“Just Don’t Pay” as an Alternative to Bankruptcy

Posted by Robert Weed / in Alternatives to bankruptcy, Blog, Weekly Posts /

Bankruptcy Alternative: Just Don’t Pay

Some people want or need an alternative to Chapter 7 bankruptcy. 

Meet Henry Hudson and his wife Beth. They came to see me several years ago. Their alternative to bankruptcy was a two part plan: just don’t pay, and “call my lawyer.” Here’s why.

Henry and Beth were elderly, he was retired, she was working a little. They had credit cards they couldn’t pay, about $40,000.

They could file Chapter 7 bankruptcy and clear those debts. But they didn’t want to. They owned an investment that had lots of sentimental value, and if they filed Chapter 7 bankruptcy, the court would sell it. The creditors would only get 10 cents on the dollar or less, if it was sold, but the emotional loss to the Hudsons was more than they were willing.

“Call my lawyer!”

So I told them, just don’t pay. (They were already about five months behind when they came to see me.)  And start taking the calls!  When they call, tell them “call my lawyer!” We’ll see if that get’s them to leave you alone.

Henry and Beth paid me $700 to rent my fierce reputation, plus $100 a month. We met in person every three or four months. Years went by. I told them, if the bill collectors leave you alone too long, they are too late.  That’s called the statute of limitations.

How Long is the Statute of Limitations?

Original creditors, like the credit card companies, have five years to take you to court. If they wait longer than that, they are too late. (That’s in Virginia; other states can be more or less.) For debt buyers, people like LVNV, Midland, Portfolio, it’s probably only three years, arguably two.  (The three years was based on Opinion of the Attorney General 10-028.  The current Virginia Attorney General appears to have deleted it.)

Finally, years later…

Finally, years later, Henry got court papers from one the biggest credit cards, around $8,000.  We had met just two months before and I told them I thought time had run out and everybody was SOL (Statute of Limitations.) Now there’s court papers.

We File Chapter 13

Chapter 13 is a payment plan through the bankruptcy court.  In Chapter 13, you don’t put your property at risk (unless you want to sell it) because you are paying your debts. Henry and Beth file a plan to pay their debts in full.

Pay in full? Yes, but not $40,000 that would have been payment in full when we first talked. Pay in full all the debts that were not SOL.  Turned out only one $700 recent credit card was not too old under the Statute of Limitations.  Including the one that had filed the warrant in debt. 

So that $700 card got paid in full; and the other debts were just gone.

This Doesn’t Always Work

We were helped that Henry and Beth did NOT owe money to Discover. Discover is very quick to sue. Their cars were paid for. And they were renters, not home owners. That means their credit report did NOT show any debts actually getting paid.

It’s My Job to Suggest the Best Plan for You

As a lawyer, I’m a fiduciary. I’m required by law and legal ethics to give you the best advice I have. Even though I’m a bankruptcy lawyer, sometimes a non-bankruptcy solution works best. And when it does, I tell you.

For most people, bankruptcy works.

But when “just don’t pay” will work better, I’ll tell you so.

PS  More on the statute of limitations

The Washington Post just had this interesting article, about how debt collectors can try to get around the statute of limitaitons.

Before bankruptcy: Can I go to jail if I ignore this summons?

Posted by Robert Weed / in Before Bankruptcy, warrant in debt / 35 comments

Around 100,000 people a year get arrested because they owe unpaid bills and ignore a court paper.  Does this happen in Virginia.  Yes!

I’m a Virginia bankruptcy lawyer.  About one-third of my clients don’t come to see me until the sheriff brings court papers to their door.

Then it’s panic time!  Here are questions people ask.

“What do these papers mean?”

“Is it too late to file bankruptcy? ”

And the big question, “Can I go to jail?”

First the good news.  In case you didn’t learn this in school, debtor’s prison was abolished in America in the 1830’s. You can’t go to jail for not paying your debts.

Here’s the bad news.  You can get arrested for not appearing in court to answer questions from your creditor.

