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

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140 Pages, 180+ hyperlinked footnotes. The free sample is now every other page rather than every page. Full version at http://www.myhopeseries.com as a .PDF download or at Amazon for the Kindle. If you like the book, don't forget to become a fan of it on Facebook!

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

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Table of Contents

Introduction....................................................................................................................iChapter 1- The Credit Industry ........................................................................................1Chapter 2 -- Settlement Strategy......................................................................................8

Step 1 - Assessment.....................................................................................................8Step 2 – Identification..................................................................................................9Step 4 – Determine Ownership and Litigiousness ......................................................10Step 5 – Triage Based on Permanency and Litigiousness ...........................................11Step 6 – Determine Who To Settle With ....................................................................11Step 7 – Bank Some Settlement Money for Hard Cases Before Paying Easier Cases..13When to Change Course ............................................................................................13What if I do get sued?................................................................................................14Basics of Negotiation.................................................................................................18Mechanics of Settlement............................................................................................19

Chapter 3 – Bankruptcy.................................................................................................20Chapter 4 - Nasty Surprises for Debtors.........................................................................29

Re-aging....................................................................................................................30Renumbering .............................................................................................................30Lurking .....................................................................................................................31Report Poisoning .......................................................................................................35Arbitration.................................................................................................................38Distant Forum Abuse.................................................................................................39Phantom Payments and other Limitations Busters......................................................41Trojan Checks ...........................................................................................................46Pretexting and Tattletale Insiders ...............................................................................46Accidentally Becoming a “Ghost” .............................................................................48Zombie Collections and Repeated Collections on the Same Debt...............................50The Affidavit of Debt ................................................................................................51The Perils of Being Unbanked ...................................................................................52The Perils of Ordering Checks from Checksystems Affiliates ....................................56The Perils of Banking Out of the Country..................................................................56Fraudulent Transfer Laws ..........................................................................................57Loss of State (and Federal) Tax Refunds ...................................................................57Wage Garnishment ....................................................................................................58Arrest and Jailing.......................................................................................................58Badges on a Percentage .............................................................................................60Judgment Revival ......................................................................................................60Outrageous Judgment Interest....................................................................................61Harassment................................................................................................................62Inspection of Property ...............................................................................................64Involuntary Bankruptcy.............................................................................................65Lack of a Judgment Satisfaction ................................................................................65Creditors who can’t be found.....................................................................................66

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After the Judgment ..................................................................................................121Conclusion ..............................................................................................................122

Chapter 7 -- Bogus Solutions and other Pitfalls............................................................ 124Debt Termination ....................................................................................................124Volenti Non Fit Injuria ............................................................................................ 124Accord and Satisfaction........................................................................................... 125Debt Consolidation..................................................................................................125Credit Counselors ....................................................................................................125Debt Settlement Companies.....................................................................................126Bankruptcy..............................................................................................................127Attorneys.................................................................................................................127“Helpful” Collectors ............................................................................................... 128Credit Repair Companies.........................................................................................129Credit Doctors .........................................................................................................129Paper Tripping.........................................................................................................130

Conclusion ..................................................................................................................131Glossary ......................................................................................................................133APPENDIX – SAMPLE SETTLEMENT AGREEMENT ...........................................138

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decision). Individuals who are having trouble with their finances find themselvessuddenly in a dark forest of frightening shadows and spooky noises. They often have noclue about what to expect, what kind of time frames and deadlines they can expect, orwho they will be dealing with. Some of the denizens of this world are more dangerousthan others. It's hard to know who is who, or which noises must be taken seriously andwhich merely belong to phantoms of the past that have no teeth. They have few guidesbecause they lack the money to pay for the advice they need, and those with theknowledge of how the forest ecosystem works will generally profit far more by workingfor the predators. I have been both predator and prey. I have sued hundreds of individualsfor money damages, and I have myself been sued. I have also counseled hundreds ofpeople for free on Internet message boards and my comments there have been read bythousands.

Some individuals' problems are minor, but for a small minority the problems are in factintractable and will be lifelong, although even they can often be mitigated. The situationis 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 likelihoodof solving itself in a reasonable amount of time if the debtor can just be patient and avoidtaking any action that would make matters worse. Mere uninformed inaction, howeverseldom leads to a good solution--there are always things that need to be known, there isusually something that can be done, and often something that must be done to improvethe outcome. The trick is knowing whether, what, when, how, where and with whom theproblem may be addressed. Over time I have learned who the players are and enoughabout how they operate and their respective strengths and vulnerabilities to help anyonelay out a game plan that will get them out of the credit breakdown lane and back into themainstream, 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. Debtscan come about through irresponsible behavior or through no fault of your own. Thereare debts that the bankruptcy laws of this country will wipe out for you, and those thatwill 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 thecreditor and those that cannot. There are assets that a judgment creditor can take fromyou whether or not you file bankruptcy, and assets that cannot be taken from you even ifyou don't file bankruptcy. And bankruptcy is not the only way that individuals arerelieved 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 andyou handle your debt problems intelligently, somebody you know who finds out abouthow your are doing things will find fault with your tactics or strategy--in fact you mayhave several somebodies telling you to do things that are all over the map, from payingeveryone who sticks their hand out to trying to stiff everybody even in the face of strongevidence that the latter policy isn't quite working out. Don't be thin-skinned--they haven'twalked a mile in your shoes--one of the best things you can do is spend some time on the

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Finally, I must include this disclaimer. Because I am not your attorney and you have notexplained your situation to me, this book is not legal advice. In the event your financialpredicament brings you into a circumstance involving a lawyer or a court, you arestrongly urged to obtain competent legal counsel.

Mark S. Hankins

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First, it is important to understand that you do not have to actually be behind on your loanpayments 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 nevermissed a payment), your mortgage lender, auto lender or credit card company can sellyour account to whomever they please, or just assign the servicing rights to anothercompany.

Often the sale or assignment is to a company whose methods are much less ethical thanthe one you have been doing business with. In 2002, the carmaker Mitsubishi brought inSST5 to service its leases and loans, and many consumers were surprised by SST's sharppractices. In other cases, mortgage lenders have sold their loans to companies like Ocwenor 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 FairbanksCapital disgorge $40 million it collected by failing to post consumers’ mortgagepayments in a timely manner and charging consumers illegal late fees and otherunauthorized 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 "originalcreditor"--"OC" for short) will turn first to its internal collections personnel. These arephone 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 encourageconsumers 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 isto get the consumer's money before it's gone and in the hands of someone else. If theinternal collections department is unsuccessful, the account will probably be passed to anoutside collection agency (“CA”). The CA is a more specialized, more single-purposebusiness whose methods are tougher than that of the creditor itself. Remember, thecreditor is at first just trying to get paid and potentially preserve the relationship. Once acollection agency is in the picture by name (many times the collection agency poses asthe 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 andeveryone (creditors are allowed to call your neighbors, friends and relatives to try to getlocation 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" theaccount within 180 days if it is a credit card, and 120 days if it is a closed-end loansecured by collateral (bank creditors are governed by Rule 5000,7 formally known as the"Uniform Retail Credit Classification And Account Management Policy"). Charging offis 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.shtm7 http://www.fdic.gov/regulations/laws/rules/5000-1000.html

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along with other defaulted accounts and sell it to the next JDB. Ability to pay is gaugedby what a debtor is paying other creditors (these figures appear monthly on a creditreport), and by the employment and income figures reported by the debtor on creditapplications. If the debtor were to apply for credit at potential creditors claiming to beunemployed with zero income (whether employed or not), making sure (by checking withonline credit boards regarding which creditors pull from which CRAs) that the creditpulls would cover all three CRAs, that data would wind up on all 3 credit reports andcollection activity would be minimized.

