be left with no tradelines
at all. While some creditors will lend to people with bad credit, there are many who will
not extend any credit whatsoever to those over a certain age who have no tradelines at
all showing. And even if a ghost can find a creditor who will lend, the ghost will be
65
http://www.sptimes.com/2007/02/14/Tampabay/Tell_tale_heart_unrav.shtml
66
Massive bank security breach uncovered in N.J. http://www.msnbc.msn.com/id/7670774/
67
http://en.wikipedia.org/wiki/Anthony_Pellicano
48
avoided because they can lower the credit score severely and lead to account actions.
Try to apply no more frequently than every 90 days unless there is a compelling need to
do so.
Zombie Collections and Repeated Collections on the Same Debt
The only safe assumption one can make about any debt that one hasn’t paid is that one
will see it again at some time in the future. Unpaid delinquent debt never dies, and even
paid debt can take on a bizarre life of its own, returning time and time again despite the
fact that it was paid long ago. That means that a consumer can be dunned for debt that
is twenty years old or more, even if it was never, ever delinquent. It is vital that
consumers keep good records of what is owed and to whom it is owed, and that in any
instance where one settles a debt or closes an account the documentation that it was
fully and finally settled be kept along with the (original if possible) canceled check by
which it was settled. One may find oneself defending that settlement in court at any
time (on the other hand, overly aggressive collection efforts by someone standing in the
shoes of someone who has already collected may afford you damages under the
FDCPA, FCRA and other legal theories such as defamation and harassment, so the
consumer may be the one suing—no matter how a suit starts, it’s best to have good
records so that it ends in a win).
One very frustrating scenario for someone with past bad debt is the reappearance of a
debt that was already paid. Sometimes it's just a dunning letter, other times people see
collections tradelines reappear on their reports, or even get sued--sometimes a second
time after they’ve already won (or even lost) the first time. Why? Collectors keep lousy
records, and when they sell accounts they don't send all the records they do keep
accurately. That is why it's vital to keep good records, and that the records clearly
reflect the achievement of quietus (a legal concept meaning “Dead, Done and Gone”)
on any accounts that have been settled. Once a debt is considered bad debt (and even in
many cases where a credit card account has been closed in good standing), there is no
telling who will receive a record of the account as being an unpaid debt still owed by a
debtor.
If you are dunned on a debt you have already paid, you should respond and ask for
validation of the debt, and include as exhibits to the validation letter your evidence
(settlement agreement or letter, copy of canceled check) indicating that the collector's
position is not valid. If they persist, you can follow the complain to the FTC, the Better
Business Bureau, the American Collection Association (if the collector is a member)
and your state’s attorney general, and of course sue them or mount a defense in court if
necessary. Whether and when to ask for validation on unpaid debt is a matter you must
be strategic about because it can trigger a lawsuit. Before asking for validation on an
unpaid debt you must do a certain amount of due diligence regarding the debt and the
creditor to make sure it is not one that sues in response to validation requests.
50
has personal knowledge of the records of the OC that sold to the JDB,72 or may
improperly claim that the records of the OC that the JDB has purchased specifically for
purposes of litigation are records the JDB keeps in the ordinary course of business.73
Improper affidavits are addressed by moving to strike them for being in violation of one
or more rules of evidence (typically the information the JDB is seeking to establish falls
under the hearsay rule and does not fall under an established exception to the hearsay
rule such as the business records exception). The creditor has every right to produce a
witness at trial with the requisite personal knowledge or position with the original
creditor to give testimony regarding the debt, and you have every right to demand that
they do so instead of relying on inadmissible hearsay evidence. The problem for them is
that it is usually prohibitively expensive (or even impossible) for them to do so. Tough
luck for them, lucky break for you--usually.
The "demand a witness" approach is not always availing, however. A hostile judge can
derail it. One judge’s approach was simply to deny the debtor’s legal demand for live
testimony by claiming he was doing the debtor a favor in that when (not if) the creditor
obtained its judgment the debtor would also be on the hook for the creditor's costs in
flying in the witness from a distant city. The judge pointedly ignored the probability
that the creditor would not be willing to go that far and would have either settled the
case low or simply allowed it to be dismissed.
The Perils of Being Unbanked
This discussion is about another nasty surprise that you cause to yourself rather than the
creditor causing it. Whether it is because they are in Checksystems, or because they
have a fear that a creditor will seize their accounts, or because they simply don't trust
banks or the government, many consumers choose to keep a large part of their wealth
somewhere other than banks and brokerage accounts. Such an approach has many risks,
some of which are not obvious.
On December 18, 2007, the Lima News of Lima, Ohio reported that Luther Ricks Sr., a
robbery victim, had $400,000 of his cash seized by the Lima Police Department and
turned over to the FBI.74 Because marijuana was found in his home, in order to get the
money back he would need to prove that he had lawfully earned it. A situation like this
illustrates that keeping your money under the mattress (in this case Mr. Ricks had a
wall safe, which the thieves had been unable to break into--but police with a warrant
made him open it) is no solution to difficulty banking due to money troubles. In short,
the government has gone well beyond seizing money from people's cars and from their
72
Debt Collection under cloud: Sandusky woman’s case raises questions nationwide
http://toledoblade.com/apps/pbcs.dll/article?AID=/20091004/BUSINESS07/910039966/0
/BUSINESS
73
See generally the excellent treatise on defending consumers against Debt Buyers prepared by the Daniel
Edelman of the Edelman, Combs law firm: http://www.edcombs.com/CM/News/collection
defense debt buyer.pdf
74
Conflicting Tales Behind Cash Seized by FBI
http://abcnews.go.com/TheLaw/FedCrimes/story?id=4656671&page=1
52
Suppose you do decide to keep cash on hand. Anyone who is going to hoard cash
should staple all the stored bills to their corresponding ATM receipts or bank
envelopes, and should not obtain cash anywhere else but at an ATM or a bank. Spend
the cash in a "First In-First Out" manner so that the oldest withdrawal is always used
first and the hoard's average age is rising as little as possible. Cash needs to have a
demonstrable legitimate source, so you don't want those ATM receipts to be too faded.
Keep in mind that cash depreciates rapidly in an inflationary environment, and has no
value if the government itself has failed. It is simply not a lasting store of value (ever
tried to spend a Confederate dollar?). It will also become more suspicious the longer it
is stored--as recent years have shown, the treasury must now change the bills on a more
or less regular basis to deal with the Iranian and North Korean ability to make
counterfeit "supernotes."78
In hoarding cash you will need to cope with the aforementioned question of how easy
will it be to spend (or deposit) large bills from two or three revisions ago without
attracting undue attention. And if your home burns, cash will burn with it. Gold can at
least be recovered from the ashes. If you have decided not to hoard cash, or you receive
cash that you do not feel safe storing, you should buy gold coins or even gold jewelry
(as mentioned before, small 14k gold rings are ideal). And if you store your money as
gold coins, the coins should have numismatic value rather than just intrinsic gold value.
The reason for that is that after the Patriot Act79 federal regulations now distinguish
between bullion gold and "antique numismatic gold" having a value of at least twice the
value of the gold alone.80
In the 1930s private the U.S. confiscated bullion gold government (with compensation
paid in paper currency)81 and it was not until the 1970s that the public was again
allowed to legally own gold. If economic times should become desperate enough this
could happen again. The key difference will be that this time the dollars received by
those who surrender their gold will no longer be backed by gold as dollars were in the
Depression era.
The government's re-codification of the distinction indicates that it is laying the