The Wall Street Journal found that over 5,000 people were arrested for that last year in just nine big counties.   (If smaller counties did the same thing, and I hope they don’t, that would calculate to 100,000 arrests each year.)  Wow!

Can that happen to you?  Yes.  Here are the steps that could get your arrested for a debt lawsuit in Virginia.

The first paper you get is a warrant in debt.  Warrant makes it sound worse than it is.  (And just ignoring court papers is never a good idea.)  The warrant in debt cannot get you arrested.  It’s the paper when a bank, credit card company, can loan or debt collector says, “hey, you owe us this money.”  People often  call the lawyer for the creditor when they get a warrant in debt and ask, “do I have to go to court.”  The answer you get is, No.  But when you don’t go to court you admit you owe the money.

Once you miss that first court date, the machinery of the law goes to work to collect money from you.  If the creditor knows where you bank, or where you work, they can file papers for a garnishment.   You get notice of the garnishment about the same time you find out your bank account is frozen or your pay is short.  There’s a court date on the garnishment and people think that’s there chance to dispute it.  It’s not.  That’s the day the bank or your payroll is supposed to turn the money in.  When you didn’t show up at the warrant in debt court date, you automatically gave the creditor the right to garnish you.

If the creditor doesn’t know where you bank or work, they can file a “summons to answer interrogatories.”  That paper tells you, come to court and answer our questions so we can garnish you.

Some people think a “summons” sounds less dangerous than a “warrant.”  So if they ignored the warrant in debt, they should be able to ignore the “summon to answer.”  Bad idea.

The summons to answer comes with an “or else.”  If you don’t appear, the judge can order you arrested.  Usually you get one more chance.  Your last chance is called a Rule to Show Cause.  The show cause tells you to come to court to explain why you shouldn’t be arrested.  (If you explain, “Sorry, I didn’t know, I’m here now”–that usually works. )

If you miss the “show cause,” the judge will issue a capias.  Capias is an order to the sheriff to pick you up and bring you in.

That’s where you can end up if you ignore court papers.  So if you get a warrant in debt for a bill you owe and can’t pay, why start down that road at all?

Bankruptcy is a new start in life and a clear field for future effort. That’s usually a lot better than a free ride to the court house courtesy of the sheriff.

Before bankruptcy: beating a warrant in debt

Posted by Robert Weed / in Before Bankruptcy, warrant in debt / 66 comments

Bill, not his real name, is filing bankruptcy with me in October.  (He needs a couple more months to finish everything to get his bankruptcy approved.)

In the meantime, he received a warrant in debt.  Midland Credit Management, a big debt buyer, was suing him on a old Chase card.  He didn’t want to get a judgment and a garnishment while we were waiting for the right time to file the bankruptcy.

Bill knew, from my warrant in debt website, that he had to go to court on his return date, and tell the judge he wanted a trial.  He had an easy basis for saying he wanted a trial.  “I never heard of Midland Credit Management.  I don’t know who they are or what this is about.”

He asked for a bill of particulars, and Midland’s lawyer asked for grounds of defense.

When Midland submitted their bill of particulars, they wrote they had bought the debt from Chase, and Bill owed Chase $4822.

For Bill’s grounds of defense, he wrote to the court and Midland’s lawyer that there were no documents showing that Midland really bought the debt from Chase; and that Midland had no evidence of how much he owed Chase–they would need a witness from Chase to prove that.

Bill was nervous on his warrant in debt trial date, but it was easy.  When they called his name, the lawyer for Midland said, “Your Honor, this is our first dismissal of the day.”  The Judge then turned to Bill and scolded him slightly to be financially responsible.  Then he  said, you won today,  you are free to go.

Bill handled this on his own, but I had given him some tips.  One thing I said, if this is still America, you’ll win.  Nice to know this still is America.

Under Virginia law, Midland would be able to bring the same warrant in debt a second time.  But they won’t be able to move fast enough to beat our October bankruptcy filing.  (And they probably couldn’t prove it then, either.)

When we get to October, his bankruptcy will go fine.