Junk debt buyers are similar in some ways to original creditors, but in other moreimportant 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 defaultedaccounts (although in some circumstances, a creditor that is having money troubles of itsown sells some or all of its accounts to multiple other firms and packages some weakerperforming accounts with the defaulted ones rather than with the other performingaccounts—in such cases the performing accounts grouped with the nonperforming onesare expected to default, and the consumers are often treated that way regardless of the factthat the account is in good standing). The JDB knows that no recovery will be had onmost of the defaulted accounts purchased, and the discount on the debt is accordingly upto 98%. Accounts that have copious documentation and whose borrowers are otherwisehigh quality (say, homeowners with jobs) sometimes sell for only a 60% discount. Inmost cases JDBs look for a "liquidation rate" in the range of three times the face value ofwhat 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 byrecovering 9%.8 Recently debt buyers have been holding off on buying portfolios becausethey 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 ofthe original creditor. The largest JDBs are multi-billion dollar operations, and althoughyou may not have heard their names, they are well known in the industry. These namesinclude LVNV Funding, Unifund, Asset Acceptance, Portfolio Recovery and CavalryPortfolio. As we will discuss later, JDBs use a variety of strategies to collect debt, andthey may act on their own or use a collection agency. Although many states subject JDBsto the same strictures as collection agents, some do not. In states where JDBs are noteffectively regulated such as Arizona and Michigan, they often make use of abusivepractices to collect. Many JDBs will also rotate the defaulted account through an endlesslist of collection agencies, each of which will have its own approach. If they do notreceive 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 aconsumer. Unfortunately, there is a great deal of chicanery practiced by creditors in thisregard. On the one hand, they may simply invent a letterhead that seems to be from a lawoffice (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/

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(if at all) upon sale of the home (although in Florida the lien is not enforceable against thehomestead even on sale and even the proceeds of the sale are exempt from attachmentunless the creditor can show that the debtor does not intend to reinvest them in anotherFlorida homestead).14 Liens can also be placed on personal property (anything other thanreal estate) in many states. That means that debtors cannot legally sell their art or coincollections, etc. without the creditor receiving payment. If the creditor is not paid, thepurchaser may have to give up the item or pay its value to the creditor, and in addition thedebtor may be further criminally liable for selling property that was subject to the lien. Insome states such as Florida a personal property lien will not extend to vehicles, whichmust 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 itexceeds the state's exemption amount (although they might also work from the federalbankruptcy exemption amount of $3,225 if they believe you will declare bankruptcy), andin some states they can pick up the vehicle at that point, while in other states theDepartment of Motor Vehicles will send the debtor a letter demanding that the debtorsend in the title to the vehicle. In the latter case the debtor may be unable to continue torenew 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 findthe car the debtor may be threatened with contempt if the debtor does not give it up. Instates where personal property liens cover vehicles, a new lender can in some cases getburned by an old lien: if a debtor with an existing personal property lien buys a car oncredit, 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 ofexecution. A creditor can send the debtor interrogatories and a request for production ofrecords (including tax returns), often on a standard form promulgated by the court, andthe debtor must tell the creditor what assets he or she has and where they are, as well asprovide 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 someproperty may be exempt from execution or levy and certain types of trusts may beentirely untouchable, the debtor still must make the disclosure--refusal to go under oathmay be punished as contempt, and lying about material facts when questioned under oathis perjury, also unresponsiveness while under oath may also be subject to the court'scontempt powers. If the creditor isn't satisfied with what the debtor provides, the debtormay 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 notasked and what the debtor does tomorrow with an asset not yet liened that is disclosed tothe creditor today will typically not subject the debtor to consequences. Thus, the debtormay make his next stop after attending the deposition his bank, where he can withdrawhis money and close his account.

14 http://www.alperlaw.com/constitutional_protection.html

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Chapter 2 -- Settlement Strategy"When a man knows he is to be hanged in a fortnight it concentrates his mind wonderfully." - SamuelJohnson

"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 omitthem according to their characteristics.

Now that you understand who the players are and how the game works, you need to focuson the situation you face and what you might do about it. Your first task will be to focuson what is truly your debt and what isn't. One of the distressing trends of the last fewyears is identity theft. Whether it is something that started when you applied for an autoloan, or something your own family did to you, it's still your problem. One unfortunateresult of having your debt in the hands of collectors is that many collectors hire anyone towork the phones, and in some cases those folks will steal your identity because yourcredit (damaged as it is) is better than theirs. The good news is that FACTA15 (the 2003revision to the FCRA16) provides you tools to fight identity theft situations. But when youhave problem debt of your own those bad marks on your credit that aren’t yours mayactually 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 itoriginated. In many cases, a CA will be on the report (but not currently reporting) eventhough they are no longer working the debt. For each defaulted debt, there should be anOC TL (either currently reporting or with a charge-off date unless the TL is more than7.5 years past default), and perhaps also a TL for one or more JDBs who purchased thedebt. Debts seldom report entirely properly, so although a single debt can appearlegitimately a maximum of twice (once for the OC that charged it off, which should showa zero balance, and once for a CA or JDB that is collecting on the debt), it may appearagain and again and again. Once credit repair becomes your goal (when all significantTLs are settled or SOL), you will want to review those TLs again for purposes ofprioritizing the order in which you will be attempting to dispute them away. For rightnow, you are just going to learn what is what. One important clue will be the section ofthe report that discloses the hard and soft pulls. CAs and JDBs that are no longerassociated with an account will not be pulling credit on you anymore once they have beentaken off the case or have sold the account. You should try to determine which TL isassociated with each and every pull that is not coded as a promotional pull. You may findone or more JDBs or CAs pulling hard and frequently. This is termed poisoning, and itsintent 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_Act16 http://en.wikipedia.org/wiki/Fair_Credit_Reporting_Act

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legitimate TLs (in cases where the relative applied for and received credit properly intheir own name), and cases of outright mistaken identity where an individual has asimilar name and/or birth date. If you do not have defaulted debt of your own, you canattack any and all of them as part of your credit repair process—and this is the wrongbook for you. Since this book is about resolving serious debt problems, the safest thing todo is to leave any bad TLs that are not yours on your credit report. Conversely, good TLsthat don't actually belong to you may complicate your settlement process (becausecreditors 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 awayas soon as possible (and prior to entering into any negotiations). It may seemcounterintuitive to dispute away good TLs, but try explaining to a collector that you donot have a visa card with a $10,000 limit and a zero balance to which you could balancetransfer 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 whenthe time is right. While you still owe creditors who are within SOL the time is not right totry to dispute away those accounts. Allowing them to continue to appear on your creditreports makes you look more destitute, and will allow your negotiations to settle theaccounts that are within the SOL to proceed toward more favorable results. If there is afiling fee to answer a complaint in your state (California for example), you will want toaccumulate (and segregate) savings that will allow you to pay those filing fees (ifnecessary) 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 defendedsuccessfully 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 stillown accounts more gingerly (remembering, for instance that they are not subject to theFDCPA's restrictions and that they can document their cases relatively easily in the eventthey decide to sue), and depending on what your research shows you will prioritize theones whose suit threshold is exceeded by the amount owed and especially the ones whoaggressively sue. You will research at your local court clerk's office each party who ownsa debt of yours and attempt to determine whether they have a threshold amount locallyand how aggressively (and successfully) they sue. In order to work out who suesfrequently and who does not you will need to have an idea of the "market share" that eachhas of the credit card or installment loan market in the case of OCs, and the relative sizeof the JDBs. These are probably going to be very rough estimates on your part unless youlive in a major metropolitan area where lawsuits are frequent enough to really get a goodfeel for what each creditor is doing. When you review cases brought by a particular OCor JDB, you may also notice patterns in how they bring cases. Some will file cases inbatches when one case among the batch is close to the SOL date, others will seem to filecases one by one when the SOL on each is 30 days away. There are creditors who willallow single cases to go beyond SOL and either omit to file them or wait to file them until