legal groundwork necessary to declare another confiscation. Even if you do not comply
with the confiscation your gold will be unmarketable due to the stiff legal penalties that
will be imposed on the buyer if he or she is caught. Therefore it makes little sense to
hold bullion gold, but there is every reason to hold gold jewelry or coins having
numismatic value. Be sure to permanently retain receipts for any gold purchases you
make. The downside to holding numismatic coins and jewelry is that you will want to
insure them, and insurance records will be available to any judgment creditor who
wants to subpoena them. And once the judgment creditor knows what you have, the
creditor is in a position to ask a court to make you give it all up.
78
http://en.wikipedia.org/wiki/Superdollar
79
http://en.wikipedia.org/wiki/USA_PATRIOT_Act
80
http://edocket.access.gpo.gov/cfr_2006/julqtr/pdf/31cfr103.140.pdf
81
http://en.wikipedia.org/wiki/Executive_Order_6102
54
aggregate balance in the bank probably exceeds the applicable FDIC insurance
protection limit, meaning it is exposed to loss in the event of a bank failure. There is
also the risk that the operator of a warehouse bank wills some day claim to have never
heard of you when you go to get your money out of their bank. Because warehouse
banks are so illegal, they are also difficult to find in the first place. Don’t go looking,
and be sure to turn away any such offers that find their way to you.
The Perils of Ordering Checks from Checksystems Affiliates
If you are in Checksystems but you open a bank account at a bank that is not a
Checksystems user, you may think you are safe from further problems with
Checksystems. Unfortunately, if you order checks from Current, Deluxe, Designer
Checks or Checks Unlimited they share their data with Checksystems, and
Checksystems will advise your bank that you are on their list, potentially resulting in
your account being closed. This is only good business as far as Checksystems is
concerned, since even if your current bank isn’t paying to be able to put their bad
accountholders into Checksystems, the value of Checksystems to the banks that do use
it is enhanced when the former customer finds doors closed unless and until he or she
makes things right with the former bank where the account was held. Where can you
get your checks printed? Harland Clarke84 is believed to be a “safe” option, and if you
ask around on the Internet bulletin boards you may discover others.
The Perils of Banking Out of the Country
Although for most debtors the amounts involved and their financial positions frankly
mean it won't make sense, here is a brief description of the foreign banking option and
why it has nasty surprises of its own. Debtors can and do move their money offshore. In
times past, countries such as Switzerland had bank secrecy laws on the books that
allowed individuals to hide their money there, and even after Switzerland was
persuaded to open itself to international disclosure of the identities of its banks
depositors (formerly only for non-routine investigations—until recently Swiss banking
secrecy was still in place in most cases), methods still existed to use third jurisdictions
like Gibraltar or Hong Kong to obscure the identities of depositors.85 Other nations
such as the Cayman Islands also became well known as havens for the funds of U.S.
persons who didn't want the federal government, a creditor, or an ex-spouse to know
what they had or where they had it. Although those days are not entirely gone, it is a
fact that for most depositors of significant funds into foreign accounts the monies will
either be traceable or there will be a violation of any number of customs, anti-money
laundering or tax laws, including a requirement to check box on Schedule B of your
1040 form and the requirement to file a Report of Foreign Bank and Financial
Authority (more commonly called an “FBAR") every June 30 if you have signature
authority over any accounts that have over $10,000 total in them at any time during the
prior year.86
84
http://harlandclarke.com/solutions/payment/orderchecks
85
Swiss Aren’t So Secret Anymore http://online.wsj.com/article/SB125019858099730281.html
86
http://www.irs.gov/newsroom/article/0,,id=168194,00.html
56
to set up withholding that will give you a refund), but keep in mind that you may be
liable for interest or penalties in the event you have underpaid taxes in an amount
greater than $500, so it pays to be conservative with those exemptions.
Wage Garnishment
Wage garnishment89 should never come as a surprise, but all too often it does. A
creditor with a judgment against you may get an order garnishing your wages at any
time and without prior notice to you, although there may be notice and an opportunity
to go before a judge before your employer is actually required to begin deducting
monies from your paycheck. In other cases you simply notice that your paycheck is
suddenly missing a substantial amount of money due to a new line item appearing on
the pay stub.
There is a federal limit on the amount of wages that can be deducted from your pay,
and often states are even more restrictive—but you may have to go to court to enforce
that limit. To reduce the amount taken, you must appear before the court with a
disclosure of your particular income and financial circumstances and establish your
right to obtain a further reduction in the amount taken out every pay period. If you have
enough dependents, you can potentially even zero out the amount the creditor can
obtain. Keep in mind that if you close off this opportunity for the creditor, the next step
may be for the creditor to attack your bank account, your personal property, your car, or
your home—so if you still have substantial assets your best bet may be to negotiate a
payoff with that creditor or evaluate whether bankruptcy is an appropriate option.
Arrest and Jailing
This is another item that should never come as a surprise but sometimes does. An often-
stated myth is that there is no debtor's prison in the U.S. And it's true; there is no
debtor's prison in the traditional sense.90 In other countries a debtor may be held in
prison at the behest of a creditor, which is not true in this country. However, in those
countries it's typically also true that the creditor must pay for the room and board of the
debtor. What happens in this country is that the debtor is picked up and held because of
a failure to satisfy a disclosure requirement or turnover order of the court, not
specifically because a debt has not been paid.91
Typically this will occur because the debtor failed to provide information requested by
the creditor regarding the debtor's financial circumstances, either by failing to respond
to written interrogatories or failure to appear at a debtor's exam, which is a sworn
deposition under oath. Typically also, requests for these kinds of disclosures are only
made once or twice per year. However, in some jurisdictions, creditors’ attorneys have
been known to schedule them monthly, sometimes even at two-week intervals. Debtors
89
http://en.wikipedia.org/wiki/Garnishment
90
http://en.wikipedia.org/wiki/Debtors'_prison - United_States
91
Example: http://www.usmarshals.gov/process/body-attachment.htm
58
being recorded, and they will get the police involved if you make any threats (in a
recent case that appeared in the press a telemarketer did just that to someone who was
tired of calls trying to sell him an extended warranty for his car and who had threatened
to burn down the telemarketer’s offices)94. Stay home and use your mail, e-mail or your
fax machine.
Badges on a Percentage
It may seem odd that public functionaries would have an incentive to collect from you
beyond the fulfillment of their statutory duties, but New York City and New Jersey
both have unique governmental functionaries with vested financial incentives to collect
on a judgment against you. In New York City they are referred to as New York City
Marshals,95 and in New Jersey they are Officers of the Special Civil Part.96 If you have
been sued in Special Civil Court in New Jersey, the officer who is sent to collect from
you receives 10% of the first $5,000 collected and 5% of any amount collected in
excess of $5,000, and the commissions are paid by you, not deducted from what the
judgment creditor receives.97 New York City Marshals likewise have a financial
incentive to collect from you--a "poundage" fee of five percent of whatever they
collect. If they collect enough to satisfy the judgment, then their poundage is additional
on top of what is owed to the creditor, but if they collect less then it comes out of the
amount the creditor receives.98 Massachusetts also has poundage, as do Illinois and
Ohio.
In most other places the sheriff receives flat fees for collecting from you, and even in
other parts of New York and other states where the same incentives are available to
sheriffs, their other duties mean that they are not as keen on collecting as the Marshals,
whose only other duties are overseeing evictions and the impounding of cars for unpaid
parking tickets.
New Jersey attorneys filing in Special Civil also receive an extra 5% fee on the first
$500 and an extra 2% on any monies collected above that, over and above any
attorneys’ fees they receive based on the contract sued upon. Debtors in both places
often face practical challenges that debtors in other jurisdictions do not. For instance,
because the Marshals are so motivated and empowered, New York City dwellers often
find that their bank accounts in the city have been found and seized.
Judgment Revival
Judgments typically have long statutes of limitations, but once they have expired they
are dead, done and gone. However in some states judgments that have expired can be
94
Ohio Man Jailed for Threatening Telemarketer http://law.rightpundits.com/?p=636
95
http://en.wikipedia.org/wiki/New_York_City_Marshal
96
http://en.wikipedia.org/wiki/New_Jersey_Superior_Court - Special_Civil_Part
97
http://www.judiciary.state.nj.us/prose-1.htm
98
http://www.nyc.gov/html/doi/html/marshals/marshal_judgments.html - faq24
60
Washington, Virginia and Wyoming however, allow judgments to accrue interest at the
contract rate, as does the State of Florida (with the exception that in Florida the
judgment is subject to an 18% usury cap). For credit card holders who have been
ratejacked into the 37.99% stratosphere, the result is devastating. For those debtors the
only hope is likely Chapter 13 bankruptcy or waiting for the judgment to expire.
However, the debtor who has moved out of state could possibly also attempt to prevent
the judgment from following into a new state by opposing any UEFJA filing of the out-
of-state judgment. Although judgments are supposed to receive full faith and credit in
other states according to the U.S. Constitution, there is room for courts to modify or
undo results that shock their consciences. If your new state isn’t among the minority
that let interest run wild, the court in your new state should be unwilling to continue
with the interest on the first state’s judgment as applied by the first state’s judgment
statute, and should instead substitute the capped interest rate in your new state going
forward—potentially even retroactively to the date you established residence in the new
state.
Harassment
The section on zombie collections describes CAMCO. There are more CAMCOs out
there, but most of them are smaller operations that operate beneath the radars of the
FTC and the states unless and until enough complaints come in.100 For historic
reasons,101 many of these collectors are either based in Buffalo, New York or are
operated by individuals who got their start in Buffalo or with a collector who learned
his trade there. The Buffalo-style collectors still operate the way debt collectors did
before there was a Fair Debt Collection Practices Act (FDCPA)102, and you can expect
them to violate it in every possible way.
These collectors will call relatives and neighbors and tell them you are a deadbeat. If
they sense that a relative is at all concerned about your well-being or may be concealing
information from them, they will make threats to the relative. They will call themselves
attorneys, police officers, private investigators, fraud investigators, and any other
position they can think of that they believe will give them a shred of authority to
frighten you or someone else. They will contact your employer's payroll department or
human resources department by fax or phone in circumstances when they have no right
to do so (when they do not yet have a judgment), they will harass your boss and your
co-workers and whoever answers the phone where you work. They will send paperwork
that appears to be from a court even when they haven’t filed a case and don’t intend to.
To get you on the phone they will call your work pretending to be from your child’s
100
KHOU News, Mark Greenblatt, Nov 3, 2009 Consumers say credit wrongfully ruined by reckless debt
collectors http://www.khou.com/news/local/stories/khou091102_mh_debt-collectors_.27b7d7e16.html?npc
101
Marine Midland Bank, one of the founding members of the Interbank Association that evolved into
Mastercard, was headquartered in Buffalo prior to its merger into HSBC, and a collections culture sprang
up to service those banks that pioneered credit cards.
http://en.wikipedia.org/wiki/Marine_Midland_Bank
102
http://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act
62
players in this rotten corner of the industry are adept at using shell corporations and
straw men (sometimes even duping attorneys into renting out their licenses) to conceal
who they are and what they are doing. Some have even exploited incentives offered by
cities that needed to have jobs brought to or kept in the area, collected hundreds of
thousands or even millions of dollars from them and then closed up shop the moment
the heat was on.
Most individual collectors also use aliases known as “desk names” and conceal their
true identities in order to protect themselves from being stalked. If you sue a CAMCO-
type collection agency it can be difficult to determine who actually committed a
particular act of harassment, although some states such as Oregon do require that
collectors’ desk names be registered with the state. In most cases, reputable collectors
will have a centralized registry of desk names and will be able to identify a particular
collector who uses a particular desk name. Desk names are not per se illegal, and courts
have on many occasions denied debtors’ allegations that use of a desk name was a
deceptive practice.106 Courts understand that desk names serve a legitimate protective
function.
Another form of harassment is to show up at your house and loudly demand payment of
the debt, perhaps in full view of your neighbors. Again, these forms of collection are
forbidden to third party debt collectors under the FDCPA, but for original creditors you
may need to fall back on state law claims. Debtors who owe large sums have also
reported being followed by men in cars, sometimes in an obvious way. Tactics like
these are known as rough shadowing, or lockstep surveillance and they are almost
always things that you can sue for. In times past, tactics have even included bumping
into the debtor, tripping the debtor, spilling the debtor’s food on him in a restaurant and
in extreme circumstances debtors have even been beaten up.
Inspection of Property
Creditors who have judgments will sometimes send a sheriff's deputy to inventory the
contents of your home. This is often just an intimidation tactic: unless you are wealthy
and have antiques and collectibles there really isn't much point in a creditor trying to
sell that couch of yours with the ketchup stain on it. In many states you can refuse to
allow the sheriff's deputy to enter your home--some sheriff's deputies will even
straightforwardly tell you that (remember, if they're not on a percentage basis, there's
really no additional money in it if you let them in, just a lot more time filling out
paperwork). In most states the creditor would need to go back to court and get an order
authorizing the deputy to break and enter if necessary. At that point you do have to let
the deputy in. If you live with a spouse or a roommate who is not also a debtor, it may
be necessary to point out to the deputy what you own and what is owned by the non-
debtor. It is also possible that a non-debtor could assert a privacy right in court that
would prevent the inspection from taking place.
106
Example: Kleczy v. First Fed. Credit Control Inc. 486 NE2d 204 (Ohio App 1984)
http://oh.findacase.com/research/wfrmDocViewer.aspx/xq/fac.%5COH%5COH2%5C19
84%5C19841116_0040908.OH.htm/qx
64
debtor can sue for if the creditor fails to do its part), while others leave it to the good
sense of the debtor both to insist on getting one and to decide whether, where and when
it gets recorded. In some instances, the debtor might want to omit to record the
satisfaction, particularly if a judgment or lien is near expiration and the debtor doesn’t
want to see “paid judgment” lingering on his or her credit reports for another seven
years.
As the debtor you want to obtain enough originals of the satisfaction to record them
everywhere they might need to be recorded, as well as a few extras that can be stored in
safe places in case of fire or flood. If at some time in the future the debtor needs to
prove the debt was paid, the satisfaction is proof positive that the debt was paid. If you
live in a state where the creditor is required to record the satisfaction but you want to
control its recording, you may be able to negotiate with the creditor’s attorney to sign a
waiver of your rights that will allow you to take custody of the satisfaction(s) and
responsibility for the recording process instead of leaving it to the other party. It’s
something they would just as soon not have to do, so the waiver should not be much of
a problem.
For most creditors, the judgment was obtained in the ordinary course of business and
the satisfaction is likewise just another piece of business. There are, however, smaller
creditors who take things personally. There have been situations where creditors have
refused to provide a satisfaction purely out of spite (one even told the debtor she
wanted to make her life a “living hell”), even though garnishments had returned to the
creditor every dollar that was due. Your best defense is to keep meticulous track of
every dollar paid to a judgment creditor by any means, and to document (and recording
record) every contact you have with the creditor, especially as it relates to obtaining
satisfaction documents. In the event your reasonable efforts to obtain satisfaction
paperwork are unavailing, most judges will slap the judgment creditor with an order to
show cause and potentially also some sanctions that will put money in your pocket for
your time, trouble, and the damages done to you by having an unpaid judgment on your
record for longer than was absolutely necessary.
Creditors who can’t be found
Sometimes a debt will appear on a credit report that a debtor needs to pay, and for one
reason or another the creditor simply can’t be found. Although this often occurs with
older judgments, it also happens sometimes with regular tradelines too. In the case of a
judgment, it may be possible to pay the registry of the court the full amount of the
judgment plus interest and obtain the court’s own satisfaction (the court will hold the
money until the creditor claims it).108 If that is not possible, you may need to bring a
court action to close out the judgment in the event the judgment creditor or their
successors or heirs cannot be found. Unfortunately in the event you have to pay the
court, there will be no opportunity to negotiate any sort of discount—the court will
make an exact calculation and expect you to pay it.
108
Example: http://www.ndcourts.com/court/rules/NDRoC/rule7.1.htm
66
address at the time). If you have your own old bills, the changes may jump out at you.
If not, going to an Internet bulletin board that is focused on credit or debt may help you
find someone who has an old bill to compare. It can be well worth the effort.
Countrywide Mortgage was caught in bankruptcy court reconstructing some of their
paperwork, and the bankruptcy court sanctioned them severely.109
In other cases, creditors have been shown to be relying on affidavits of debt signed by
individuals with no real connection to the company on whose behalf they are signing,
or who were signing any affidavit that was put in front of them, or whose review of the
accounts they were signing affidavits with respect to consisted only of the briefest
glance at information shown on a computer screen.
Reconstructed paperwork is often an effort to sidestep the requirements that a creditor

must meet when attempting to re-establish lost or destroyed paperwork. If you can
show a court that a creditor was using the former to dodge statutory or court-created
rules regarding the latter, the court will be much more likely to throw out the case.
The Sneaky Novation Credit Card
As I mentioned above, one of the nasty surprises is the revival of an out-of-statute

claim or the restarting of the statute of limitations due to a small payment. But a
creditor can get a new claim without a payment—if you mistakenly agree to it. The act
of turning an old debt into a new debt is called novation, and the creditor is perfectly
entitled to ask you to do it. Sometimes, however, the request comes deceptively dressed
in sheep’s clothing. Sometimes a debt buyer will team up with a credit card issuer and
offer you a brand new credit card with the old debt already on it. Some folks think this
is a good deal and will jump at the chance. What they don’t realize is that (a) the new
credit card represents a novation that restarts the statute of limitations; and (b) the credit
card lender probably won’t leave a reasonably high limit on the card or will even cancel
it once the debt is paid. At one time a bank called Bank of Hoven teamed with a sleazy
outfit called The Money Store to offer these sorts of cards, Midland Credit
Management and LVNV Funding have done it and Capital One has been known to do
so from time to time.
American Express’s OASIS program should not be lumped in with the bad actors that
play the novation game. In years past, American Express offered defaulted card
members the opportunity to repay what they owed and by so doing earn an Optima card
(if they otherwise qualified—this was not a program for people with horrible credit to
get an Optima just because they repaid American Express). This was not a deceptive
program, and a great many debtors successfully rehabilitated their standing with
American Express—including re-establishing a valuable credit history with Amex
reaching all the way back to the date the original card was issued. Because during the
credit crisis of 2008-2009 American Express became a bank and now must follow Rule
5000, the OASIS program may no longer be as attractive as it was before.
109
http://www.abajournal.com/news/judge_calls_countrywide_recreated_letters_a_smoking_gun/
68
$5,000. I can think of only one reason to do the latter type of deal, and a debtor who is a
pushover is just that reason.
Short Sales With Continuing Liability
Because of the mortgage crisis, many homeowners have concluded that their best
option is the short sale. Short sales are taught to real estate investors in seminars, and
they are fanning out across the country to relieve both homeowners and banks of
troubled mortgages. That’s the good news. The bad news is that unless you negotiate a
short sale correctly, you will face a lingering debt problem after your house is sold.112
Depending on the laws of your state and the type of mortgage on your property, the
lender will still have a right to collect from you on the note even after having agreed to
a short sale—unless you specifically negotiate that the lender gives up any further claim
against you. Sometimes you can get that deal, sometimes you can’t (more frequently,
debtors are asked to sign a novation promissory note for part or all of the deficiency—
do not do so without legal advice!). If you can’t get the release, it may still make sense
to do the deal, you simply will need to realize that you may have a battle in your future.
Keep in mind that the lender or JDB who comes after you for the deficiency should be
made to come up with the original note (which may be an impossibility) because lack
of the note exposes you to the potential for double recovery (being sued again when
someone else finds the original note), and to prove its chain of title to the note if it is a
JDB. There are very strict requirements for re-establishing a lost note in most states,
and you or your attorney should hold the creditor’s feet to the fire (in court if
necessary) regarding every element that must be shown in court in order to do so.
Collectors who kill you
This last one will seem silly, but it isn’t silly to the people it has happened to. A
creditor with access to the credit bureaus has the power to kill you. Maybe not for real,
but in the CRAs’ computers being dead will assure that you never get credit anywhere,
from anyone who checks the CRAs before granting credit. This tactic is seldom used
and is almost always used on a retaliatory basis in an effort to force a debtor who will
not engage with the creditor to come to the creditor. The creditor will then claim that it
was all a mistake—but you’ll need to pay us or we won’t make it right. In any case,
while calling someone dead may violate the FDCPA, it is not actionable as libel or
slander. One large southern department store chain’s credit department has been known
to pull this stunt on more than one occasion.
The Coming Tsunami of Parental Care Costs
This is one almost no one sees coming yet, and even your friends who seem to be in
great financial shape may be living in blissful ignorance. The fact is when your parents
112
http://seattleshortsaleblog.com/2009/06/12/short-sale-promissory-notes-foreclosure-
deficiency-judgements-how-much-will-you-owe-your-bank-after-a-short-sale-vs-a-
foreclosure/
70
Just because neither you nor your parent lives in a state with a filial responsibility
statute does not mean that you can breathe entirely easy. There have been calls for a
federal filial responsibility statute that would apply evenhandedly to everyone
throughout the country. And frankly, because most nursing homes operate on a 1%
profit margin, any nursing home that provides more than a level of care that barely
meets standards is likely to ask all the elderly person’s children to voluntarily obligate
themselves to pay significant sums of money over and above what Medicaid pays.
Conclusion: Can You Be Surprise-Proof?
Nobody will ever be surprise-proof, but if you take steps to protect your privacy and
you treat your financial recovery with the seriousness it demands, you can avoid the
vast bulk of abusive situations. It may not have taken much time to get into financial
trouble, but it definitely takes time to get out, along with effort and forethought too. A
policy of trying to constantly keep track of what you owe, who you owe it to and what
they might do in order to collect will usually keep you at least a jump or two ahead of
them. And that may be enough.
72
loans and unpaid taxes) hold the weakest type of unsecured debt. They know this. Unless
they can come to an agreement with you that allows them to collect something they will
either have to sit there with nothing as the debt grows older and approaches the Statute of
Limitations (discussed in detail below), or they will have to sue in court in the hope that
they will win a judgment that will ultimately prove collectable. For the OC, this is an
ugly picture since the loss they take will be substantial. For the JDB, it is a numbers
game: a great many accounts they pay 3 cents on the dollar for will wind up having either
no value or being sold for 2 cents on the dollar, while others will yield a full recovery or
something less than full recovery that nevertheless represents a substantial profit.
For you as the debtor the downsides of not settling are continued uncertainty as to your
financial position, ongoing (but time-limited) damage to your credit rating and the
possibility of suffering a judgment against you with its attendant loss of financial privacy,
asset seizure and wage garnishment. If you are able to scrape together some funds, you
may be able to settle a claim on a negotiated basis for 30%-50% of the inflated amount
the creditor is now claiming. Negotiated settlements are not necessarily preferable or
inferior to take-it-or leave it satisfaction attempts (described below). However, they will
typically have the advantage of providing certainty that you have obtained quietus with
respect to the account as well as documentation that you can use in the event a
subsequent holder of the debt claims that it has purchased the debt from the business you
are paying. In addition, in the rare circumstance that the business you negotiate the
settlement with does not actually own (or have authority to settle) the debt you are
paying, you will have dead-bang evidence that the business has defrauded you in
obtaining money from you.
A successful fraud case typically pays you back three times what you lost and also covers
your attorney’s fees, so the business that defrauded you is usually ready to hand you back
what you paid them without a lot of objection, provided you have the evidence.
Negotiated settlements will seldom be effected for less than 20% of the balance claimed,
and typically the lowest acceptable figure will be closer to 33%. OCs demand a greater
percentage in settlement than JDBs (for instance prior to the financial crisis Citibank
reportedly wouldn't go below 55%), but the latter will have inflated the balance further,
so the dollar figures may not be too far apart. That means you're not necessarily getting a
terrible deal paying an OC 50% or a fantastic deal paying a JDB 33%. The recent
financial crisis has greatly increased the junk debt buyers’ willingness to entertain
settlements.115
When you negotiate a settlement, you want to get from the creditor a settlement
agreement. At a minimum, the settlement agreement should recite the following:
1. That the creditor is the owner of the debt;
2. That the creditor is agreeing to a full and final settlement;