PS  Here’s an update on March 30, 2011.  The Attorney General of Minnesota announced he is going after Midland, and their parent company, Encore.  He says they used robo-signed affidavits to sue people on in Minnesota.  In other words, Midland claimed they reviewed their records and had proof so-and-so owed them money–but nobody actually looked to see whether they really had that proof.  This press release would be something to bring to the attention of the Judge, if you go to court and fight Midland on one of these.

PPS.  Washington Post had a good article on beating Midland in May 2014.

In Northern Virginia, Encore’s Midland unit has filed 16,878 lawsuits from 2003 to March of this year in the district courts of five counties. The company won nearly two-thirds of those cases through judgments against consumers who either failed to appear in court or simply agreed to pay the amount.

Almost 20 percent of those people wound up having their wages garnished, according to a review conducted by The Washington Post. Debts range from as little as $53 to as much as $23,786.

The Post article includes a comment from a guy who calls himself “rogerramjetz.”  He says he used to work as a collection lawyer on exactly those cases.

A guy gets a credit card with an Account Agreement that charges him $137 to open the account the first time he uses the card, and the card has a $250 credit limit. He then buys a $35 iron and a $45 coat at Walmart with the card. He now owes $217 the next month, and when he doesn’t pay the bill, he accrues an interest charge of $5 at 29% interest. When he doesn’t pay the next month, the card accrues a late charge of $35, $5 in interest, and an overdraft fee of $35 a month, totaling $297. The following month, interest is $6, and the late fee is $35 and the overdraft fee is again $35. A year and a half after the initial $80 purchase, the account shows a $1600 balance to Providian Bank. Totally legal.

Providian then sells the debt to Midland for $0.17 on the dollar, or around $200, and gives the last statement the guy received for $1600 as evidence of the debt. Glasser & Glasser in Norfolk is promptly retained to sue the guy for $1600, with interest at 29%, and accrued interest since the default a year before totaling $500, while the Account Agreement is invoked for a “33.3% reasonable attorney’s fee, totaling $533” and court costs of $63.00. An affidavit from Midland and Providian is generated, and a sheriff delivers the Warrant in Debt to the guy.

Total sued for? $2,693, but we will gladly settle for a lump sum of eighty cents on the dollar, or $2,154. For an iron and a coat at Walmart. Or we will take a judgment and garnish 25% of your wages until paid, and in three years the balance will double again at 29% interest.

How do I know this? I worked for Glasser as local counsel.

“Roger’s” example may be extreme but it shows how small debts can lead to fairly big garnishments, with late fees, over limit fees, later over limit fees, legal fees and the rest are added in–the just 29% interest alone doing it’s magic.

What’s the lesson:  Many credit cards in bankruptcy have already been money makers for the credit card companies.   And if you are getting sued by people you never heard of, it’s time to talk to a lawyer.

 

 

Warrant In Debt – What You Need To Know

Posted by Robert Weed / in warrant in debt / 282 comments

Warrant In Debt

A warrant in debt is what they call it in Virginia when a creditor is suing you in General District Court.  Warrant makes it sound a little worse than it is, but it is bad enough.  It is not a criminal law problem—you can’t go to jail; but they are trying to make you pay.

A creditor wants to make you pay—and if nothing else works, they want to make you pay with a garnishment.  (A garnishment is a court order to your bank or your payroll office to send part of your money to the court instead.)

In order to get a garnishment, a creditor first has to take you to court and win. Taking you to court starts with sending you court papers. Those papers are the “warrant in debt.”

(They have to sue you in Virginia if you live in Virginia.  Or where you first signed for the debt.  That’s in the FDCPA, a Federal law.  You should keep that in mind when you get threat letters from lawyers. A lawyer in Atlanta GA probably doesn’t come to Virginia to take people to court. A lawyer in Rockville MD probably does. A lawyer in Richmond VA does almost for sure.)

The way you get a warrant in debt is for the sheriff to come around and tape it to your door. Some creditors will also mail you a copy. The warrant in debt will have a return date which is your first court date.  You can find that return date in the upper right hand corner.  (Where it says Hearing Date and Time.)