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want to consider at least throwing the Accord and Satisfaction Hail Mary as described inthe Chapter 5--Debtors' Secret Weapons unless your review of your state's case lawindicates that there's absolutely no point in it. If your state's courts are reputedly friendlyto JDBs (as with Virginia, which is said to accept affidavits of debt at face valueregardless of the hearsay objection), you will want to do what you can to settle with theJDBs as well, keeping in mind the option to use the Accord and Satisfaction method withthem as well.

Creditors often balk at deleting TLs in return for payment, at least at the outset ofnegotiations. In the industry it is known as credit bartering, although consumers refer toit as pay-for-delete, or PFD. PFD is claimed by some creditors to be illegal under federallaw. It is not.17 Where it can create a problem for a creditor is that it is a PFD is aviolation of the creditor's contractual duty to furnish complete and accurate informationof their experience with a consumer to the CRA. CRAs can and do audit creditors andcollectors for compliance with their policies, and those found not to be in compliancecould 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 orJDB the inability to place TLs would be a death knell. Nevertheless, such a smallpercentage of consumers insist on PFD and PFD is so simple to provide (creditors use anonline system called e-Oscar18 ... they must simply delete the TL and furnish a reason fordoing so by checking a box--unfortunately none of the choices include "the debtor paidus") that you can expect some creditors and collectors to eventually cave in and agree toPFD. Their contracts are their problem, not yours.

Some creditors will more readily agree to not update the TL and to fail to respond to anydisputes on your part. Because of the FCRA's requirements, such failure willautomatically cause the TL to be deleted after 30 days. The failure to respond can bemore easily explained as a software glitch or oversight on the creditors' part in the eventthe CRA questions it during an audit. It is difficult to research the "non-response" optionon the credit-oriented Internet bulletin boards because it has not acquired a widely agreedupon name or acronym that makes it easy to search on. In determining which creditorswill agree to it you are largely on your own. Keep in mind that it is actually a superioroption to PFD because it leaves you in control of the timing of the TL's deletion, whichmay 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 theconsumer is the only aggrieved party who could complain about the failure to furnishaccurate information, this would be a case of volenti non fit injuria even if PFD somehowdid harm a consumer. Regulations in this regard are on the way, and it is possible thatwhen they take their final form creditors will be further deterred from PFD:Rebuilding America—One Credit Score at a Timehttp://www.cunalendingcouncil.org/news/2866.htmlSection 312 of the Fair and Accurate Credit Transactions Act; Proposed Rulehttp://www.ftc.gov/os/2007/11/R611017factafrn.pdf18 http://www.e-oscar.org/

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will seem like the world is crashing down around them. Nobody needs to tell you that alot 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 asthoroughly as possible and appraise your situation realistically rather than allowingcircumstances to sweep you along with no hand on the tiller. Often costs and creditdamage can be minimized by selling or turning in that car before it is taken from you, orshort-selling or deeding your home to the lender in lieu of foreclosure,19 or resigning ajob you will not be able to keep because of your financial troubles before your employerwould be forced to fire you. The ability and desire to control one's circumstances is oneof the hallmarks that distinguishes humanity from animals, but so is the absence of theanimals' natural surrender reflex--humans will fight on even when it doesn't make senseto do so. The latter can lead to damaging confrontations that could be profitably avoidedby both parties.

Reducing the costs that you might have to pay at the back end should be part of yoursettlement strategy at the front end. If that means you give up some property or engage acredit counseling service or file bankruptcy sooner rather than later, you had better focuson 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 phonecall or letter, they do not want to have to harass, cajole, etc. Of course they do thosethings too, and when those things fail, they have the same four choices: sit, sell, settle orsue. 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 thesame choices. But most OCs and JDBs will either go to court in the appropriate case orthey will sell accounts that seem lawsuit-worthy to a specialty JDB who makes it apractice to go to court—among first-placement JDBs names like LVNV Funding, AssetAcceptance and Portfolio Recovery are particularly frequent fliers in courtrooms acrossthe nation. Of course, so long as the creditor is just sitting you are not necessarily goingto do anything more than sit too.

Since this is the section about lawsuits, we'll say your opponent is pursuing the option tosue. Once an attorney has received your file from a creditor, you will likely get a letter ortwo and perhaps a series of phone calls attempting to get you to pay the debt. The firstthing that you must do is verify that you are dealing with the real thing. Collectionagencies are well known for posing as attorneys when they think they can get away withit. 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 ashort sale would only lock you out for 2 years. http://www.loansafe.org/how-long-after-foreclosure-can-i-purchase-a-home

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determine whether and on what basis you continue to negotiate. Assuming the lawyerdoes everything by the book, you will either receive a summons in the mail or handdelivered by a process server or perhaps even a sheriff's deputy or other official. Yourreceipt of that summons is the official moment when a clock begins to tick for you torespond to the lawsuit, either by sending both the court and the opposing attorney ananswer and/or other motions and affirmative defenses, or by showing up in court on aparticular date.

Sometimes the filing you receive will lack a case number. That happens in states likeMinnesota and Washington that have versions of what is termed "pocket service." Don'tbe fooled: if you fail to respond, you will find a default judgment entered against you. Inother states a court filing isn't official until it gets a case number. The attorney shouldclearly indicate whether the complaint you receive is just a courtesy copy of somethinghe expects to file, but that doesn't always happen. One way to double check is to use yourlocal court's online docket system to verify that a case has begun. If there isn't a websiteyou can go to, you should also call the court clerk's office and attempt to verify what thesituation is. In New York, an Urban Justice Center study in 2006 found that in 99 percentof a sampling of default judgments that the evidence used to obtain the judgment did notmeet 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 toknow about. One is to file in another county, perhaps one all the way across the state, andserve you in the county where you live. If that happens, you will need to try to have thecase moved on the grounds of improper venue, or perhaps forum non conveniens, aweaker argument used when venue is technically proper that sometimes prevails ingetting a court to transfer the case. Another dirty trick is sewer service. In short, sewerservice is the use of a disreputable process server who will provide a false return ofservice and claim you were served when you weren't. Sometimes these process serverswill even obtain a detail or two about the description of your home or a physicaldescription of you that may or may not be accurate and may or may not have beenobtained by actually observing you or your home.