115
Settlements, Payment Arrangements Becoming the Norm in ARM Industry
http://www.insidearm.com/go/arm-news/settlements-payment-arrangements-becoming-
the-norm-in-arm-industry
74
"Accord and Satisfaction" typically requires a separate writing) as potential satisfiers of

debt under § 3-311, which was a 1992 modification116 that has been enacted (in some
cases with revisions) in nearly every state. It is therefore important to distinguish between
Accord and Satisfaction as a longstanding principle of law that has on occasion been
statutorily adopted in particular states, and "Accord and Satisfaction by Use of
Instrument" under the UCC which is a recent innovation that affects a significant
subgroup of satisfaction scenarios, all of which involve use of a check or money order. In
each state there will be separate lines of case law that will address them separately,
although some cases will turn on facts that require a court to analyze both as potentially
decisive factors. In many states you will find post-1992 cases that seem to discuss one or
another as though the other does not exist, and in some such cases it will seem obvious
that the other should have at least been mentioned. Judges usually decide on (and write
about) only what is put in front of them, and if one or both side(s) in a case argue that the
case turns solely on issues related to one line of authority or the other, a judge who
accepts the argument can properly neglect to discuss what he regards as extraneous.
Some legal authors have described the accord and satisfaction process as a form of
"exquisite torture."117 Any time you see those words applied to something that you can do
to your opponents, you should sit up and take notice. A check sent in satisfaction of a
claim is a tempting poison apple that will put the creditor to sleep forever--if it works. As
with any method of resolving a problem, it doesn't always work for everyone in every
circumstance. And hucksters (notably an outfit called Briggs and Baker118) have even
abused it to the point where some people may tell you that it's a flat out scam. It is not a
scam; it is a tool that used correctly and carefully has a good chance of succeeding. Even
used incorrectly and carelessly it can provide a debtor with additional time to resolve
debt situations and in some cases even allow for victory or at least a large discount on the
creditor's part for a further settlement payment rather than having them choose to risk the
vagaries of court.
Essentially what happens in a satisfaction scenario is that the debtor's check includes
written or typed (not pre-printed) language either on the front of the check or at the top of
the back where the endorsement goes that reads more or less "In Full and Final
Settlement." Your state's statutes or case law may prefer one place or the other, and may
approve some phrases and not others. Make sure you have a copy of the front (and back,
if that's where the restriction is) of the check before you send it out, and be sure to obtain
a copy of the front and back of the check after your bank pays it.
From state to state, the Accord and Satisfaction process is subject to many, many legal
quirks. For instance in Florida the courts have approved a check that lacked any accord
116
Justia’s Link to the Ohio version includes the valuable official commentary to the model act:
http://law.justia.com/ohio/codes/orc/jd_130340-54e5.html
117
UCC §1-207’s Modernization of Accord and Satisfaction Law
http://www.lowenstein.com/files/Publication/8686f78d-158f-405d-9fb6-
6f93142cedd0/Presentation/PublicationAttachment/3ff38f26-e96f-4d9e-bee3-
7610c9777d2b/NYLJ - SMH - 06-14-04.pdf
118
http://www.ftc.gov/os/caselist/0323006/040213comp0323006.pdf
76
UCC "Accord and Satisfaction by Use of Instrument"
The UCC introduces several novel twists into the law of accord and satisfaction,
essentially eliminating the accord requirement in many situations (despite retaining the
term) and substituting a complex test that measures the intent of the debtor and the
precautions taken by the creditor to avoid an inadvertent satisfaction--but only when a
negotiable instrument (almost always a check or money order) is involved. The statute
was designed to deal with the business innovation of high-volume check processing
either outsourced to a bank or done by extremely low-level employees aided by
automation to the point where they do not pay any attention to language written on the
checks. Florida's version of the statute is typical, and instructive here:
673.3111 Accord and satisfaction by use of instrument.--
(1) If a person against whom a claim is asserted proves that that person in good faith
tendered an instrument to the claimant as full satisfaction of the claim, that the amount of
the claim was unliquidated or subject to a bona fide dispute, and that the claimant
obtained payment of the instrument, the following subsections apply.
(2) Unless subsection (3) applies, the claim is discharged if the person against whom the
claim is asserted proves that the instrument or an accompanying written communication
contained a conspicuous statement to the effect that the instrument was tendered as full
satisfaction of the claim.
(3) Subject to subsection (4), a claim is not discharged under subsection (2) if either
paragraph (a) or paragraph (b) applies:
(a) The claimant, if an organization, proves that:
1. Within a reasonable time before the tender, the claimant sent a conspicuous statement
to the person against whom the claim is asserted that communications concerning
disputed debts, including an instrument tendered as full satisfaction of a debt, are to
be sent to a designated person, office, or place; (emphasis added) and
2. The instrument or accompanying communication was not received by that designated