YOUR FIRST WARRANT IN DEBT COURT DATE

If you admit you owe the money or don’t show up on your first court date, they get a judgment. Ten days after the judgment, then they can get the garnishment.

(You have ten days to note your appeal; but to appeal you have to pay into court the amount of the judgment—that’s probably impossible for you to do.)

Around here, most people don’t show up, so they automatically plead guilty to owing the debt. Ignoring court papers is usually not a good idea.  Especially not in Virginia, where the judges don’t lose sleep over whether you understood what was happening.

(A lot of people call the lawyer for the creditor and ask, do I have to come to court.  And usually the answer to that is no—you don’t have to come to court.  And it’s true—you don’t have to come to court. It’s just if you don’t come to court you plead guilty and they can start garnishing you in ten days.)

Most people who do show up, just plead guilty.

The judge says, “do you owe this money?”

“Yes, but I can’t pay it right now.” Judge, “OK, you can discuss it with that lawyer after court.”

Do that, and you just pled guilty! The ONLY judge who cares about whether you can pay is a bankruptcy judge. Bankruptcy judges worry full time about whether you can pay, so the other judges don’t have to worry about it at all. And they don’t.

If you go on a warrant in debt, you should tell the judge you are not admitting you owe the money and you need time to talk about it with a lawyer. Some judges will really crowd you to just plead guilty, but if you stand your ground they can’t make you. “Your honor, I want a trial.”

“YOUR HONOR, I WANT A TRIAL. AND I WANT A BILL OF PARTICULARS.”

When the judge calls your name, you need to step up behind one of the podiums (the one the collection lawyer isn’t using) and claim your rights under Virginia law (and also the Constitution.) “Your Honor, I want and trial.  And I want a Bill of Particulars.” Your right to a trial is right there, on the Warrant in Debt form. See where it says,  To dispute this claim, you must appear on the return date for the judge to set another date for trial. That’s what you are doing. You are disputing the claim and asking the judge to set another date for trial.

Right under that is place on the form for the Judge to order a Bill of Particulars. The Bill of Particulars is their proof that you owe the money, you owe it to them, and how much you owe. Sometimes they include a lot of that with the warrant in debt. Sometimes they don’t. But either way, it’s worth asking again.

YOUR WARRANT IN DEBT TRIAL

If you show up for your first court date, don’t plead guilty and do ask for a trial, you’ll get a trial date a month or two later. At the trial you need to stop the creditor from proving that you owe the money.  So you should use that month or two to talk to a lawyer, get ready to fight them yourself, or maybe try to work out a payment schedule.

(If you want to work out a payment schedule, you want to show up for court and ask for a trial.  That gives the lawyer for the creditor the idea that you know a little about your rights—and so the lawyer has some reason to be fair to you.)

If you plan to fight them at the trial—with or without a lawyer—you need to first file your grounds of defense.  Your grounds of defense are the reasons you think you don’t owe the money.  At your first court date, the judge will give you a date for your grounds of defense.  Miss that, and, you just pled guilty.

(Virginia’s system makes it easy to plead guilty to owing the money.  Ignoring the first court date—you just pled guilty.  Showing up and admitting you owe the money—you just pled guilty.  Missing your grounds of defense deadline—oops, you just pled guilty.)

So, if you send in your grounds of defense, then you have the right to show up for trial and defend yourself.

The creditor’s lawyer probably appears in that court on hundreds or thousands of cases each year. You’re there for the first time. That gives you an idea your chances of winning without a lawyer are not all that good.

Still you have a better chance if you are being sued by a debt collector—somebody you never heard of like Asset Acceptance, NCO, CG Services, Cavalry Portfolio—rather than being sued by the company you dealt with, like Ford Motor Credit, Bank of America or Fairfax Hospital.  If you know how to object to their evidence and make them prove that they really own the debt, you have a chance of winning.  (Here’s my blog on how Leslie beat a warrant in debt.)