If sewer service is used, any default judgment that is obtained is presumptively valid, butis voidable by the court upon your proper showing that there was fraud. The problem isthat you may not be believed, and in any case if the judgment creditor has alreadygarnished your bank account or seized your vehicle (two easy and quick ways to targetyour assets without necessarily putting you under oath to reveal them) you may belacking in the funds needed to hire an attorney to undo such a complication. In somestates, such as Texas, creditors' lawyers also routinely attack bank accounts at the outsetof cases, rather than attempting to do so after judgment has been obtained. The stateswhere this happens are typically states where post-judgment remedies are weaker thanusual, resulting in the state's case law evolving to allow for tactics that states withstronger post-judgment remedies would view as unfairly surprising.

One way to avoid a sewer service situation is to keep a watch over the onlineplaintiff/defendant indexes of your own county and perhaps also any counties where you

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works for a little extra money handling these matters for the court. In practice, themediator will hammer on the weaknesses of both sides' cases (assuming there areweaknesses in both you and your opponent's cases—and that’s a pretty good bet whenthere has been no dismissal or summary judgment) and attempt to cajole both intomoving closer together in reaching a final figure for an agreed lump sum or installmentsettlement. If a settlement is not reached, the mediator will prepare a report, and thatreport will either detail why each side was reasonable in its positions (and potentiallyhow the judge might resolve disputes on key factual or legal issues), or it will make clearto the judge that one side or the other was unreasonable. You should avoid being seen asthe unreasonable party.

Don't assume that mediation is your last chance to negotiate. If you don't reach a solutionthere, trial is still down the road and the creditor must continue to face the prospect thatyou will continue to be difficult to collect from, will declare bankruptcy, move out ofstate or even die--possibilities that are always on the table unless you either can't declarebankruptcy or won't be able to discharge the debt. Negotiations can occur at any timebefore trial, during trial or after trial, or even years down the road on a judgment thecreditor has had trouble collecting on. At each stage you want to know as best you canwhere you stand and where the creditor stands from both a legal and a practicalstandpoint.

Basics of Negotiation

Whether you are negotiating with an OC, a CA, a JDB or an attorney or attorney'sparalegal, there are key things to remember. One is that you are an amateur going upagainst professionals. You will be disadvantaged in terms of experience. Where you arenot disadvantaged is in terms of motivation: dollars you pay will be leaving your pocketand you need the finality of quietus with respect to the matter. For your opponent theclaim is one of a number they are working, and they might well just move along to thenext one and leave this one for another day if agreement cannot be reached. Unless youare under oath, not everything you tell them needs to be the truth so long as it is notobvious to them from the information they have in hand that it is clearly a lie. Your job isto "poor mouth" yourself: you don't have money, someone other than you may be willingto give you a little money now (but not anytime down the road), but only if you are ableto drive a hard bargain for not just the amount of money paid, but for the way the claimwill report or not report on your credit, for the tax consequences, and for the finality youneed. Your mysterious “rich uncle” has told you he wants to teach you to fix it, not justtamp 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 youwill need to try to control your own verbal and nonverbal "tells" as well as discern youropponents' tells. It's a detailed subject that this book cannot hope to cover. Suffice it tosay that your nervousness or apparent coolness may be misinterpreted by your opponent(to your advantage or disadvantage), but you should know about well-understood bodylanguage like posture, position of hands, eye contact, teeth clenching, picking imaginarylint from clothing, etc.

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Chapter 3 – BankruptcyDon'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 ofbankruptcy, just give a brief overview of what it can and cannot do, and why you mightor might not want to use it at a particular time. The Bankruptcy20 process is an option forserious debt that should neither be underestimated nor rushed into without fullunderstanding of its operation. In a large number of cases it will provide the debtor withthe best alternative, but in other cases it will either not provide the best result or it willleave the debtor in a position that is not a major improvement while also depriving thedebtor of the opportunity to use it again (at a time when it might be more needed) formany years in the future.

When you file for bankruptcy, you invoke a federal law to protect you from yourcreditors. In return for that protection, you agree to make a full disclosure of what youown, and to turn over to a bankruptcy trustee whatever you own that is not exempt so thatthe non-exempt property can be sold and the proceeds distributed to creditors. The federalbankruptcy code contains a list of exemptions. State laws also have exemptions fromcreditors, which can be invoked without declaring bankruptcy. Some state laws alsoallow (or even mandate) that state law exemptions be used in place of the federalbankruptcy exemptions in bankruptcy court. If you make the proper disclosures and turnover the requisite property, the bankruptcy court will discharge (wipe out) some or all ofyour debt (some debts cannot be discharged in bankruptcy at all, other debts may or maynot be discharged depending on certain factors, while discharge of some other types ofdebt such as credit card debt requires you to complete a Chapter 13 plan rather than aChapter 7 liquidation). If the judge in bankruptcy court decides that you have notcomplied with your duties, you will be denied a discharge and your bankruptcy case willbe dismissed, with the result that your creditors will come after you just as hard as beforeif not harder. Your bankruptcy discharge could also be revoked within the first year (thishappens 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 beprosecuted for bankruptcy fraud (and this can happen even after a discharge has seasonedfor a year—the laws were written with the understanding that fraud is a crime of hiddenfalsehood, and statutes of limitations on it don’t begin to run until it is discovered orshould have been discovered). The debtor who goes through bankruptcy and re-emerges

20 http://en.wikipedia.org/wiki/Bankruptcy_in_the_United_States

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stage bankruptcy is advisable when your financial circumstances have drastically andsuddenly changed for the worse even though you have always paid your bills on time andexpect to be able to do so again for the foreseeable future once you shed some debt youdid not anticipate. The financial challenge may be a sudden and very expensive illnessfrom which you quickly recover, or a discovery of toxic waste you didn't put there on apiece of property you own, or the sudden collapse of a customer who was indispensableto your business. No matter what the circumstance, if you expect it to be crushing buttemporary, early stage bankruptcy allows you to emerge with a reasonably good creditrating, and it should only be considered if it will be filed before your credit is seriouslydamaged. Freed of obligations you could not perform in any case, the idea is for you beable to pursue opportunities in the future without being concerned about specters of pastissues returning to haunt you.

The second circumstance in which bankruptcy is clearly advantageous is emergent stagebankruptcy. Bankruptcy in the emergent stage would be done as you are recovering froma long period of financial hardship. In fact, the timing and reason for the bankruptcywould be that growth of your nonexempt assets threatened to exceed the exemptionsavailable for them in your state. Once assets exceed exemption amounts, creditors whosue you may recover those assets from you in state court, or if they already havejudgments they can (in very rare cases) take you into involuntary bankruptcy23 andrecover the assets in federal bankruptcy court. Emergent-stage bankruptcy forestalls thatpossibility.