person, office, or place.
(b) The claimant, whether or not an organization, proves that, within 90 days after
payment of the instrument, the claimant tendered repayment of the amount of the
instrument to the person against whom the claim is asserted. This paragraph does not
apply if the claimant is an organization that sent a statement complying with
subparagraph (a)1.
(4) A claim is discharged if the person against whom the claim is asserted proves that
within a reasonable time before collection of the instrument was initiated, the claimant, or
an agent of the claimant having direct responsibility with respect to the disputed
obligation, knew that the instrument was tendered in full satisfaction of the claim .
You will notice the term "unliquidated" in subsection (1) above. It is virtually never
significant in a debt context, applying only in situations where the party paying and the
party paid do not know exactly what the claim is worth. If you are in a fender bender and
78
the transaction. The UCC provides that its provisions can be varied by contract.120 It
does not provide that they can be vitiated. UCC § 3-311 provides several different ways
that a creditor may modify the application of the general rule regarding accord and
satisfaction checks, including the provision of a separate address and the return of the
money within 90 days. Courts should be encouraged to read those variations as an
exclusive list, after all Article 3 of the UCC governs negotiable instruments (checks and
money orders) and defines what they mean, not what the contracts they may (on
occasion) supersede and replace mean. In other words, creditors cannot declare in their
agreements that another agreement can never be made, particularly by a means that the
UCC expressly approves.
Because the UCC and the case law typically requires any statement appearing on the
check to be "conspicuous," I have had my check printer add special language to my
checks just over my where my signature goes, in a place that is usually reserved for
"Jesus Loves You!" or "Have a Nice Day!" They did it for $2.95 extra, and my added
language reads "Recipient Negotiating Agrees to Any Terms Stated." The language
serves to reduce the possibility that a creditor could successfully claim they were not on
notice of settlement language appearing in the memo field, and thereby serves to give me
a better shot at victory under non-UCC case law. One thing you should not do (because it
is specifically mentioned in the official commentary to UCC § 3-311 as a reason to
disregard the settlement language on a check that is portrayed as being a satisfaction
check) is to have the check printer include "In Full And Final Settlement" in that space so
that all your checks become ostensible satisfaction checks. Doing so negates the specific
intent that you might have with any particular check. Conversely, the printed language
that I include makes clearer that whatever I write on that check absolutely means what it
says. I don't send a lot of satisfaction checks--perhaps one or two a year. If you are using
them more often, it is likely you are misusing them and sooner or later you will either run
out of people who will deal with you or you will have trouble in court.
The "good faith" requirement is described by the official commentary to the UCC as
being defined in § 3-103(a)(4) as not only honesty in fact, but the observance of
reasonable commercial standards of fair dealing. The meaning of "fair dealing" will
depend upon the facts in the particular case. It is difficult to imagine a situation where the
conspicuous language on the check could be "dishonest" as to its nature and intent, so we
must move to "reasonable commercial standards of fair dealing." It's a nebulous concept
that is basically there to give courts an “out” in a case where they see that allowing a
satisfaction check to be effective would work an injustice. The requirement is also
mutual, so what may be fair to do to a creditor who never jacked your rate to 38% and
who was always willing to work with you the two previous times you were in money
trouble may be quite different than what is fair for you to do to a creditor who behaved
just the opposite. What may be reasonable in the instance where you have been paying
for three years without charging a thing on a card that had a high interest rate may be
different from what is reasonable where you have run a credit union’s low-interest card
up to its limit and never paid a bill.
120
See UCC § 1-302 http://www.law.cornell.edu/ucc/1/article1.htm
80
credit card company except that he was merely seeking a discount and there was no
dispute that appeared in the record of the case on appeal. 123
For a defaulted credit card debt still owned by the OC, the ideal time to send a
satisfaction check is just shy of the 90-day delinquency mark. This gives you time to have
the UCC § 3-311 90-day period expire while the creditor still holds the debt. The creditor
will then quite likely purport to sell the debt to a JDB. If the JDB should sue you, there is
a strong argument in your favor that the JDB bought nothing. From the JDB's
perspective, they will likely have certain provisions in their purchase from the OC that
trigger repurchase requirements in circumstances where the purported debt is nonexistent
or is in bankruptcy or differs in certain other material ways from what the OC claims it is:
debt that a debtor has defaulted on with no claims or defenses. To trigger the repurchase
agreement it may be necessary for the JDB to lose their court case. You should strive for
a decision that is "on the merits" (a judgment in your favor) or that operates as a decision
on the merits (a dismissal with prejudice). If you win your lawsuit and the OC later
comes after you (having been obligated to buy back the claim from the JDB) or sells the
claim again to a different JDB, it will be important to be able to have a court decision in
your hand that gives you claim preclusion, a legal concept that means the matter is res
judicata and that no court should consider it again. The concept is not as strong as the
criminal-law concept of double jeopardy because your freedom is not at stake, but it is a
similar notion.
Another tactic you might consider employing if a JDB enters the picture after you have
used an Accord and Satisfaction with an OC is to send the JDB the same sort of accord
and satisfaction check shortly before you send them separate notification that you believe
you reached an Accord and Satisfaction with the OC (being sure you wait nearly the 90
days before sending them anything discussing the check you wrote to the JDB, just as
you did with the OC). Yes, it will cost you more money, but it will also muddy the waters
so thoroughly that you can quite likely successfully defend a lawsuit brought by either of
them or by a JDB down the line: "Your honor, I've settled this claim twice, I'm out X
dollars and I still have people taking me to court trying to collect!" If the OC has
repurchased the claim from the JDB, you can argue that the OC got nothing and the JDB
defrauded them. If the JDB hangs on to the debt and later sues you, you can ask them in
court why they didn't take advantage of their repurchase rights and refund your accord
and satisfaction check. In short, you are in court with evidence that you have paid two
businesses that claimed to own the debt no less than 14% or so in settlement, and in the
case of the JDB you can argue that it recovered what it put into purchasing the claim on
top of having the right to send the claim back to the OC that it failed to exercise.
In short, you're going to show the court that the JDB had other options than suing you if
the JDB comes after you, and if the OC is the plaintiff, you're going to show that you
paid the JDB while the JDB owned the debt, hence the JDB had nothing to sell back to
the OC and the OC has been defrauded by the JDB when the JDB claimed to be
123
Petty v. Citibank (South Dakota) N.A., 218 S.W.3d. 242, (Tex. App.--Eastland, 2007)
http://www.11thcoa.courts.state.tx.us/opinions/htmlopinion.asp?OpinionId=8522
82
you expect your hands might appear to a court somewhere down the road if the OC, the
current JDB, or some JDB down the line takes you there. In short, the question is whether
you should inform the creditor during the 90-day period that you have sent the creditor a
satisfaction check or wait and allow the check to "season" so that the creditor will be
beyond the 90 days and cannot avail itself of the opportunity to send the money you paid
back to you. Section 3-311 provides no guidance on this issue, nor does its official
commentary. However, the UCC generally requires "good faith" and that requirement is a
strong shove in the direction of providing them additional notification within the 90 days
rather than withholding such a notification.
Any letter you send should briefly describe a dispute that you have with their billing,
such as an excessive interest rate or how high the late fees or other charges are. You can
then touch on the financial difficulties that brought you to the point where you needed to
send them an amount that was less than their claim and how you believe that amount is
reasonable in light of the amount that some other source of funds (such as Medicare in
the medical context, or a Junk Debt Buyer in a credit card debt context) would provide. If
you are feeling particularly frisky you might also specifically refer to the approaching 90-
day deadline from the date they credited the funds to your account and request that they
refund your payment if they intend to abrogate the settlement at attempt to sue you for the
entire balance. There are calculators online that will give you an exact day count if you
want to explicitly identify for them deadline date by which they will need to cut you a
check. If you have paid them in preference to other creditors or have paid on the account
for several years at a high interest rate without making any charges on it, you should state
that as well.
If you are concerned that they will send the money back but are not terribly concerned
with them continuing to dun you and report to the credit bureau as an increasingly-
delinquent unpaid claim, you may want to delay communicating with them until the latter
part of the 90-day period, although I would make sure the timing of any written
communication would allow it to be received and read no later than 10 days before the
period expires. From the point of view of a court, ten days should be a reasonable amount
of time to send a check back. However, from the point of view of a business that is as
bureaucratic and incapable of handling exceptional situations as most businesses are, an
opportunity that expires in 10 days is one they will have extreme difficulty responding to
in a timely manner. If you get a check back that was cut after the 90-day period expires,
return it to the creditor with a polite letter advising that it simply came too late.
If you know the creditor has money troubles and is about to go out of business in one
way or another, you should time the letter so that it will be received ten days or more
before that happens. Once a creditor enters bankruptcy or is shotgun-wedded to another
bank by the FDIC, its accounts will be gone over by bank examiners or professional
bankruptcy trustees looking for opportunities to collect more money, but they will not
want to send a check back to you in order to put themselves in a position to do so. In the
case of bankruptcy, the paying out of funds for such a purpose would need to go through
a judge or special master for approval, and that just isn't likely to happen. If a letter is in
the file that informed the creditor of a satisfaction check, the potential new owner of that
84
experts who oversell the ease with which it can be used by the debtor to avoid debt, the
fact remains that for many debtors it will put an end to a painful episode. In short, the
Statute of Limitations defense, properly plead in response to a creditors' lawsuit, will
dispose of the lawsuit if you are able to prove that it has indeed expired. Yes there are
plenty of ifs, ands and buts, however the Statute of Limitations remains one of the most
powerful secret weapons in a debtor's arsenal. To use it properly though you need to
understand it fully. If possible you should understand it better than the lawyer who is
suing you and even better than the judge who is working the case. It's that important.
Unfortunately it can also be very murky. You will find some books on debt that will
include tables of statutes of limitations for every state in the union. Even if these tables
have been meticulously researched and are correct to the best of the writers'
understandings, they still fall woefully short of accounting for all the real-world
variations in both fact patterns and in the case law that can develop around the statutes
themselves. For courts, the so-called "black letter" law is hardly ever the be-all and end-
all. For that reason you will not find such tables in this book. You need to do the
homework.
The first step in using the statute of limitations defense is identifying the operant statute.
An Internet search for "statute of limitations" and the name of your state will often yield a
table of state names with headings like "open account" and "written contract" and periods
of years listed. This information is almost worthless. In most states there are simply too
many things that can affect the running of the statute for you to give the table heavy
credence. It will typically merely be a starting point that is potentially applicable to the
most plain-vanilla scenarios. To really know what limitations period applies and whether
it has run or not, you will need to know a lot about your debt and you will also need to
know how courts view debts like yours. That information may be easily assembled, or it
may require a lot of sleuthing. The arrangement of your state's statutes in the statute
books and the presence or absence of "case law" will determine whether your search is
easy or difficult. Ideally, your state statutes group all of the statutes of limitations
together, perhaps under a heading such as "Limitation of Actions" under the "Civil
Procedure" chapter. In a less-than-ideal circumstance the statutes of limitations will be
scattered through the sections that cover individual reasons that one person or business
might sue another.
In researching the statute of limitations in your state you also want to check your state’s
consumer protection statutes for provisions that make it illegal to sue on a debt that is
time-barred. North Carolina’s legislature recently enacted one such statute, and it awaits
the governor’s signature to make it effective as of October 1, 2009.126 If you are sued on
a time-barred debt in a state where doing so is illegal, the statute may allow you to assert
a counterclaim and collect statutory damages.
A consumer debtor is likely to have five basic types of debt: mortgages, installment
accounts, medical accounts, credit cards and utilities. Each type of debt will have its own
statute of limitations, though that statute may be shared with other types of debt. Keep in
126
http://www.ncleg.net/Sessions/2009/Bills/Senate/PDF/S974v4.pdf
86
(locus sigili) will appear on the signature line, and the statute of limitations will be an
extremely long one. Ten years and twenty years are not uncommon, but there are even
states such as Delaware where documents under seal have no statute of limitations, and
any staleness defense to an old contract like that will have to depend on the principle of
laches.128
If the limitations periods are scattered in the statutes, you may catch a break with respect
to particular types of accounts that are covered by the Uniform Commercial Code, such
as installment sales like auto loans. In those instances, the UCC is written in such a way
as to place the statute of limitations last in the sections that form a particular Article of
the UCC. They do this for the convenience of state legislatures, who can simply lop off
the last provision if it conflicts with one that is already part of their statutory scheme. If
your state isn't fastidious about keeping all the limitations provisions in one place, they've
probably left the limitations provisions on the relevant UCC Articles. The UCC statute of
limitations with respect to car sales financing is, for instance, four years.
In some cases a federal statute will override the state statute of limitations for a particular
type of debt. That is the case for cell phones and landlines, which have a two-year statute
by federal law.129 There may be other specific instances where federal statutes curtail the
statute of limitations period.
In cases where a surviving spouse may be held liable for the debts of a deceased spouse,
some states (such as California) have a special, shortened statute of limitations of one
year for say a hospital to bring suit for unpaid medical bills from the deceased's final
illness. 130
Finding the time period will be the easy part. Now for the hard part: Just knowing where
the correct statutory language can be found only gets you part of the way to knowing
whether the statute of limitations has passed for a claim against you. The only way to
know with certainty how a court will treat your particular debt vis-à-vis the state's statute
of limitations scheme is to find a court case that directly addresses the question. The court
cases will be found in the reporter series that covers your state, and a blurb that cites that
court case (if it exists) will be found in the annotated version of your state's statutes or
code under the section where that particular limitations period is established. Once you
have the court case in hand, you will be able to know (and prove to a judge and to the
creditor's attorney) that your debt is covered by a particular time limit, and you will be
able to determine whether your case is outside that time limit before you answer the
complaint or talk to the judge. Before citing any court case to a court, you need to learn to
shepardize (the act of using a citator service such as Shepard's131 to assess the ongoing
viability of the case as precedent in the court you are appearing before). Some cases have
been frequently brushed aside ("distinguished") by other courts for one reason or another,
128
http://en.wikipedia.org/wiki/Laches_(equity)
129
http://www.law.cornell.edu/uscode/html/uscode47/usc_sec_47_00000415----000-.html
130
Collection Bureau of San Jose v. Rumsey http://www.precydent.com/citation/24/Cal.+4th/301
131
http://en.wikipedia.org/wiki/Shepard%27s_Citations
88
Your state's statute of limitations may be lengthened or shortened by borrowing statutes