If this debt has bounced around from debt collector to debt collector, you might also win on the statute of limitations.  The statute of limitations means if they left you alone for too long, they are too late.  But they are only too late if you say so.  Statute of limitations is an affirmative defense—meaning you have to show up and argue it; the judge won’t raise it for you.  (And you’d have to put it in your grounds of defense.)

How long is the statute of limitations?  It depends.  The original creditor, especially a credit card company, probably will produce a notice they claim they sent you where you agree that the law of some state you’ve never been to controls the statute of limitations; and they picked that state because it has a long one.

A debt collector, however, may not have any kind of notice, so then you are protected by Virginia’s statute of limitations.  How long is that?  Maybe three years, maybe five.  (Sorry I can’t be more specific than that.)  It depends.

GETTING SUED IN THE WRONG COUNTY

One way to get some leverage on your creditor is if they sue you in the wrong county.  A debt collector—those guys like Asset Acceptance, NCO, CG Services, Cavalry Portfolio—they are required to sue you in the judicial district where you live.  (Or where you signed the contract; meaning where you financed the car, for example.)  In Northern Virginia, each county and Alexandria City is a judicial district.  (Except Loudoun and Fauquier share a district.)

An original creditor who uses a lawyer is bound by the same rules.  The have to sue you in your home county.

If you get sued in the wrong county, that’s a violation of the Federal Fair Debt Collection Practices Act. And you can sue them for violating your rights!

GETTING SUED BY CAPITAL ONE IN RICHMOND

Capital One sues nearly everybody in Richmond.  (Or sometimes Henrico.) They can get away with that, because they don’t use a lawyer.  However, you don’t have to just give up.  And you don’t have to leave Northern Virginia at 5:00 AM driving down I-95 to get to Richmond at 8:30, either.  On the back of the warrant in debt, lower left, it explains that you have the right to object to venue.  If you follow those instructions and say you can’t get to Richmond and ask the judge to please move it to your home county, the judge will nearly always do it.

Then they will show up several weeks later in your home county, with a lawyer.  And so you start from there.

WHAT TO DO WHEN YOU GET A WARRANT IN DEBT

You have some tough decisions.  If the debt is something that you owe—and that you can afford to pay—you should pay it off.  (No, they do not have to accept payment arrangements; by warrant-in-debt time you are way too late for that.)

If you don’t owe it—or are not sure—you should go to court, ask for a trial, and try to find a lawyer who will help with that kind of thing.  (If you Google “Virginia debt defense lawyer,” one Manassas law firm comes up.  Many lawyers who do this kind of work are members of the National Association of Consumer Advocates, and you can check their website here.)

When you go on your first court day, and you tell the judge you want a trial, you should also ask for a “bill of particulars.”  The bill of particulars is their writing proving that you do owe the money.  That will give you some idea about how strong or weak their evidence is.  If you then get a lawyer to help you, he will really want to study their bill of particulars.

If you owe the money but can’t pay, then it’s probably time to talk to a bankruptcy lawyer.  You can find out more about bankruptcy law in Virginia at this website.  I’m Virginia bankruptcy lawyer Robert Weed.

IF I LOSE IN COURT CAN I STILL FILE BANKRUPTCY?

You can still file bankruptcy on most debts even after your trial on the warrant in debt.  (You can’t file bankruptcy and discharge a debt for fraud–for example if they say proved you lied on your credit report, or stole the money.)

There are a couple reasons why its better to file the bankruptcy before.   One is, after bankruptcy your credit report will still show that you had a judgment against you.   That will make it a little harder to get back to good credit.

Second, the judgment may become a lien on your real estate.   (Less likely if you own the real estate as husband and wife.)  The bankruptcy may not be able to get the judgment off.  It depends.

Third, if you wait until after your warrant in debt court date and you get garnished, you may not be able to get that money back.  You sometimes can if you see a bankruptcy lawyer and file your bankruptcy fast enough.

So, if you are thinking about bankruptcy when you get a warrant in debt, its better to talk to a lawyer quickly.

Hope this is helpful.  Good luck.