The third moment when bankruptcy may be appropriate is what I term the contingencybankruptcy. The contingency bankruptcy is undertaken when some event (such as agarnishment or an asset seizure) occurs that you either need to see undone, or that yousimply feel will lead to an unjust result unless the proceeds of that asset or the amountyou are paying on that garnishment instead were to be distributed instead among yourcreditors according to their priorities. If you learn that a rich relative is expected to diesoon and leave you a substantial amount of money, you might also want to filebankruptcy sooner rather than after such an event occurs. You might also file a Chapter13 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 toconsider bankruptcy on an optional basis as a matter of planning. For instance, if youremployment 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 forwardin life as things stand in the hope that the statute of limitations will expire on outstandingdebts or judgments, or that such debts or judgments will not follow you from a state youmove away from to a state you move into. Or perhaps the rich relative from thecontingency 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

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phone call) is required before filing bankruptcy. Although your bankruptcy attorney willlikely steer you to a company that can do the job, you can also find a list of approvedcredit counselors on the Department of Justice’s website.26

If you are considering going bankrupt, beware the free initial consultation with anattorney. If the decision to go bankrupt or not is at all a close one, only a thoroughanalysis which includes a means test and a 22C disposable income analysis will tell thetale. Without that the only certain thing for an over median income earner withoutsignificant business debt is that you would be in a Chapter 13 at the minimum for 3 yearsbut not more than 5 years. It is also important to repeat here that if you enter thebankruptcy process and do not complete it and obtain a discharge, your creditors will befree to pursue you as though there had never been a bankruptcy. Former bankrupts arealso often discriminated against in the job market (although the bankruptcy code forbidsit) 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 onyour record essentially forever27 (although it will be on your consumer credit reports foronly ten years), you may want to instead enter credit counseling, tailor your ownsettlement program or duke it out with each creditor if and when necessary during thecourse of the seven and a half year CRA reporting period. If you can avoid judgmentsand problems caused by cascading defaults during that time, your credit can be clean atthe end.

One reason actually filing bankruptcy may not be necessary if you are truly destitute isthe bankruptcy score. You see, your creditors have access to credit scoring on youbecause they hold your debt and have a right under the FCRA to check your creditreports. One type of score they can and do purchase is a score offered by the CRAs thatpredicts whether you will go bankrupt. If the score is poor enough, the creditors don'teven 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 thatsomewhere down the road you will get a new job and apply for credit, or otherwiseresurface as an individual with "an improved ability to pay." In both the Chapter 4--NastySurprises and Chapter 5--Debtors' Secret Weapons I describe some ways to avoid raisingyour 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: "informalbankruptcy." The term was proposed by Amanda E. Dawsey and Lawrence M. Ausubelof the University of Maryland and the University of North Carolina in a paper by thesame title they co-authored in 2004.29 They suggested that approximately half of thedebtors who cannot pay their debts pursue an informal bankruptcy strategy rather than aformal bankruptcy strategy, based on their analysis of credit card charge-offs. They

26 http://www.usdoj.gov/ust/eo/bapcpa/ccde/cc_approved.htm27 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.html29 http://www.ausubel.com/creditcard-papers/informal-bankruptcy.pdf

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they can collect. The collectors pursue traditional phone and mail strategies, creditreporting strategies or both--any of which are improper. The nub of the controversy isthat once you have gone bankrupt, any of your creditors whose debts were discharged arelegally required to list those debts as "included (discharged) in bankruptcy" ("IIB") whenthey report to the credit bureaus (if they continue to report at all). However, one of thehidden pitfalls for those who go bankrupt is the Junk Debt Buyer or Original Creditorwho refuses to report correctly. For some debtors, the misreporting will motivate them toreaffirm debt in order to settle with the debt's new owner. That's exactly what the junkdebt buyers want.

As mentioned above, there is a ready market for the debt of individuals who have beendischarged in bankruptcy. Keep in mind that this debt is theoretically worthless. Becausethe debt is no longer owned by the original creditor with whom the debtor might want torenew a relationship, the likelihood that a debtor would want to reaffirm the debt orotherwise pay a settlement should be practically nil. Maybe one debtor in a thousandwould have a change in fortune for the better and feel some moral obligation to makegood on the debt with a third party who had purchased the debt for a pittance knowingfull 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 onlypossible answer is that these buyers intend improperly and illegally to use some practicaltactic, such as false credit reporting to effect a circumvention of the protections thatbankruptcy was intended to provide. The aforementioned article described how the mostwell known business that provides a marketplace for buying and selling defaulted debtpromised that it would no longer facilitate such transactions. Presumably the low value ofthe portfolios involved and the inescapable inference that any value at all reflected onlywhat could be obtained by improper means drove the market-maker's decision to break itsassociation 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 willcontinue to find each other, and the collectors will continue to improperly pursue theformer debtors. Former debtors facing such tactics can go back to bankruptcy court andask the judge to stop the creditors from violating their discharge. The good news for thedebtors is that courts will fine the creditors and award the debtors their attorneys' fees inthe cases. Where the debtors have felt compelled to pay up by improper pressure (such aswhere a lurking strategy on the part of a JDB has allowed it to pounce and disrupt a homepurchase), 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, andsome 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 forthe attorney.

It is important to realize that the FDCPA provides debtors with some protections that aresimilar to the permanent injunction that bankruptcy gives, but the protections are notenforced in the no-nonsense atmosphere of bankruptcy court and statutory damages are

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creditor who filed an involuntary petition and then couldn’t locate the debtor to movethe 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 madewhen creditors forced some individuals into involuntary bankruptcy. Under BAPCPA,the bankruptcy courts have been deprived of the jurisdiction to even hear thebankruptcy 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 ofan involuntarily bankrupt person, who conceivably could have used their unwillingnessto obtain credit counseling as a means to deprive the bankruptcy court of jurisdictionover them. Commentators speculated that in the appropriate case bankruptcy courtswould simply ignore the mandate (or would order the debtor to obtain the counselingand use their contempt powers to see that the mandate is carried out), and so far theyhave been right. What courts have done is refused to read the two statutory sections toreach what they considered to be an absurd result, instead excusing the counselingrequirement.34 As I mentioned before, bankruptcy courts are no-nonsense places.

Bankruptcy has its place, but so do other techniques of resolving debt problems, andbankruptcy is a card that the debtor does not need to play unless and until its strategicadvantage is clear. The bottom line is that bankruptcy is a tool that is mostly for thedirest of emergencies, and nobody should enter into it without a careful analysis of itspotential consequences. In general if you understand your financial picture you willhave certainty that you either need it or you don't. If you don't need it, you typicallywill know whether you want it or not, and you will know why you want it. If you do notfeel certainty, it is not the time to move forward.

34 In Re Sims, 08-41668 (Bankr. D. Kan. Jan. 7, 2009) Doc. # 20http://www.ksb.uscourts.gov/images/ksb_opinions/JMK_08-41668-20.pdf

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Re-aging

Under the Fair Credit Reporting Act (FCRA), every delinquent credit account has aDate of Last Activity (DOLA). This date is 180 days after the last payment that broughtthe account current before the last default that was never caught up again (which iscalled the "Date of First Delinquency" or DOFD). Theoretically, the DOLA sets anabsolute bar to the reporting of a particular tradeline past seven and one half years fromthe date it became a bad debt (although a separate public record tradeline may appear ifthe debt has been successfully sued upon). However as a practical matter, the DOLA isoften shifted by original creditors without justification, and likewise collection agenciesand junk debt buyers (JDBs) seem to have no qualms about improperly setting it to thedate 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 youwould rather not be reminded of come into play. If you can prove what the DOLAshould be listed as, you can compel the CRAs (in court if necessary) to correct orremove any negative tradeline with an erroneous DOLA. If you can prove that acreditor manipulated the DOLA to keep the tradeline appearing on your reports past thepoint of obsolescence, you have them on an FDCPA violation; and you are entitled tosue them for money.