that adopt the statute of limitations law of the state where the claim arose, or by a statute
that allows a court to lengthen or shorten the limitations period of another state if the
application of it in a particular case would be seen to work an injustice. The contract may
contain a legal situs provision that in a choice-of-law134 state will determine which state's
substantive laws will apply to the claim. Your state may come down on one side or the
other of the steadily shifting consensus with respect to whether a statute of limitations is
substantive or procedural law. In matters of procedural law state courts invariably apply
their own states' laws, while in matters of substantive law the courts apply other states'
laws when circumstances call for it. If your state is a choice of law state, one such
circumstance would be the legal situs (state) whose law the contract adopts. The interplay
between the two state's laws may be irreconcilable, or it may create a circular "Catch 22,"
and in those instances your court must apply conflict of law135 principles to choose one or
the other.
If you lived for some period of time in a state that you were living in when its statute of
limitations with respect to one of your debts expired, you can often successfully argue
that the claim was not revived when you moved to a state with a longer statute of
limitations—especially if the state where you live has a borrowing statute that adopts the
statute of limitations of another state if that state’s statute expired before you moved
away. But you must beware state law provisions that can keep a statute of limitations
from running at all so long as you are not in a state where a claim arose. A particularly
nasty situation is one where that state's court might have made a ruling that the permanent
tolling of the running of the statute with respect to people outside the state applies even to
people who have never, ever set foot in the state (New Hampshire).136 In my view such a
ruling unconstitutionally denies equal protection137 under the law to U.S. citizens who
happen to reside in another state, however it will stay on the books and be good law
unless and until some person goes to court to challenge it. And unfortunately, debt
situations seldom give rise to constitutional claims that courts will bother hearing.
One benefit of all this confusion is that I view legal situs contract provisions as actually
creating debtor's choice with respect to statutes of limitation by virtue of being an
ambiguity in the contract that must be resolved against the drafter according to
longstanding legal principles that require that. Although the trend is to treat statutes of
limitation as substantive rather than procedural law, this distinction is one that a
consumer cannot be expected to know or understand, so a consumer can assume that the
SOL of the state where he lives applies. Or the consumer can assume that he could take
advantage of a shorter SOL in the state where the creditor claims situs. Either way unless
the legal situs provision is specific in stating that it does or does not apply to statutes of
limitations, the consumer has a couple of good arguments that the shorter statute applies.
134
http://en.wikipedia.org/wiki/Choice_of_law
135
http://en.wikipedia.org/wiki/Conflict_of_laws
136
Avery v. First Resolution. Note also that in this case the consumer was suing for FDCPA violations and
the case boomeranged to her detriment. http://www.websupp.org/data/DOR/3:06-cv-01812-47-
DOR.pdf
137
http://en.wikipedia.org/wiki/Equal_Protection_Clause
90
terms--harsh terms alone (if adequately spelled out in large enough print) would not
allow for relief.
Ownership Quandaries
One key element of the tangled fiasco that has been the mortgage crisis has been
securitization.140 Essentially, loans were sold to investors not as a whole, but sliced up
into “tranches” that were supposed to have been predictable streams of income and
predictable levels of risk. Often the loans themselves were held in trusts that were formed
for the benefit of the holders of the various securities. The trustees of the trusts had duties
to the owners of the securities to preserve the value of their investments, but because
those investments had differing characteristics, an action by the trustee that would benefit
the holder of one type of security would likely hurt another. This built-in conflict of
interest inevitably deprived the trustees of the ability to deal creatively with debtors in
default: all the trustees could safely do was foreclose. Some courts have been extremely
skeptical of these arrangements, and have refused to allow foreclosures to go forward
without someone having authority to represent the ownership of the mortgages step
forward and declare themselves amenable to a workout. Congress and the president have
also stepped in with their efforts to add a bankruptcy cramdown provision to allow for
mortgages to be written down to the value of the homes, but as this book goes to press,
cramdown has not yet passed in Congress. Mortgage problems are not something to take
on yourself, and not something where the help of dubious businesses advertising on
radio, television or with snipe signs are going to really help you. You need a lawyer,
period.
Where you may not need a lawyer is in the area of credit card debt. Because
securitization also took place with respect to credit cards, when such securitization has
been used (you can find this out from press reports) courts cannot be certain whether a
card issuer or JDB that is suing you is the actual owner of the debt. An issuer known to
securitize its cardholders’ debt (for instance, Advanta Bank141 or Bank of America),
should be required to bring in a history of when and to or from whom it sold or
repurchased the account in question, along with documentation of those sales and
repurchases. Without a complete and unbroken chain of title to the debt and live
testimony on the witness stand to establish the validity of that chain of title, the degree of
certainty necessary for a court to render a judgment against you is missing and should not
be glossed over by the court. Although the debt buying industry is not rife with fraud, it
does happen that a debt buyer will on occasion fraudulently sell a portfolio it doesn’t
own.142
140
http://en.wikipedia.org/wiki/Securitization
141
http://en.wikipedia.org/wiki/Advanta
142
Former Debt Buyer Sentenced to Six Years in Prison for Fraud
http://www.insidearm.com/go/arm-news/former-debt-buyer-sentenced-to-six-years-in-
prison-for-fraud
92
often treat the latter with disdain when any real opposition shows up (and sometimes
even when it doesn't).144
For the larger players in the food chain there will be significant amounts of information
available on the Internet, often including their financial health as reported by news
organizations, their actual SEC filings145 if they are publicly traded, experiences written
up by disgruntled employees, debtors' descriptions of their phone tactics, other debtors
describing what percentage settlements they were able to negotiate and whether the
creditor would agree to PFD or to withhold the issuance of a 1099-C form, and any
enforcement actions against them taken by state or federal regulators. For the small fry,
you can also use tools like Google's street view146 to get a look at their business premises
(keep in mind that if you see a gleaming office building it doesn't necessarily mean that
the business you are dealing with is not simply using mail service or a tiny office at an
office-suite business in that building provided by Regus147 or one of its smaller
competitors). Smaller players will often get themselves in trouble by pretending to be a
law firm or a law enforcement agent. A favorite gambit is to form a shell entity or even
just create a phony business name and sometimes even a "tombstone" style single-page
website with a few lines about the nonexistent business so that when you search on it you
will think it is real. Fortunately, they're not always that creative in how they do it and
there will often be clues that something isn't right. One of my favorites was the
essentially nonexistent investigative firm whose made-up name was clearly a division of
an Olympic swimming-medallist and Tarzan actor's last name into two separate names.
Assuming your claim never lands in the hands of a JDB who offers an attractive
settlement opportunity and you find at some point you are dealing with a lawyer then it is
time to take a much closer look at the legalities of whether collection is possible, as well
as the negotiation option and the disclosure option. If you find instead that you are
dealing with a cowboy from Buffalo, it's time to break out the recording equipment and
prepare letters to regulatory authorities and perhaps the attorneys general of your own
state and the one where your opponent is located.
Conditions Precedent
Many types of legal claims cannot be brought unless certain things have happened or
have been done by the party attempting to enforce the contract according to its terms.
These requirements often fall into the category of conditions precedent.148 A condition
precedent is simply something that sets up the ability of a party to claim the benefit of a
law on the books or a clause in a contract. Without the condition precedent there can be
no claim. In a real-life, out-of-court example, a football sitting on a tee is a condition
144
LVNV Funding v. Moehrlin http://www.consumerlaw.org/unreported/content/Moehrlin.pdf
145
http://www.sec.gov/edgar.shtml
146
http://en.wikipedia.org/wiki/Google_Street_View
147
http://www.regus.com/
148
http://en.wikipedia.org/wiki/Condition_precedent
94
done, but it is a much stronger claim where the debt was business debt properly incurred
for business purposes and the guarantor did not personally benefit.
Statutorily Weak Claims
In the run-of-the-mill contract case, the court has a certain amount of discretion in
allowing or disallowing certain evidence, but if the creditor proves its case the court does
not have discretion not to award the creditor a judgment for the amount of its damages
(although if there is no court reporter present, judges often do almost as they please).
That is not always the case, however. For certain claims, state statutes may give the judge
discretion with respect to whether to grant a judgment at all. One example is mortgage
deficiencies in the State of Florida. The Florida Statute on foreclosures puts the granting
of a deficiency judgment in the "sound discretion" of the trial judge.155 Case law has put a
further gloss on the subject, and it provides that the judge must put down a reason for
not granting a deficiency judgment.156
The requirement that the judge put down a reason merely gives an appellate court
something to look at in deciding whether the trial judge has committed an abuse of
discretion, so that "my lunch isn't agreeing with me and I want to go home early and not
waste time determining how much damages this mortgage holder gets so I'm giving them
nothing" isn't going to hold up. But a sympathetic judge will almost always be able to
write down something that will help the debtor while satisfying any concerns an appellate
court might have. What the judge cannot do is overcome evidence in the form of
paperwork and photos. Which means that if you are foreclosed on, you want to leave
your former home in as good condition as possible, as though you were a renter leaving it
"broom clean" in the hope of getting your deposit back. You do not want to spray paint
parting invective on the walls, or let your ferret redecorate the carpets for several weeks
prior to moving out.
If a potential claim against you is going to be discretionary with the court, you also want
to do everything possible to look like the good guy when the court gets a chance to look
at the case. That means that you do not only do you not do unnecessary damage; you
don’t leave a paper trail of profanity-laced letters directed to your creditor. As a practical
matter, you may want to consider every potential claim against you as discretionary with
the court. Unless there is a court reporter at all of the key hearings and there is case law
that flat out says the judge can’t do what the judge did, and the creditor is willing to
appeal, any break the judge gives you is unlikely to be undone.
155
§ 702.06, Florida Statutes
http://www.flsenate.gov/statutes/index.cfm?App_mode=Display_Statute&Search_String
=&URL=Ch0702/SEC06.HTM&Title=-%3E2009-%3ECh0702-%3ESection%2006 -
0702.06
156
Galloway v. Musgrave, 154 So.2d 846, 851 (Fla.App.1963)
http://fl.findacase.com/research/wfrmDocViewer.aspx/xq/fac.%5CFL%5CFL3%5C1963
%5C19630619_0040976.FL.htm/qx
96
some creditors do not provide media to firms with whom they do not have a contractual
relationship, which means that buyers at the second, third and fourth placement levels are
unable to purchase the media directly from the creditor even if they want to. They may be
able to buy or obtain it from a JDB further up the food chain, however. And for older
accounts, some or all of the media is often simply unavailable because of corporate
record retention (destruction) policies. In other cases, the media will be
impermissibly reconstructed (as discussed in the Chapter 4--Nasty Surprises), and should
never be admitted in court as evidence to be relied upon. Discover Card and Countrywide
Mortgage have on occasion been caught reconstructing their media.
Because they are playing a numbers game, most JDBs are largely undaunted by media
problems, they go right on buying “tapes” with only lists of names, account numbers,
social security numbers, addresses and defaulted balances from creditors, and when they
receive a validation request they make a decision whether to sue immediately, put the
claim aside, sell the claim to the next buyer in the food chain or pony up to order the
media. The decision is made based on the JDB's historical effectiveness in suing in your
locality, your credit score, what it can sell the debt for and the cost (and quality) of the
media it needs to buy. JDBs do adjust the prices they are willing to pay for debt based on
their experiences with the quality and availability of cooperation from the OCs, including
the OCs' media. In some cases where a JDB decides to sue, the media its attorney
attaches to the lawsuit papers will be comically faulty.
In one case I know of from a western state, the caption of the lawsuit was the only part
that correctly named the debtor. The body of the allegations had the debtor's name wrong
and named a creditor that the JDB had not purchased the debtor's debt from. The contract
referenced yet a third debtor and the statements reflected the name of a fourth debtor and
yet another creditor. The debtor I was corresponding with researched the claims filed at
her local courthouse by the particular attorney representing the particular creditor and
found that 97% of them were faulty in one way or another. The attorney dismissed the
action against her after being confronted with these facts in mediation. Likewise in New
York, an Urban Justice Center study in 2006 found that in a sampling of debt actions in
99 percent of cases where default judgments had been rendered that the evidence used to
obtain the judgment did not meet the state's legal standards.157 That does not necessarily
mean that if the debtor had defended the case he or she would have won, but it does mean
that the debtors were foolish not to show up and engage in the process. In some cases the
creditor's attorney will be unable to correct the flaw in a timely way, while in other cases
an impatient judge will have seen enough of faulty cases and their claim will be
dismissed, perhaps with prejudice. In New York, as of January 1, 2008 court clerks were
no longer permitted to enter default judgments unless they were accompanied by an
affidavit that asserts the attorney pursuing the judgment has reviewed the original records
concerning the debt.158
157
Debt Weight: The Consumer Credit Crisis in New York. City and its Impact on the Working Poor
http://www.urbanjustice.org/pdf/publications/CDP_Debt_Weight.pdf
158
http://www.newyorkconsumerlitigation.com/new-york-city-civil-court-adds-safeguards-for-consumers-
sued-for-debts/
98
Limiting Database Entries
As the world grows more computerized, Internet-connected, bar coded and RFID-
embedded, we are all more and more naked to the invisible eye. No piece of your
personal information is safe, and creditors can sometimes look at your buying habits
down to the register-tape level if you are a member of a discount club at a grocery store
or pharmacy chain. Every time you do something that generates a public record or make
or miss a credit card payment, that information becomes available to your creditors by
virtue of Choicepoint, Lexis/Nexis and the CRAs. Any movement on any database that
indicates an increased ability to pay on your part may be reason for them to wake up and
perhaps even to pounce. Creditors also use scores like Equifax's Bankruptcy Navigator
Index or BNI.159 BNIs range from 1 to 300--higher scores predict lower risk of a
bankruptcy filing. If a collector reasonably believes you'll go bankrupt then your file may
not even get worked. If there is little chance of triggering bankruptcy, they'll be
clamoring to get paid. The bankruptcy score cannot improve much without data points
that indicate things like going back to work (many debtors foolishly start applying for
credit again the moment they have a job) or paying off creditors (a good reason to keep
settlements confidential, as mentioned below).
You can fight back against being tracked by living an all-cash (or even barter) lifestyle
that denies creditors a peek at your personal information. You can have any cars that you
drive titled in relatives' names; you can avoid turning on electricity or signing a lease in
your own name. At work, you can ask the human resources department to double-check
with you before responding to any inquiries about your employment or pay status. You
can opt out of marketing lists and you can avoid buying electronics and appliances new at
big-box retailers. These choices become more and more onerous the harder you work to
avoid leaving footprints. And at some point a lack of paper and electronic footprints
becomes a failure to live openly and notoriously that can trigger tolling in some states’
statutes of limitations.
As discussed in the Chapter 4--Nasty Surprises, if overused these methods can at some
point also cause you difficulty down the road by turning you into a ghost. Ghosts are
individuals whose credit files have become exceedingly thin or have even emptied out
entirely. It can be difficult for a ghost to ever get credit again.
Less difficult and often more effective than keeping new entries from showing up on your
credit and public record reports, you can avoid updating existing entries on those reports,
as was discussed in the Chapter 4--Nasty Surprises. Having creditors you have settled
with omit to show the settlement on your CRA reports, and delaying or avoiding
recording judgment satisfactions depresses your credit score and keeps other creditors
from knowing that you have an increased ability to pay.
159
http://en.wikipedia.org/wiki/Bankruptcy_risk_score
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Asset Protection, Asset Hiding, Asset Evasion
Asset protection is the term given the legal planning opportunities that every individual
has to put money or move money or other assets from categories that are nonexempt and
can be reached by creditors to categories or places where creditors cannot legally reach. It
does not involve any failure to disclose or any impropriety. Methods of asset protection
include putting money in retirement accounts, moving to states where state-law
exemptions from creditors remedies are generous (such as Texas and Florida), the
formation of asset protection trusts inside or outside the U.S., and dispersal of assets into
many entities and many legal jurisdictions. All of this is perfectly legal.
Asset hiding is the use of less proper means to attempt to keep creditors from learning
what assets you have and where they are. Asset hiding techniques would mostly come
under the heading of moving assets physically away from your home or putting them
somewhere within the home where they could not be found during an inspection. Asset
hiding is not particularly effective where records of your purchase of the asset exist and
are in the hands of the creditor, such as where you bought a flat screen TV from a big-
box retailer on your credit card, or where the asset appears in public records of registered
vehicles, vessels or aircraft. Asset evasion techniques can include the use of false names,
retitling assets into the names of friends or family members, and many others.
Asset hiding and asset evasion are both improper, and in the appropriate case courts
(especially bankruptcy courts) will sanction those who engage in it, sometimes even with
criminal law sanctions, including imprisonment without trial (asset hiding and asset
evasion can be viewed as contempt, and courts get to deal with that in summary fashion--
no trial, just punishment).
One of the all-time losers in the asset hiding and asset evasion game was Richard D.
Schultz, himself a collector. He owned the collection agency National Revenue
Corporation, and his business practices with respect to his horse farm got him sued for $5
million in 1994. He sold his company and created an elaborate scheme to make it look as
though he lost the proceeds of the sale in various failed investments, meanwhile the
money actually went overseas to the Bahamas, the Cayman Islands and to Guernsey
Island in the English Channel, Canada and the tiny nation Luxembourg. Mr. Shultz,162 his
brother, as well a Canadian accountant,163 a London attorney, Florida attorneys, a Florida
accountant and others were also convicted or plead guilty in the scheme to defraud both
the IRS and Schultz's creditors. One of the Florida attorneys committed suicide the day
after he was indicted.164 While living in a trailer park after his release, Richard D. Schultz
committed suicide in March of 2009.165 In general, any asset hiding and asset evasion that
leaves a paper (or electronic) trail is courting disaster.
162
http://www.creditcollectionsworld.com/article.html?id=20061016C941SSVR
163
http://www.usdoj.gov/tax/usaopress/2003/txdv03ohs30627_2.html
164
http://www.creditcollectionsworld.com/article.html?id=200610163UKY31QU
165
http://www.azdailysun.com/articles/2009/03/20/news/local/20090320_local_193069.txt
102
Consumer Attorneys and Legal Aid
If your income is low enough, you can often get help from your local legal aid office. If
the misconduct of the creditor is bad enough, you can often turn to consumer law
attorneys in your area (check NACA.net)167 on a contingency basis (meaning they don't
get paid unless they win a judgment or settlement from the collector). In addition, states
attorneys general168 are often quite interested in collector misconduct, as is the Federal
Trade Commission.169 Don't expect the latter two to necessarily help you out as an
individual, but in many cases they will go after and fine or shut down abusive collectors
such as CAMCO. One thing that is important to realize though when a collector is shut
down is that the assets (which include the junk debts) of the collector may go into
bankruptcy proceedings and wind up being bought by another collector who will start the
cycle all over again. Just because one collector is made to stop collecting a debt does not
mean that the debt is dead.
Conclusion
Debtors are often unaware of the powerful tools they can wield against the creditor. Even
tools that are arguably improper can often improve the debtor's position, if the debtor is
careful and willing to back away from them if they reveal themselves to be liabilities.
When it comes to taking care of your family or paying some creditor who long-ago wrote
off your debt and got a tax break from Uncle Sam for it, you will need to judge who is
more deserving, your loved ones or a JDB and its attorney.
167
http://www.naca.net/
168
http://www.naag.org/
169
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre18.shtm
104
utterly defeated, but because that is the way to illustrate what can happen—and show that
even defeat isn’t necessarily all that bad). Along the way, I’ll mention each and every
point where the case could be thrown off the rails or potentially settled.
A creditor with a claim will typically pull your credit report to see how much debt you
owe and to obtain a bankruptcy score that it can use in order to calculate how much it
might recover from a case against you. In many cases a public record report will also be
pulled to try to ascertain what you own. Anything that you own in your own name that
has to be registered with the state or on file at a county courthouse is going to show up,
along with any businesses you are associated with, etc. These assets will be considered by
the creditor to be available to it to the extent they are nonexempt or that their value
exceeds bankruptcy exemption amounts. However, the creditor will deduct the value of
any liens on the property. Because mortgages are public record and on your credit report
and car loans are likewise typically on your credit report (along with most if not all of
your credit cards and other loans), the creditor can make reasonably accurate estimates of
what you own and owe to the extent that you have not taken steps to obscure ownership
and the resolution of any other defaulted debt.
If the asset and liability picture makes you suitworthy, the creditor will send its file over
to an attorney with direction to contact you in an effort to get you to pay up. Typically at
this stage the attorney’s office will attempt to increase the claim against you by charging
you some threshold amount for its charges just to take the case. The attorney’s office will
also have a pre-determined settlement authority, and the ideal settlement from their point
of view is 100% of what the creditor is claiming plus the attorney’s fee. They will more
likely agree to full payment over time (at an ongoing interest rate) than to a lump sum
reduced settlement. Keep in mind that if they can get you to agree to a settlement that you
pay over time, that will constitute a novation and will start the statute of limitations clock
running again from day zero—regardless of whether the case was out of statute when
they contacted you.
Attorneys are very careful to attempt to calculate the statute of limitations accurately and
begin lawsuits prior to its expiration, but even they can make a mistake on occasion—
especially in situations that involve your having moved from one state to another while
owing a defaulted debt. However, you can be sure that if the statute of limitations is
rapidly approaching they either have a strong argument for why the date you’re
considering as the deadline does not apply or they intend to sue within that date.
Although it is possible that a deteriorating financial picture on your part may dissuade the
attorney from pursuing the case and the statute date may pass because the attorney and
the creditor made a mutual decision to allow it to do so, such a circumstance is rare once
a genuine attorney’s office (not a rent-a-letterhead hollow-shell firm) has your file.
Some attorneys’ offices ignore the statute of limitations on the belief that they can get
default judgments and collect even on older cases. In some instances, the attorneys are
extremely unethical and they string together several misdeeds in an effort to collect: if the
case is out of statute, they file it anyway and make sewer service on the defendant, then
they get a default and they let it “season” for a year to make it harder to reopen on a
106
the law that are quite technical and that will require more knowledge than you may be
able to acquire in the time that you have available. The greater the amount at stake, the
greater the number of statutes or acts involved in the case, the greater the number of
witnesses and the likelier the case is to actually go to trial, the more you need an attorney.
As mentioned in Chapter 4--Nasty Surprises, a lawsuit begins when a complaint is filed

