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You, The Debtor

Most of us owe money to somebody. If it’s not the college loan, it’s probably the car loan or mortgage. Perhaps we’re still paying off those old taxes or last year’s medical bills that were not covered by insurance? Not to mention the credit cards…. One way or the other, unless you’re rich enough to run for president these days, you have debt.

Creditors have the right to expect prompt and timely payment. If payments are not made when due, the creditor often has the right to impose finance charges or penalties, seek a money judgment in a court of law, repossess collateral (or foreclose on property) secured by the loan, or even garnish wages, bank accounts, or other property. There are some things, however, that you, the debtor, are never required to undergo, even if you are in default.

It may be news to some that we did away with debtors’ prisons well over a century ago: you cannot go to jail for simply failing to pay what you owe. (Of course, if you attempt to conceal your assets, defy a specific court order to produce records or property, or make false statements in connection with certain judicial or financial transactions, you can still end up in serious trouble.) If you spend your money on rent or groceries, instead of paying your creditors, you will not be punished. (If, on the other hand, you decide to turn over your assets to a friend or relative to evade your creditors, you can face substantial additional costs and penalties. As the saying goes, you must be just before you are generous.)

What most people do not know, is that there is an important federal law which sets important limits on the kinds of actions that bill collectors (including collection agencies and lawyers; the law does not apply to creditors collecting their own bills, however) can take to get you to pay your debts. The Fair Debt Collection Practices Act (FDCPA) makes a number of what were until recently fairly common collection practices illegal, and provides powerful legal remedies to debtors who are subjected to such tactics. (Only consumer debts, not things like child support or commercial transactions, are covered by the FDCPA.)

Under the Act, a debt collector may not generally do anything to identify itself as such or the reason for its contact to third parties when obtaining information about you. For example, the when making phone calls, the collector must identify himself personally and not his employer, may not state that the consumer owes any debt, and must avoid contacting a third party more than once. Communications by mail may not be by postcard, and language or symbols are not allowed which would identify letters as being for the purpose of debt collection.

Permissible communications with the consumer herself (or her spouse) are also restricted as to time, place and manner. The debtor cannot be contacted at an inconvenient time (generally, before 8:00 a.m. or after 9:00 p.m. is presumed to be inconvenient). The collector cannot contact the debtor at her place of work if it knows or should know that the employer prohibits such communication. If the debtor obtains counsel, all communications must thereafter be directed to the attorney. If the consumer notifies the debt collector in writing that she wishes communications to cease, or that she refuses to pay the debt, further communications are generally prohibited. Finally, the consumer cannot be harassed or abused by the collector in any way; e.g. no threats, obscenities, or persistent calls.

The substance of what the collector says is also regulated. False statements about the character, amount, or legal status of any debt, statements that failure to pay can result in arrest or imprisonment, and threats to take legal actions which are either not authorized by law or not intended by the creditor are prohibited. (Several courts have gone so far as to punish bill collectors for taking or threatening legal action on a valid debt that is barred by the statute of limitations.) The Act even contains a “mini-Miranda” warning rule: all communications (initial and subsequent ones) with the debtor must clearly disclose that they are an attempt to collect a debt and that any information obtained will be used for that purpose. (A recent ruling of the U.S. Supreme Court raises the possibility that the Act could even be applied to require lawyers to place such warnings on all pleadings filed against the debtor.)

The collection of fees, interest, or amounts not authorized by agreement or by law are also prohibited. One of the most significant features of the Act is its requirement (which is effective irrespective of any state rules to the contrary) that any legal action involving consumer debt (other than real estate debt) must be filed only in a jurisdiction where the debtor signed the agreement or is a resident.

Within five days of the first communication, the consumer has a right to be told the amount of the debt; the name of the current (and original, if different) creditor; that if not disputed within thirty days, the debt will be considered valid (the failure to dispute the debt cannot, in fact, be used against the debtor); and a statement that, if disputed, the debt collector will obtain and provide to the consumer verification of the debt or a copy of the judgment.

If a debt collector engages in an unfair debt collection practice against you, you have the right to sue for any actual damages (including emotional distress) caused as a result of the violation, and additional (punitive) damages of as much as $1,000. A successful litigant can also recover her reasonable attorney’s fees. Any such lawsuit must be brought within one year of the last unlawful act.

So, if like most of us, you have debt, know your rights as well as your responsibilities. If you feel that a debt collector (remember, the FDCPA generally does not apply to the original creditor, only to third party collection agencies, including attorneys) has overstepped the bounds, or if you have any questions about your debt situation, give us a call. If you would like to learn more about this or related topics, we would be delighted to provide a speaker for your group or event.