Re-aging in the context that it was just used is actually a secondary meaning of theterm, but it is the most common term used for this particular collector abuse. The otherre-aging is actually a good thing, and it refers to a creditor’s decision to return adefaulted account to good standing under the FDIC’s Rule 5000 regarding debtclassification when the defaulting debtor has again been making regular payments. It issimilar to rehabilitation36 for student loans, however the key difference is that whilestudent loans can always be rehabilitated no matter how many prior rehabilitationattempts 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 becomeobsolete, the CRAs won’t report an account with that number from that creditor. Doesthat stop every creditor from reporting? Of course not, because all the unscrupulouscreditor needs to do is change the account number and the account can be placed onyour reports again. Is there a way to stop this? There is, but only if you have kept goodrecords.

35 ‘Zombie’ Debt is Hard to Killhttp://articles.moneycentral.msn.com/SavingandDebt/ManageDebt/ZombieDebtCollectorsDigUpYourOldMistakes.aspx36 http://www.ed.gov/offices/OSFAP/DCS/rehabilitation.html37 Caveat: Student loan rehabilitation depends on the availability of a market for the rehabilitated loan, andthe financial crisis has dried up that market for the moment.

http://www.reuters.com/article/pressRelease/idUS118892+09-Mar-2009+MW20090309

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tradelines will appear to other creditors, and what those other creditors might do. In asituation where there is a debt that is close to the statute of limitations that is not beingpaid off, the debtor might want to either hold off on settling any other account that iswithin 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 ratherthan being reported as settled (or if the creditor agrees not to update the TL and that itwill not respond to any CRA disputes it receives--such an agreement leaves youeffectively in control of the TL's eventual disappearance, but in the meantime you canleave it there to discourage other creditors). If it is necessary for the account to report assettled, 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 forless than was owed.

An account settled for full payment that reflects such a fact on the tradeline acts as adinner bell for other creditors (the concept is similar to the schoolteacher who asks achild caught chewing gum whether he brought enough for everyone—if you don’t haveenough money for everyone, it isn’t safe to be spied settling with anyone—especially at100 cents on the dollar). Deletion of a tradeline is not such a dinner bell, although if theconsumer’s score is substantially improved by the deletion the consumer may cross athreshold that leads to increased collection activity by one or more other creditors. Andfor the debtor who still has other debt problems, the ideal would be to have the TL notupdate, but with an agreement with the creditor that they would not respond to anydisputes you might make with the CRAs—which leaves the timing of the TL’s deletionin your hands. Think of it this way: say you see five people standing by the rail on afishing pier and you are trying to decide whether to drop your hook into the water. Ifone of the people is hauling in a fish, you may conclude the fish are biting, but ifsuddenly one goes away and there are only four people standing there any motivationthat you had to go fishing would be by virtue of the rail being less crowded, not the factthat the fish are biting--and if the fifth one was just a realistic dummy still standingthere but the real fisherman was gone (along with his fish), you might never notice thatthere would now be room at the rail for you. Celebrities, major corporations andwealthy people keep the details of cases they settle secret,38 and you should try to do soas 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. Sincethe passage of the FCRA in 1970, creditors no longer have the advantage of havingtradelines that are over seven years old showing up on reports, and they typically don’thave the right to go to court on those accounts (or rather, their right is easily defeatedby the statute of limitations defense), but that doesn’t stop them. They order lists of hotprospects for mortgages (which are typically generated based on drawing from a list ofthose individuals who have had their credit pulled by a potential mortgage lender) fromthe 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

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debts and judgments. In short, Choicepoint has a solution in mind that it would like tosell 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 inaddition to the usual tri-merge, either during the application process or perhaps on aspot-check basis with respect to particular mortgage brokers as a way to make sure thebrokers are making adequate efforts to ferret out the things that might not show up oncredit reports and might not be put on applications by homebuyers. The fact is that titlecompanies will only be looking for liens that could keep a mortgage lender frombeing the first lien holder on a borrower's home. The ordinary credit report (not theRMCR, or "full factual", which is available for mortgages over $150,000 butcustomarily has not been used often) will only go back seven years. For any particularborrower there could easily be debts and judgments not showing up that the lenderwon't know about without more detailed and searching reports.

While the FBI currently lacks the resources to pursue "fraud for land"41 cases (wherethe mortgage applicant is simply hiding the fact that they are unqualified) and can onlypursue "fraud for money" cases (where the fraudsters are acting in an organized way toexploit weaknesses in the system and leave banks holding properties worth much lessthan 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 thecash right away.

The bottom line is that anything you owe that for some reason isn't appearing in theusual places that lenders look does not give license to omit that item from a form 1003mortgage application (except for out-of-statute debts incurred in Wisconsin andMississippi). In one case, a new homeowner had somehow even managed to get amortgage with an unexpired judgment hanging over his head. The judgment shouldhave 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 aninformation subpoena to the mortgage lender, evidently looking for the asset disclosureon the mortgage application so that the judgment creditor could attach a bank orbrokerage account. Not only was the creditor able to look into an asset declaration thatwasn't made under threat of seizure (which meant that it was much more likely to befully accurate, if not optimistic), but also the mortgage lender was essentially on noticeat 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 poweron a pay-as-you-go basis. Experian markets a service called "Collection Triggers" tocollectors, and TransUnion calls theirs "Triggers for Collection." Essentially when

41 http://articles.latimes.com/2008/aug/25/business/fi-mortgagefraud2542 http://en.wikipedia.org/wiki/Data_mining

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

Lawsuits are treated more fully in Chapter 6--Court, however a few of the moresurprising issues and issues that require you to pay strict attention to what you are doingare also covered here.

Creditors who have exhausted all other collection possibilities can sue you for theirmoney. You need to understand what it means to be sued, and what you can do to fightback. A lawsuit begins when a complaint is filed with the court (exception: states likeMinnesota and Washington have pocket service,44 which permits an attorney to serve acomplaint 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 defaultjudgment). Once the lawsuit is filed, you must either appear at a pretrial hearing (forsmall 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 anothertype of motion that comes before the answer.

Affirmative defenses45 are claims on your part that say "yes but" to their case, evenassuming it is provable on their part. The most frequently used affirmative defense withrespect to consumer debt is the Statute of Limitations defense, which takes advantageof 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 willinvalidate certain provisions of an agreement or even the entire agreement if it shocksthe 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 affirmativedefense even though it is available to you, you lose it automatically—courts onlyoccasionally will notice on their own that one could have been plead and then rule infavor of you sua sponte (Latin for “on its own”).

Creditors' attorneys often win default judgments because of sewer service, which issimply a term for a fraudulent return of service by a process server. Process servers aresupposed to find the defendant and personally serve him or her (or someone inthe defendant's household over a certain age) with the lawsuit. In some cases, statespermit methods of service that are not guaranteed to provide actual notice of thelawsuit to the debtor. These kinds of service are often termed nail and mail, meaningthe process server needs to affix a copy of the complaint to the defendant's door andmail 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 Generalfiled 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_defense46 http://en.wikipedia.org/wiki/Unconscionability

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Arbitration

Many credit card accounts now contain an arbitration49 clause. This clause basicallyallows the creditor to bypass the court system for purposes of assigning liability anddamages, 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 debtorwill be denied the opportunity to mount a meaningful defense in an arbitrationproceeding, and in some states the arbitrators may not even have to recognize thestatute of limitations defense. If an arbitrator enters an arbitration award, a debtortypically has ninety days to file a lawsuit against the creditor in order to overturn thearbitration award.50 If the debtor fails to do this and the arbitration award is confirmedby a court, the creditor then has the ability to quickly get a real, enforceable courtjudgment 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 providedwithout a hearing, or there may be a hearing held which you are permitted to attendtelephonically. Some states restrict the use of arbitration, and if you are a resident of astate that has done so it may make sense for you to file a refusal to arbitrate with thearbitrators. In many cases this will trigger a lawsuit, so don’t assume that refusing toarbitrate will end the dispute.