with the court (exception: states like Minnesota and Washington have pocket service, and
much of the case may be in process before the court ever becomes aware it even exists).
Once the lawsuit is filed, you must either appear at a pretrial hearing (for small claims
cases) or file a formal answer (which may need to be sworn in some cases) and file your
affirmative defenses unless you are filing instead a motion to dismiss or another type of
motion that is proper to file before the answer. But first there must be service of process
on you.
Service of process means that a copy of the complaint and any supporting documents are
attached to a summons, which is a legal document identifying the court in which the case
will be tried and how, when and where to respond to the complaint. The summons in
small claims actions will typically direct you to a pretrial hearing on a certain date, while
the summons in a court with jurisdiction over larger amounts must be responded to in
writing (not with a mere letter, but with a legal document called a pleading, that either
seeks to dismiss their case, or an answer that mirrors their complaint and responds to it
point by point). Do not send a letter to the court or the attorney. You must send a
responsive pleading (which looks like the complaint they sent you), and it must go to
both the court and the attorney.
Creditors' attorneys often win default judgments because of sewer service, which is
simply a term for a fraudulent return of service by a process server. Process servers are
supposed to find the defendant and personally serve him or her (or someone in the
defendant's household over a certain age) with the lawsuit. In some cases, states permit
methods of service that are not guaranteed to provide actual notice of the lawsuit to the
debtor. These kinds of service are often termed nail and mail, meaning the process server
needs to affix a copy of the complaint to the defendant's door and mail a copy as well.
The lawyers who are filing the lawsuits are supposed to use reasonable diligence to
ascertain where the defendant lives and they are supposed to have their process servers
make reasonable efforts to make good service. The problem comes when the defendant
has moved and either did not make his move "open and notorious" (by, say, filing a
change of address notice with the post office), or when the lawyer filing the case either
chooses to serve an invalid address or the process server does not follow the appropriate
procedure.
A lawsuit that is never served on you but which has a false return of service will still
result in a default judgment, however that default judgment is voidable and can typically
be vacated easily, regardless of whether you had a meritorious defense, provided you
address it within a reasonable time after you learn of it.
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fully document the initial contract that established the credit card account and the charges
and payments. They may have every piece of paper they need, but without someone from
the original creditor to testify to their validity and correctness, their paperwork should
not come into evidence because it does not qualify for the business records exception to
the hearsay rule. For creditors that are out of business or operating from a distant state,
the need to put on live testimony should be fatal (although sometimes the creditor will
attempt to rely on phoned-in testimony, which you should object strenuously to).
Another problem that JDBs often face is the inability to “prove up” the chain of title for
the debt. If the debt has moved through several JDBs, they need to prove that the OC sold
it to JDB1, that JDB1 sold it to JDB2, that JDB2 sold it to JDB3, and each of these sales
needs solid paperwork to back it (the sale documents are called assignments and bills of
sale)—paperwork that must be able to satisfy the business records exception to the
hearsay rule (meaning more witnesses—a different one for each document).
Barbara Sinsley, Counsel for DBA International and partner at Barron, Newburger,
Sinsley & Weir, has been quoted in Collections & Credit Risk magazine’s February 2008
issue lamenting the situation: "The judiciary is just not familiar enough with debt buying.
Evidentiary standards, for example, shouldn't be higher for buyers than for any creditor.
My role is to help the courts answer: 'How can buyers provide information the courts
need without needing to provide detailed documents from creditors that judges often want
but don't really need?'"171 Never mind the documents Barbara, what about the witnesses
to support the admissibility of the documents? The fact is though that evidentiary
standards are not higher for JDBs, the evidentiary standards are simply much, much more
difficult to meet because the JDBs have purchased claims they cannot (profitably) prove
under the standard of proof that courts rightly require.
Without making efforts that are out of proportion to the size of the dispute, JDBs
typically can’t adequately prove they own the debt, they can’t adequately prove the chain
of custody of the debt from one buyer to another, they can’t adequately prove the details
of the account or that there even was an account. And if any of those proofs proves
flawed the court should toss the case. Once cases get past the stage where the debtor
ordinarily defaults, JDBs prosper in court only to the extent that they are able to
hornswoggle courts into winking at the requirements of the laws that are on the books in
every state in the nation—unless they really do produce those witnesses at trial (which
seldom if ever happens).
For the debtor, solid motions to strike affidavits along with requests for admissions and
interrogatory questions designed to expose weaknesses in the creditor’s documentation
will go a long way to resolving the claim favorably.
Shifting gears, let’s take a look at the players in the court drama. Knowing who you’re
dealing with and what their motivations are can mean the difference between frustration
and a good result.
171
Collections & Credit Risk, February 2008, p. 25
110
Attorneys may also want to attend hearings telephonically. Even though it is more
convenient for the opposing attorney (and your first reflex might be to oppose allowing
them to attend telephonically), there are few circumstances where you would want to
object to an attorney attending a hearing telephonically because the attorney is giving up
a key advantage. An attorney who is talking to a judge on a speakerphone is at a distinct
disadvantage compared to a party to the case who is in the courtroom or judge’s
chambers. The judge can see you, and you are clearly showing that the case has
importance for you by actually making the trip. The attorney who is “phoning it in” is
weakening his position, and has no opportunity to assess the judge’s (or your) facial
expressions and body language.
Judges
Judges are the key players in the court game. Judges determine the facts, analyze the law
and apply the law to the facts to reach a decision that almost always sticks. It really
hardly matters what their attorney does, what you do, what the clerk does, etc. if the
judge wants to do something that isn’t in line with what they’re doing the judge’s choice
will prevail. Judges answer to the chief judge of their court, the board that disciplines
judges, the appellate court above them and perhaps (but in many states not) the voters.
Most of what judges do in their courtrooms is at their discretion and higher courts are
only going to undo what they have already done in a very exceptional case. The appellate
courts that review judges’ decisions carefully throttle the number of cases they are called
upon to review and perhaps change.
The key mechanism the appellate courts use to weed out the cases they will look at is the
standard of review. The standard of review can be thought of as a yardstick for whether
the appellate court will fix mistakes. Small mistakes are seldom if ever addressed by
appellate courts. In situations where lower court judges have discretion (mainly those
regarding the establishment and interpretations of facts), the standard of review is abuse
of discretion, which means that to get the judge overturned the party to the case who
didn’t like the result has to prove that the judge made a decision so bad that it can be
called abusive. If a judge lets in a piece of evidence that he shouldn’t have, that may not
be an abuse of discretion. If a judge doesn’t let one side speak at all, that would definitely
be an abuse of discretion. Situations in between are often hard to guess, though there will
be a lot of case law on what is or is not an abuse of discretion because it is often all that
parties who want to appeal cases have to go on.
The standard of review is different for matters of law. If a judge’s decision gets the law
wrong, the losing party can often appeal on that basis if the losing party wasn’t the one
who urged the judge to get the law wrong and if the losing party properly preserved the
point for appeal by pointing out to the judge that the judge was getting the law wrong at
the time the judge in fact got the law wrong. There is another doctrine in the law that
prevents cases from being overturned where the error didn’t affect the outcome, however.
It is known as harmless error. The bottom line is that you need to get the trial right;
appeal is seldom a real option for the debtor in a debt case.
112
Judicial Assistants
Judicial assistants are the judges’ secretaries. They cannot give you legal advice. They
keep the judges’ calendars, type their letters, answer their phones and otherwise serve as
a buffer between the judges and the public. Judicial assistants cannot advise you
regarding the law, but they can help with scheduling hearings, which is the key reason to
deal with them. If you file a motion, you will need to schedule a hearing on it in order to
get a ruling and change the course of the case (or potentially bring it to a screeching halt).
The judicial assistant is the gatekeeper who will give you that hearing date. Once you
have a hearing date (actually she will give you a set of hearing dates), you will contact
the other side’s legal assistant and obtain their agreement to one of the dates. Then you
will prepare a notice of hearing and send it to the other side and the court.
Clerks
The court clerk presides over the office that keeps track of all the papers that come in.
The clerk’s employees clock in the papers so that the official date and time they were
received is tracked, then they route those papers to the appropriate file jackets. They see
that the file jackets get to judges’ offices when they are needed and are refiled in the right
places when they are not in use. The assistant clerks who man the desks at the courthouse
are there to make sure that the papers you present are in good order and that they go with
the appropriate files and that the correct fees (if any) are collected. They cannot give you
any legal advice. Their roles are strictly defined, and that’s all they can do.
Court Reporters
Court reporters are trained stenographers who take down every word of testimony in
court proceedings and also in depositions. They charge for this service. The party
requesting that the court reporter attend a session pays the court reporter to do so, and any
party that orders a transcript also pays for the transcript. Unless a court reporter is present
for a court hearing, most of what the judge says and does in the hearing will not be
grounds for appeal. You always want to know whether the other side will have a court
reporter in attendance, and if they are not planning to hire one, you may want to hire one
yourself.
Attacking a Debt Case
In court, a debt case typically stands on four legs: standing, liability, damages, and being
filed within the limitations period. If they’re not the creditor (or they can’t prove it), they
don’t have standing. If you’re not the debtor (or they can’t prove it), you have no
liability. If you don’t owe money (or they can’t prove you do), they have no damages.
And if the case is filed past the applicable limitations period, it should be dismissed on
that basis. There is an invisible fifth leg that is an out-of-court consideration:
collectability. If you’re too flat broke to pay and have no prospects of coming up with
money in the future, their suit is pointless and it doesn’t make sense for them to bring it.
114
It’s the same with a written contract versus all those COAs that are “something less.”
And because the creditor will almost always choose to allege the contract, you are in a
position to make the creditor drop those claims that are something else. If possible, you
want to leave the creditor with a claim that cannot be proven, but if that isn’t possible you
want to leave the creditor with the claim that minimizes the damages.
Damages and standing are proven by an account history. The account history is
established by one or more written documents that must be admitted into evidence in
order for the court to rely upon them. In order to be admitted into evidence, they must
meet an exception to the hearsay rule (the court rule that says that things not directly
experienced by the witness are not evidence—secondhand statements are not testimony).
They key exception to the hearsay rule for documents such as the ones needed by the
creditor is the “business records exception.” The business records exception applies when
a records custodian from the business that generated the records testifies that they are
authentic. In order for that person’s testimony to be accepted, they must know the record
keeping operations of the business inside and out. The records must also have been
generated at the times they purport to represent—later reconstructions should not be
admitted into evidence.
Finally, if applicable, the statute of limitations defense is the fourth prong of attack
against a typical debt case. The defense is part of the answer, but is not plead in direct
response to any of the allegations (you answer each and every allegation of the complaint
just as though the affirmative defense was not in the mix). Instead you add a separate
section to your complaint entitled “Affirmative Defenses” and you place your statute of
limitations defense there, along with any other affirmative defenses you may want to
plead. The precise language to plead an affirmative defense in your state is beyond the
scope of this book, but in many states a simple statement such as: “The plaintiff’s cause
of action accrued prior to the September 22, 2006 (X years prior to the filing date), and
was filed on September 22, 2009, hence it is barred by Y state’s (the state chosen in the
agreement) applicable three year statute of limitations.” Usually you’re in small claims
court, and there won’t be a discovery process. The judge will ask the other side to come
up with evidence of a more recent payment or an explicit new agreement on your part to
pay (a novation). In a court with jurisdiction over greater dollar figures where the
discovery process is in play, it is up to you to prove your defense, so you will need to
request the necessary documents and answers from the other side. That means Discovery.
Discovery
In the old Perry Mason TV show, the trials were “trials by ambush” with Perry Mason
always pulling out some surprise witness to unravel the hapless prosecutor’s case. You
have probably heard countless times that court isn’t really like that. On Boston Legal
cases seem to get filed one day and tried the next … again, they’re on TV, not in the real
world. In real life, court cases are tried months, sometimes years after they are filed, and
the small percentage that are tried get to trial after a long process designed to wring out
those cases that are not real, substantial candidates for trial. A major part of that process
116
2. Cause your opponent to commit to using witnesses identified to you early and
allow you the opportunity to depose the witnesses prior to trial; and
3. Provide you with every piece of paper that they intend to rely on at trial to prove
their case.
The details of discovery are not something that is within the scope of this book. In most
cases you can find detailed help on credit and debt related bulletin boards.
Creditors attorneys are not shy about asking for information that they are not yet entitled
to. One key line of questioning that you should object to in a debt case would be any
questions about your assets and liabilities. Unless and until they have a judgment, it is
premature to ask you information about your financial circumstances. You should object
to making any such answers.
Legal Issues
At some point in the case, certain legal issues may emerge and the other side may submit
a memorandum, or the court may ask you to submit a memorandum. For someone who is
not a lawyer, this is a difficult situation. Nonetheless, non-lawyers can and do write legal
memoranda. After all, law school students do it even though they are not yet lawyers.
Teaching you everything you need to know about writing legal memoranda is beyond the
scope of this book, but here are the general principles you need to know. Legal principles
flow first from the English Common Law,178 a body of laws that arose in the courts of
England prior to 1776. After 1776, the common law of the U.S. diverged from England,
and each state in the union began codifying statutes, which override the common law.
Fleshing out the statutory skeleton that stands on the common law foundation is case law.
Case law is the record of decisions of appellate courts in your state. A decision of a court
that the court you are in answers to is binding precedent, while a decision of a court in
another part of your state or in a different state is merely persuasive. Each decision that
you will rely on in preparing your memorandum must be Shepardized (looked up in
Shepard’s citator179) to assure its continuing validity. If other cases routinely follow it
then it is a leading case and your court should follow it too. If other cases have
questioned it, your court may not give it as much weight as it does other cases. If it has
been overturned, its precedent value is largely destroyed.
Legal issues can be substantive or procedural. The former will typically be the laws of
contract, debt, and accord and satisfaction. The latter will be governed by a different set
of rules typically known as the Rules of Civil Procedure.180 The statute of limitations
often straddles the fence between substantive and procedural law, although the modern
178
http://en.wikipedia.org/wiki/Common_law
179
http://en.wikipedia.org/wiki/Shepard%27s_Citations
180
http://en.wikipedia.org/wiki/Civil_procedure
118
do is to hear the direct testimony of witnesses on issues of fact that are still in dispute,
and the cross-examination of those witnesses, as well as to admit the evidence that is
admissible. In some cases, one side or the other will want to disqualify certain documents
or even witnesses from testifying, and this is accomplished using a motion in limine (to
eliminate) those items that are undesired by one side or the other. The court rules
evidence admissible or not according to the rules of evidence, which provide clear-cut
answers in some cases, and in others require a court to determine whether evidence is
more prejudicial than it is probative. In cases tried without a jury, courts are much more
likely to just decide what to pay attention to on the spot rather than go through
evidentiary motions. Juries need to be shielded from inadmissible evidence, while judges
presumably know what to give weight to and what to ignore in their own courtrooms.
Mediation
After discovery, most cases go to some form of mediation.183 This is a meeting between
you and the opposing party’s attorney, with a mediator also in attendance. Mediators are
typically retired businesspeople. The mediator hears both side’s cases (without witnesses)
and attempts to convince each side to settle the case. If the case settles, that’s the end of
the matter; however if it does not settle, the mediator sends a report to the judge
regarding the mediation. That report may call one side or the other unreasonable. You
don’t want that to happen to you.
Trial
Trial is the process of addressing and hearing evidence about any issues in the case that
are not agreed upon (stipulated to) by the parties. Each side will call their witnesses,
establish the witness’s qualifications to testify, and question them about the facts of the
case and about the certainty with which they know those facts. The court will hear all the
testimony, and then the jury (if any) will reach a verdict and the court will make its
judgment.
In general, you should know your case better than the other side, and you should be ready
to question each witness who is favorable to you and to cross-examine each witness who
is not favorable to you in such as way a to call into question their credibility on the key
issues. Or you should hire an attorney, even at the last minute, to come in and do that for
you.
Realistically, it is unlikely that you will take a case to trial unless it is a small claims case.
And as a nonlawyer it is also unlikely that you will be able to successfully handle a trial
in anything other than small claims court. But if you cannot get a case dismissed near the
outset, you can often put a case in a position where the other side will not receive a
summary judgment, and less frequently you will be able to ask for a summary judgment
of your own. In the meanwhile, you can plan for a way to resolve the case for the fewest
possible dollars.
183
http://en.wikipedia.org/wiki/Mediation
120
But if nothing much happens do not make the mistake of believing that the creditor is
necessarily abandoning further pursuit. The creditor may be following a lurking strategy,
and may even sit on the judgment for a number of months (if not years) before re-
evaluating it for wage garnishment, asset seizure, etc.
If the creditor does require you to produce financial records, you need to review Chapter
5--Debtors’ Secret Weapons for the concrete steps you might take to make the creditor’s
life more difficult and your negotiations to settle the claim potentially more favorable to
you. Collections attorneys often refuse to take less than 100 cents on the dollar, at least at
the outset; however months or years of frustration on their part can change their minds, or
cause them to sell the debt to another junk debt buyer--and the next owner may be more
amenable to negotiation because they paid less for the debt. Judgments can also be
entirely forgotten by the creditor.
Before you have a judgment against you, you should know what your state’s exemptions
from levy are. If you are facing wage garnishment, you should know your state’s
exemptions from garnishment. Some states exempt heads of household while other states
have family and hardship exemptions that can reduce garnishments, often to zero. You
will have to go back to court to assert these protections if they become necessary.
Conclusion
Court does not need to be a completely bewildering process. Although many people don’t
take the time to understand how court works and they consequently allow themselves to
be intimidated from participating in the court process, if you arm yourself with
knowledge and are willing to show up and state your piece to the judge you can usually
improve your position. Do not ever make the mistake of just rolling over by ignoring
papers from the court. Always show up; always make the other side prove their case.
And even if you lose, do not give up hope. I personally know of a couple that suffered a
crushing judgment that almost reached six figures, but it was only chief among a lot of
other financial blows. They lost their home, but found a nice rental nearby. They had to
go to a single deposition in aid of execution—the creditor never collected a dime and
never troubled them again. They did not declare bankruptcy, and never received a form
1099-c. Within 7 years their credit was clear and they did things like trade in cars for
newer used ones bought on credit. The breadwinner had to work on past retirement age,
but within a couple of years after the spouse died the breadwinner retired on a pension
and bought a house in the exurbs, a single county away from their former home—even
though the judgment had technically not yet expired and with interest was worth well into
six figures. The judgment wasn’t on the CRA reports and wasn’t picked up in the
underwriting process, and within months it finally expired without ever having been
renewed. The creditor simply didn’t have the will to continue to sink money into trying to
recover on that judgment, even though he could have garnished the breadwinner’s wages
after the death of the spouse and potentially also attacked the breadwinner’s bank
accounts and even taken a paid off car with considerable value over and above the
exemptions.
122
Chapter 7 -- Bogus Solutions and other