If a credit card agreement contains an arbitration clause, it typically allows either partyto invoke it when a dispute arises. In the event you are sued by a creditor and youdetermine that the attorney is a very effective one and the court is one where you do notanticipate achieving success in your defense, you may want to consider invoking thearbitration clause at the outset of the litigation in order to shunt the proceedings into aforum where you may have a better chance of a successful defense. Because arbitrationproceedings typically are very quick from start to finish, you probably do not want todo this if delaying the case is your goal. Any delay you achieve will only bemomentary, 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 willstop a debt case cold due to the fact that existing case law in the state makes it almostimpossible to confirm an arbitration award because arbitration does not conform to theunwaivable Wisconsin Consumer Act. You may want to look into whether your statehas similar protections and precedent.

Additionally, there is little agreement nationwide with respect to whether the statute oflimitations must be respected in arbitration. In a case that you can fight in court onstatute of limitations grounds you may want to stay out of arbitration for that reasonalone.

49 http://en.wikipedia.org/wiki/Arbitration50 http://www.law.upenn.edu/bll/archives/ulc/uarba/arbitrat1213.htm

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court and seek to vacate an improperly entered default judgment. Bear in mind that incases of improper service, that time limit doesn't begin to tick, if it ticks at all, until youfind 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 isrendered against you, the creditor must use additional legal measures to enforce thatjudgment in the state where you now reside. That enforcement mechanism is typicallythe Uniform Enforcement of Foreign Judgments Act (UEFJA).54 Versions of the act areon the books in all states except California, Indiana, Massachusetts, and Vermont. InCalifornia foreign judgments are subject to the Uniform Foreign Money-JudgmentsRecognition 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 adomestication action, which is an older, less streamlined procedure that willnevertheless result in the foreign judgment having validity in your state. Because theUEFJA was designed primarily to aid in collecting child support, collection attorneys inconsumer cases were somewhat behind the times in focusing on what it could do forthem. They also make less use of it than they could because when a case crosses statelines it typically means that another attorney will have to work it. Attorneys can bereluctant to make choices that will result in splitting their fees with another attorneyeven where the result of failing to do so is that both attorneys collect nothing. Note thatthis 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, ornationwide law firm can be very dangerous to you. Thankfully there are not many ofthem, and they can afford to be very selective in pursuing only the larger cases with thebest chance of collection.

The UEFJA provides safeguards against invalid foreign judgments being domesticatedto your state. A judgment debtor has a defense against a foreign judgment in situationswhere the distant court was not impartial, did not provide due process, lacked personaljurisdiction or subject matter jurisdiction, did not provide sufficient advance notice forthe debtor to appear and defend, was fraudulent, was against the public policy of thedebtor's state, where the judgment conflicts with another judgment, where the judgmentis contrary to an existing settlement agreement, where the distant court was a seriouslyinconvenient place to appear and defend, or where the judgment is an attempt toenforce the tax laws of the foreign state. It is also possible that the foreign judgment istoo old to enforce in your current state of residence, either under the laws of the foreignstate or the laws of your current state. But if you receive notice that a judgment is beingdomesticated to your state under the UEFJA, it is up to you to file opposing papers andmake 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 wagescannot be garnished against a resident of that state and file it in a distant state where thedebtor has never set foot. Why would a creditor do such a thing? Because the debtorworks 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

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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 browbeatdebtors into making that acknowledgement and giving up their rights by glowering atthem while asking: "This is your debt, isn't it?" You don't have a Fifth Amendmentright to refuse to answer because that right would only apply if your liberty were atstake. 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 adirect manner because you might not be believed or you might in fact be mistaken Astrong "no" may simply not be enough, and you want to avoid a back-and-forth with thejudge if possible. He is the "trier of fact" just as a jury would be, and he doesn't have tobelieve you. A more nuanced answer would be something similar to "I'm not willing toswear that something that was defaulted on X number of years ago is or isn't mine, but Ido maintain that even if it were mine it would be beyond the statute of limitations." It'slong-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 adefensive player between him and the goal line. They are going to try to run over theobstacle or around it because it's between them and getting paid. Seldom will you find acollector just giving up when the debtor says the account is too old or a creditor'sattorney bringing an out-of-statute case to court without at least some colorable fact orargument to try to make the debtor believe they can convince the court of somethingthat will defeat the debtor's potential statute of limitations affirmative defense. Whatcan defeat the debtor's claim? That is a matter for statutes and for case law todetermine.

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 thedebtor. The creditor calls up the debtor and in the course of the conversation cadges asmall "good faith" payment, say between $5 and $50. In many states this sort ofpayment can temporarily toll--or better yet for the creditor--restart the statute oflimitations clock. In other cases, the creditor has no contact with the debtor, so thecreditor must put a phantom payment on the books. This can be as simple as afraudulent accounting entry, or it may take the form of a more elaborate ruse: onecollection agent was found to have been trotting down to the corner convenience storefor 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 requiresthat payments be made or ratified by the debtor.58 Other state laws do not toll the statuteunless a payment goes toward principal or interest on the debt ... and for debts withplenty of penalties as part of their balances, a payment would need to be quite large inorder 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 Madehttp://chestofbooks.com/business/law/Law-Of-Contracts-4-3/Sec-1692-By-Whom-Part-Payment-May-Be-Made.html

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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 goodchoice 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 foughthaving to issue IRS forms 1099-c and lost to the IRS in a case called Debt BuyersAssociation v. Snow.60 This matters to you because the IRS now expects that anytime aJDB (or an OC) abandons pursuit of a debt they will be required to send a 1099-c formforgiving the debt to the debtor within 36 months of their last collection efforts. Theform 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'smarginal rate. The debtor will not be able to avoid the imputed income unless a form982 calculation reduces or eliminates it. Form 982 basically requires the debtor to bequalified to file a Chapter 7 bankruptcy. If a debtor fights a debt with a JDB on thegrounds that the JDB cannot document the debt rather than on statute of limitationsgrounds, the JDB may be deterred from filing a form 1099-c because of the doubt overthe validity of the debt. If a form 1099-c is filed, the debtor can attach evidence ofattempts to obtain validation of the debts along with an explanatory letter disputing thevalidity 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 recognizeincome and pay tax in some future year (and if the debt changes hands four times, thatfuture year could be as much as 12 years from the charge-off date). However, it is atime-honored tax law principle that money you receive as a loan is not income and thatin the event you somehow successfully omit to pay it back it becomes income themoment you clearly are not going to pay it back. That event might never happen in yourmind, so the IRS uses a more objective standard for when you must recognize theincome: the creditors' issuance of a form 1099-c. And the IRS requires that form to beissued when any of a number of specified events happen, such as a win by the debtor onSOL grounds--or in fact on any grounds, but victory on the SOL essentially admits theexistence of the debt, while fighting on documentation does not necessarily indicatesuch an admission, and that fact might well be enough to allow you to avoid theimputation of income.