Pitfalls
"The easiest way to be cheated is to believe yourself to be more cunning than others." -- Pierre Charron,
French philosopher
Action Items: Learn what doesn’t help and why you should stay away from it
Debt Termination
The Internet is rife with hucksters peddling bogus solutions to your debts, or things that
simply do not produce the best results. One of the most prevalent among the bogus ones
is the “no money lent” debt termination scam.185 The fraudsters take $2,500 or so of your
money and claim to teach you the secret that banks do not actually lend real money and
thus they cannot recover from you in court. This is blatantly untrue and courts do not
accept it. Other scammers attempt to convince you that your debt can be transferred by
you to some irresponsible third party who will then be the only one the creditors can go
after. Again, this isn’t true (although the creditor can sell the debt to another buyer—they
can transfer, you can’t). In another dodge they would have you claim that the name they
sued in isn’t you because it is printed in all capital letters and somehow refers to a “straw
man” who doesn’t really exist and isn’t the debtor.186 In general, the Fifth Amendment to
the U.S. Constitution requires that every court in the land uphold contract law even when
the government itself improperly tries to impair it, and those few artful dodges that
sidestep that requirement (and their limitations as well) are explained in this book.
Still other hucksters may claim that once a creditor charges off an account it is no longer
enforceable against you by them (or by a third party who buys the debt from them). That
is simply not the case … nearly all loans can be sold or otherwise transferred (the nearly
universal clause that allows it is termed an assignability clause) and the new owner
simply steps into the shoes of the old. The sole caveat is that the assignment must be
properly documented and if necessary witnesses need to be produced in court to qualify
that documentation to be admitted under the business records exception to the hearsay
rule.
Volenti Non Fit Injuria
This is another bogus legal argument. In tort law (the law you use when a negligent
driver injures you, for example), if you consented to the other party’s act you have no
right to sue.187 If you’re in a boxing match and get hit in the stomach, the doctrine means
you can’t sue your opponent because your appendix burst. Some folks will try to
185
http://www.debtjurisprudence.org/invalidation.html
186
IRS Revenue Bulletin 2005-14 on the “Straw Man” http://www.irs.gov/irb/2005-
14_IRB/ar13.html - d0e756
187
http://en.wikipedia.org/wiki/Volenti_non_fit_injuria
124
solution for someone with smaller balances and the prospect of better days ahead
economically, it is usually not as good a solution as a debtor might obtain in formal or
even informal bankruptcy. The credit counselors are basically working for the creditors
as a kinder, gentler form of collection agent (the creditor kicks back to them a small
percentage of what the debtor pays, which is called the “fair share” payment). They
simply will not negotiate your balances down, though they may eliminate some interest
and penalties.
Many credit counseling services were fly-by-night, and the IRS began taking a very hard
look at their nonprofit statuses several years ago.188 That does not mean that there are not
legitimate, ethically unblemished credit counseling services out there. It just means that
you may need to put in some effort to find a good one. A good starting place is the
website http://www.nfcc.org/. 189
If you do choose credit counseling, it is best to withdraw each account from credit
counseling one or two payments before it is paid off. When you do this, the notation for
the account will not show credit counseling. Paid off TLs that do not have a credit
counseling notation are rated better than those that show credit counseling.
Debt Settlement Companies
Debt settlement companies charge you money up front, and then they take money from
you periodically with no guarantee that it is actually making it to creditors and reducing
your debt. Debt settlement companies keeping the money they paid in and leaving them
no better off have burned many people.190 They are almost never nonprofit businesses,
and their methods are hit and miss. Some creditors flat out refuse to work with debt
settlement firms. A major drawback to debt settlement firms is that they do not negotiate
for the creditor not to issue a 1099-c form, which can leave you owing thousands in taxes
you didn’t expect (this is something you need to negotiate for on your own if you
negotiate settlements to your debts). Debt settlement firms also will not typically
negotiate the notation on the TL.
In order of preference, you would want the notation to be paid in full, paid, settled, settled
for less than amount owed (provided you do not have other debts you will need to pay, in
which case the order is reversed)—if you accept any notation at all rather than insisting
on a pay-for-delete or an agreement not to update the account and not to respond to your
disputes. Typically a debt negotiation firm’s work will stick you with the last, worst
notation on the foregoing list. They also will not negotiate the timing of the reporting of
the payments or the creditors’ non-responsiveness to future disputes. In other words, they
leave the creditors’ credit reporting entirely to the creditors’ usual method of operation—
a result that you often could modify in your favor if you negotiated on your own behalf.
188
IRS Revokes Tax Exempt Status of Dozens of Credit Counselors http://chronicle.com/article/IRS-
Revokes-Tax-Exempt-Status/37036/
189
http://www.nfcc.org/
190
An Inquiry Into Firms That Offer To Cut Debt
http://www.nytimes.com/2009/05/08/business/08settle.html?_r=2
126
assets, you need an attorney (Chapter 7 “no assets” cases are more amenable to “do it
yourself” bankruptcy). If you are an impoverished provider for your children and your
wages are being garnished, local legal aid or a law school legal clinic should be able to
help you reduce or even eliminate the garnishment. Many attorneys will give you a free
consultation, and it often makes sense to organize all your documents and go in, just to
get a read on how much an attorney can really help you. Attorneys who do (or may) work
for you are not a pitfall. In this chapter we’re focusing on the other side’s attorney.
A key thing you should never do is trust the word of an attorney who is trying to collect a
debt from you. Do not trust that person is actually an attorney. Do not trust that they are
actually admitted to practice or authorized to collect in your state. Do not trust that
anything they propose is the best alternative for you. Do not trust any statement that you
do not need to answer any court document or attend any court hearing. There are far too
many tales of woe from individuals who signed paperwork that revived expired debts, or
who skipped a hearing the attorney told them they didn’t need to show up for, or who
were told they had no possible defense to a debt case that could have been defended on
any number of grounds. Don’t take anything they say at face value. Assume there is
always a better solution than what they propose.
As an attorney, I find creditors’ attorneys who trick debtors to be the most unethical
creatures walking the face of the Earth. The rules of professional conduct for attorneys
are very detailed and specific regarding how they must deal with unrepresented persons,
and in every other area of the law attorneys are scrupulous in this regard. Somehow it
goes out the window for a significant part of the creditors’ bar, and they are rarely held to
account.192
“Helpful” Collectors
Every collector just wants to get your money and be done with you. A great many will
tell you that up front, but others take a different approach. Starting in the late 1980s and
reaching its zenith in the mid-1990s before going spectacularly bust in 1998, Bill
Bartmann’s Commercial Financial Services, Inc. pioneered a new approach in working
with defaulting debtors: they were nice.193 The collectors took a “cooperative” rather than
a confrontational tone with debtors. As a result, CFS appeared to prosper. Today many
collectors attempt to emulate CFS’s approach.
The problem for the debtor is that these firms really still just want one thing: money. And
they have committed themselves to using every analytical tool and every psychological
trick in the book to get it. Dealing with this sort of collector on the phone is like cozying
up with a seduction specialist from the CIA. You need to constantly keep in mind that no
collector ever wants to help you more than they want to help themselves. In dealing with
them, you still follow the same rules and get the same assurances in writing before
192
Ethical Considerations Particular to the Collection Attorney
http://www.dudleyandsmith.com/mktethics.html
193
http://en.wikipedia.org/wiki/Bill_Bartmann
128
back.195 CRAs have internal auditing software and procedures that they do not tell their
employees about (or perhaps they do tell them, a few just don’t get it).
Another credit doctor “trick” is to have you register for an EIN (employer identification
number) with the IRS and attempt to pass it off as an SSN (social security number). At
one time, this gambit (known as file segregation) actually could succeed in getting you
some credit.196 Now it’s just likely to get you investigated for fraud.
Paper Tripping
Once upon a time young men who wanted to avoid the Vietnam War bought a book
called The Paper Trip197 and obtained the birth certificates of children who had died in
infancy in order to assume their identities and avoid the draft. Others who had bad credit
would do the same thing. It’s fraud, and it’s a lot harder than it once was, especially in a
post-9/11, Patriot Act and RealID world. In short, if you try to do this you will get caught
and you will be looked at as some sort of terror suspect and you will have a lot more
trouble than if you had just lived with whatever credit or debt problems you have.
195
Fraud At Credit Bureaus Alleged, Los Angeles Times, August 31, 2004
http://articles.latimes.com/2004/aug/31/business/fi-credit31
196
‘File Segregation’: New ID Is a Bad IDea
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre23.shtm
197
http://www.edenpress.com/category.asp?index=15
130
acceptable terms, and leaving the others to twist in the wind or sell the debt to someone
you can negotiate with or conquer if need be.
Different ways of dealing with debt have either time-honored names or newly minted
catchy names: Bankruptcy, Credit Counseling, Debt Settlement, and Debt Elimination.
Thousands are already using the methods suggested in this book, but the methods have no
catchy name. The closest I can come is the term Debt Navigation, which gives some
hints as to what you need to be doing: charting a course, knowing where the hazards lie,
but being cognizant that there are forces at work over which you have little control and
that you may have to respond to when they suddenly arise. Whether you choose to think
of the environment in which you are working toward solving your debt problems as a
mountain climb, or a trip down a hazardous river or along a rocky archipelago, or making
your way across a battlefield or a minefield, the notion of removing the effort from day-
to-day monotony of your life and placing it into a context where strategy and tactics are
necessary should give you the intensity of focus you will need if you are going to achieve
success. Ultimately, it is more your determination, persistence, and willingness to roll up
your sleeves and do the work to battle your opponents that will determine your results
more than the amounts you owe and who you owe them to.
Once you have picked your way through the debt minefield, there will be time to go back
and improve your credit rating. Because it would be such a costly mistake to try to do that
while under the debt cloud, I have for the most part left the techniques of improving your
credit out of this book—referring to them mainly in the context of what not to do yet.
Look for those in my next book: “Credit Hope: Cosmetic Surgery for a Battle-Scarred
Credit Report.”
132
CHARGEOFF– the creditor’s decision that an account is not performing and must be
declared a loss for tax purposes.
CHECKSYSTEMS – A reporting agency that solely tracks consumers’ performance

under the agreements governing their checking accounts. A negative entry on
Checksystems (commonly known as Chex) can prevent the opening of bank accounts at
any banks that participate, and can lead to closure of accounts at nonparticipant banks if
the consumer uses a check printing company that reports to Checksystems.
CLAIM – a creditor’s demand or legal proceeding.
COLLATERAL – property pledged by a borrower to protect the interest of the lender,

such as the home or car that secures a mortgage or auto loan, respectively.
CONSUMER – person(s) or entity obligated to repay a debt or loan, which is taken for
personal or household purposes.
CONSUMER LOAN – a loan or credit, secured or unsecured, which is granted to an

individual or individuals for the purpose of financing the purchase of consumer goods or
to defray personal expenses.
CONTACT – an actual written or verbal response to a creditor or collector from the

debtor or the debtor’s legal representative.
CREDIT BARTERING – A creditor’s deletion of a negative tradeline in return for

payment by the debtor. Often said to be illegal, it is actually only a violation of the
creditor’s contractual duties to the CRAs.
CREDIT (DEBT) MESSAGE BOARD – A website where users share their knowledge of
credit and debt situations in message forums. At present some of the best known are
creditboards.com, creditinfocenter.com, creditnet.com and debtorboards.com.
CREDITOR – One to whom a debt is owed.
DATE OF FIRST DELINQUENCY – The date that the debt first became delinquent and
was never again brought current.
DATE OF LAST ACTIVITY – 180 days from the DOFD.
DEBTOR – one who owes a debt.
DEFICIENCY BALANCE –the difference between the balance on the loan and the net
recovery from the auction or sale of the collateral for the loan.
DOCUMENT –a paper that tends to prove or support a debt.
134
PAY FOR DELETE (PFD) – The consumers’ term for credit bartering.
POCKET SERVICE – A procedure available to plaintiffs in a few states which allows

them to begin a lawsuit without actually filing the case with the court. Because no case
number appears on the documents, some defendants are confused and consequently allow
themselves to be defaulted because they are unable to confirm the case filing with the
court and therefore believe there is no “real” case.
POISONING – Repeated hard pulls in an effort to drive down a consumer’s credit scores
and prevent others from granting the consumer credit.
PRIMARY PLACEMENT (sometimes also termed “Prime”) – an account defined as a

New Chargeoff or Fresh Chargeoff account at the time of purchase by the original
creditor selling the account.
PRINCIPAL BALANCE – the amount owed on a loan without regard to accrued interest,
fees or other charges.
PRD – Public Record Database (Choicepoint and Lexis/Nexis). A bureau that reports on
the public records of each state, county and city with respect to any particular individual.
QUIETUS – A Latin term that means something is dead, done and gone and will never be
heard from again.
RATEJACK – term to describe what a creditor does when it suddenly raises a

consumer’s interest rate by a large increment.
REAGED ACCOUNT – an account that is brought to a current status, even through the
total past due amount has not been paid. This is the “good” type of reaging.
RE-AGING – The improper act of reporting an incorrect DOLA to the CRAs in order to
put or keep a TL on the debtor’s reports.
RIGHT PARTY – The debtor. In the event a creditor is calling, the FDCPA requires
creditors to be assured they are speaking to the right party before discussing the debt
because discussing the debt with third parties is prohibited.
RMCR – Residential Mortgage Credit Report (a/k/a “Full Factual”), this report can be
generated on a mortgage for over $150,000 and unlike a consumer credit report it will
also show tradelines older than 7 years.
SECONDARY PLACEMENT – an account that was defined as a Primary Placement

Chargeoff account at the time of purchase by the debt buyer selling the account.
SETTLEMENT – payment that achieves quietus with respect to an account; (b) written
settlement documentation evidencing a settlement.
136
APPENDIX – SAMPLE SETTLEMENT

AGREEMENT
IN THE CIRCUIT COURT FOR NONESUCH COUNTY, FLORIDA
BUSINESS LITIGATION DIVISION
BIG BAD JDB, INC.,

a Delaware Corporation,
Plaintiff,
UCN:
v. REF:
LIL OL BUSINESS, L.L.C.,

a Florida Limited Liability Company,
d/b/a LIL OL BUSINESS,
JOHN SMITH, and
MARY SMITH,
Defendants.
SETTLEMENT AGREEMENT
This Settlement Agreement is made as of this day of November, 2007,

by and among the undersigned, and is intended to settle and resolve with finality all civil
claims against all parties to this litigation and their predecessors and successors relating
to the subject matter of this litigation, which have been or could have been asserted by
any of the Parties hereto.
WHEREAS, BIG BAD JDB, INC. (“Plaintiff”) commenced this action in March 2006,
asserting various claims for monetary relief against LIL OL BUSINESS, L.L.C., JOHN
SMITH and MARY SMITH, (collectively, the “Defendants”);
WHEREAS, Defendants have contested the claims in the complaint and Plaintiff has
contested Defendants’ counter-claims; and
WHEREAS, the undersigned Parties have agreed to settle their litigation pursuant to
financial terms acceptable to all Parties.
NOW THEREFORE, it is hereby agreed as follows:
138
"Released Parties"), from any and all manner of civil claims, demands, actions, suits, and
causes of action, damages whenever incurred, liabilities of any nature whatsoever,
including costs, expenses, penalties and attorneys’ fees ("Claims"), known or unknown,
suspected or unsuspected, accrued or unaccrued, whether legal, equitable or statutory,
both past and present, as to any claims that were or could have been made in this action,
and as to the future, as to all Claims directly or indirectly based on, arising out of or in
any way related to, in whole or in part, whether directly, indirectly, representatively,
derivatively or in any other capacity, ever had, now has, or hereafter can, or may have
(hereinafter, collectively, the "Released Claims"). Excepted from this release are any
insurance or indemnity obligations regarding claims for personal injury or property
damage to third parties that accrue prior to the date of this Settlement Agreement, but that
are not asserted until after the date of this Settlement Agreement.
The Parties hereby covenant and agree that they shall not, hereafter, sue or seek to
establish civil liability against any Released Party based, in whole or in part, upon any of
the Released Claims. The Parties agree that this covenant and agreement shall be a
complete defense to any such civil action or proceeding.
The claims herein being doubtful and disputed, the Plaintiff herein shall not file a form
1099-c or any similar document with the Internal Revenue Service.
The Plaintiff herein shall delete any tradeline that has been placed with any credit-
reporting agency with respect to any of the Defendants.
The Plaintiff herein shall refrain from obtaining an interest in any outstanding debt with
respect to any Defendant herein except as may be acquired in a bulk transaction.
IV. COSTS AND FEES
The Parties shall bear their own costs and attorneys’ fees. In the event litigation is
necessary for the interpretation and/or enforcement of this Settlement Agreement, the
prevailing party shall be entitled to its reasonable costs and attorneys’ fees in securing
such relief. Any and all disputes relating to or arising under this Settlement Agreement
(including any action to enforce this Settlement Agreement) shall be brought in and
resolved by the Nonesuch County Circuit Court in Tampa, Nonesuch County, Florida.
V. MISCELLANEOUS
A. HEADINGS. The headings of the paragraphs and sections of this Settlement

Agreement are not binding and are for reference only and do not limit, expand, or
otherwise affect the contents of this Settlement Agreement.
B. NO ADMISSION. This Settlement Agreement and any proceedings taken hereunder

are not intended and shall not in any event be construed as, or deemed to be, an
admission or concession or evidence of any liability or any wrongdoing or the
forgiveness of debt whatsoever on the part of any party or any Released Party. The
140
any of these terms to any third party other than their attorneys, accountants and tax
professionals or as may be required by law. The Parties and their respective attorneys, if
they have one, agree that they will not in any way publicize or cause to be publicized in
any news or communications media, including but not limited to, newspapers, magazines,
journals, radio or television, the terms or conditions of this settlement. Upon inquiry by
third parties other than Credit Reporting Agencies about the status of the dispute between
the parties or of the Lawsuit, the Parties may indicate only that the dispute has been
resolved and that all claims in the lawsuit have been dismissed with prejudice. With
respect to Credit Reporting Agencies, the Plaintiff shall not respond to any dispute the
Defendant(s) may lodge with same.
L. LIQUIDATED DAMAGES – In the event the Plaintiff shall fail to fulfill any of its
duties under this agreement, the Defendant(s) shall be entitled to $2,000 for each such
failure as liquidated damages, or to actual damages as the case may be.
BIG BAD JDB, INC.

a Delaware limited liability company
By: _________________________________________________
Bob Jones, Senior Vice President & Assistant Secretary
LIL OL BUSINESS, L.L.C.
By: _______________________________________
JOHN SMITH, Managing Member
_______________________________________
JOHN SMITH, Individually and as Guarantor
_______________________________________
MARY SMITH, Individually and as Guarantor
142

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Evaluation Copy – Not for Sale or Redistribution

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After the Judgment .................................................................................................. 121

Chapter 2 -- Settlement Strategy

“A bad settlement is better than a good lawsuit” – legal adage

Step 3 – Remove Stale Accounts

Step 4 – Determine Ownership and Litigiousness

What if I do get sued?

Morality is a private and costly luxury. -- Henry B. Adams

The second circumstance in which bankruptcy is clearly advantageous is emergent stage

Local Lawsuits, Sewer Service, Affirmative Defenses and Presuit or Prejudgment

If a distant judgment is obtained, or if you move out of state after a judgment is

One of the most popular limitations-busting tools is the "courtesy payment" or

Pretexting and Tattletale Insiders

Accidentally Becoming a “Ghost”

Zombie Collections and Repeated Collections on the Same Debt

The Perils of Being Unbanked

The government's re-codification of the distinction indicates that it is laying the

The Perils of Ordering Checks from Checksystems Affiliates

The Perils of Banking Out of the Country

Arrest and Jailing

Creditors who can’t be found

Reconstructed paperwork is often an effort to sidestep the requirements that a creditor

The Sneaky Novation Credit Card

As I mentioned above, one of the nasty surprises is the revival of an out-of-statute

Short Sales With Continuing Liability

Collectors who kill you

The Coming Tsunami of Parental Care Costs

Conclusion: Can You Be Surprise-Proof?

1. That the creditor is the owner of the debt;

2. That the creditor is agreeing to a full and final settlement;

"Accord and Satisfaction" typically requires a separate writing) as potential satisfiers of

UCC "Accord and Satisfaction by Use of Instrument"

673.3111 Accord and satisfaction by use of instrument.--

(a) The claimant, if an organization, proves that:

2. The instrument or accompanying communication was not received by that designated

Your state's statute of limitations may be lengthened or shortened by borrowing statutes

Statutorily Weak Claims

Limiting Database Entries

Asset Protection, Asset Hiding, Asset Evasion

Consumer Attorneys and Legal Aid

As mentioned in Chapter 4--Nasty Surprises, a lawsuit begins when a complaint is filed

Attacking a Debt Case

Chapter 7 -- Bogus Solutions and other

Volenti Non Fit Injuria

Debt Settlement Companies

CHECKSYSTEMS – A reporting agency that solely tracks consumers’ performance

CLAIM – a creditor’s demand or legal proceeding.

COLLATERAL – property pledged by a borrower to protect the interest of the lender,

CONSUMER LOAN – a loan or credit, secured or unsecured, which is granted to an

CONTACT – an actual written or verbal response to a creditor or collector from the

CREDIT BARTERING – A creditor’s deletion of a negative tradeline in return for

CREDITOR – One to whom a debt is owed.

DATE OF LAST ACTIVITY – 180 days from the DOFD.

DEBTOR – one who owes a debt.

DOCUMENT –a paper that tends to prove or support a debt.

POCKET SERVICE – A procedure available to plaintiffs in a few states which allows

PRIMARY PLACEMENT (sometimes also termed “Prime”) – an account defined as a

RATEJACK – term to describe what a creditor does when it suddenly raises a

SECONDARY PLACEMENT – an account that was defined as a Primary Placement

APPENDIX – SAMPLE SETTLEMENT

BIG BAD JDB, INC.,

LIL OL BUSINESS, L.L.C.,

This Settlement Agreement is made as of this day of November, 2007,