Some JDBs, particularly the smaller ones, do not routinely issue forms 1099-c despitethe IRS requirement that they do so. Larger JDBs are well equipped to shoulder theadministrative burden of printing and mailing the forms, and since they hold largeblocks of debt, they are a focus for the IRS in gaining compliance; while the small fryto whom debts typically ultimately devolve are not so important to the IRS. That meansthat it is possible that you will never get a form 1099-c unless you inadvertently ask forit. Smaller JDBs sometimes chatter to one another on the Internet about sending forms1099-c on a retaliatory basis when a debtor responds to their dunning by claiming thestatute 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

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states. The statute of limitations for a contract under seal can be 10, 12, 16 even 20years. 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 statewhere contracts under seal are a concept that extends the Statute of Limitations, andneeds to know whether the contract was indeed signed under seal. But even if a veryold debt is under seal, there is a concept in the law that may help even where the claimis 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. Incertain cases, it can apply even when the statute of limitations has not run because thedebtor was induced by the creditor’s laxity to fail to address the debt. If you haven’theard from a creditor in years and years before they sue you (or even try to enforce anold judgment that is still technically valid), laches may apply.

Trojan Checks

Creditors with judgments (or those contemplating suing) typically would like to knowwhere the debtor banks. Often they already have this information because they werepaid from that account. But sometimes it has been years since they were last paid, orthe debtor has moved. In either case, the debtor’s banking relationship has likelychanged during the interim. There are a number of ways to find out where someonebanks. One of the easiest is the “Trojan Check.”63 The Trojan check is a small checkthe collector causes to be sent to the debtor. It could be as much as $50, but othercollectors boast of having habitually used checks as small as $1.55. The check may sayit’s a refund of an overpayment, or it might say it’s a settlement in a class action, or itmight purport to be a rebate on some merchandise. Sometimes the collector sends thecheck directly from its own accounts, but more often the check is either from theaccount of an innocuously-named shell corporation formed by the collector just for thepurpose of issuing such checks, or it is from a third-party investigative service that thecollector 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 theviolator. The bottom line is that it is a bad practice to deposit any check from aquestionable source. It is also a bad practice to pay anyone with a check unless there iscertainty who they are and what they’re all about—your check is even better than theircheck in telling them where you bank.

Pretexting and Tattletale Insiders

Also relevant to issues regarding bank accounts, but really a problem that can come upin many different situations is that of pretexting. One of the simplest means of findingsomething 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 ServicesUnited States House of Representatives Hearing On Identity Theft and RelatedFinancial Privacy Issues September 13, 2000 http://financialservices.house.gov/banking/91300dou.htm

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take the bait, particularly if the survey is related to banking and credithabits. Investigators posing as survey-takers have been known to show up at the door ofthe target of the investigation with a bouquet of flowers and a valentine's day teddybear to ask how and when a couple got together because it was material to aninvestigation.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 entrustedwith information that could be damaging should also be alerted to the possibility thatthey might be rused.

As distressing as the threat of pretexting can be, the thought that a trusted businesswould sell a customer out is even more distressing. But it's true. Insiders at banks havebeen caught selling information about the banks' customers to collectors and have goneto jail over it.66 This happens more with larger banks since their insiders can providelarger lists and that makes their crimes profitable to commit when compared to what asmall-bank insider could expect to receive. It also happens with telephone companiesand even the government.

When the money involved gets large enough, the investigators’ behavior gets reallyoutrageous. The "Private Investigator to the Stars” Anthony Pellicano67 was tried forhaving corrupt insiders working for him not just at businesses but at the policedepartment as well. Conducting his own defense, he painted himself as a "problemsolver" for his clients, but federal agents had found explosives and illegal wiretappingevidence in his safe, and his computer passwords included the word "omerta,” amafioso term for their code of silence sworn on pain of death. The case against himbegan when a reporter tracking a controversial story involving actor Steven Seagallfound a rose, a dead fish and a note that said, "Stop" on the windshield of her parkedcar. Investigators may have moved from the seedy offices seen in 1930s detectivemovies into gleaming towers in suburban office parks, but they haven't changed howfar they will go to satisfy a client, and for most of them that's well beyond what the lawallows. 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 toyourself. Although this book is not about credit repair (and credit repair should not beundertaken until all serious defaulted debt issues have been disposed of), a brief note ona 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 ofoverdoing PFD or confidentiality agreements is “ghosthood.” It is possible that if theconsumer successfully eliminates negative tradelines, he will be left with no tradelinesat all. While some creditors will lend to people with bad credit, there are many who willnot extend any credit whatsoever to those over a certain age who have no tradelines atall 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.shtml66 Massive bank security breach uncovered in N.J. http://www.msnbc.msn.com/id/7670774/67 http://en.wikipedia.org/wiki/Anthony_Pellicano

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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 todo 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 onewill see it again at some time in the future. Unpaid delinquent debt never dies, and evenpaid debt can take on a bizarre life of its own, returning time and time again despite thefact that it was paid long ago. That means that a consumer can be dunned for debt thatis twenty years old or more, even if it was never, ever delinquent. It is vital thatconsumers keep good records of what is owed and to whom it is owed, and that in anyinstance where one settles a debt or closes an account the documentation that it wasfully and finally settled be kept along with the (original if possible) canceled check bywhich it was settled. One may find oneself defending that settlement in court at anytime (on the other hand, overly aggressive collection efforts by someone standing in theshoes of someone who has already collected may afford you damages under theFDCPA, FCRA and other legal theories such as defamation and harassment, so theconsumer may be the one suing—no matter how a suit starts, it’s best to have goodrecords so that it ends in a win).

One very frustrating scenario for someone with past bad debt is the reappearance of adebt that was already paid. Sometimes it's just a dunning letter, other times people seecollections tradelines reappear on their reports, or even get sued--sometimes a secondtime after they’ve already won (or even lost) the first time. Why? Collectors keep lousyrecords, and when they sell accounts they don't send all the records they do keepaccurately. That is why it's vital to keep good records, and that the records clearlyreflect 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 inmany cases where a credit card account has been closed in good standing), there is notelling who will receive a record of the account as being an unpaid debt still owed by adebtor.

If you are dunned on a debt you have already paid, you should respond and ask forvalidation 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'sposition is not valid. If they persist, you can follow the complain to the FTC, the BetterBusiness 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 ifnecessary. Whether and when to ask for validation on unpaid debt is a matter you mustbe strategic about because it can trigger a lawsuit. Before asking for validation on anunpaid debt you must do a certain amount of due diligence regarding the debt and thecreditor to make sure it is not one that sues in response to validation requests.

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has personal knowledge of the records of the OC that sold to the JDB,72 or mayimproperly claim that the records of the OC that the JDB has purchased specifically forpurposes 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 oneor more rules of evidence (typically the information the JDB is seeking to establish fallsunder the hearsay rule and does not fall under an established exception to the hearsayrule such as the business records exception). The creditor has every right to produce awitness at trial with the requisite personal knowledge or position with the originalcreditor to give testimony regarding the debt, and you have every right to demand thatthey do so instead of relying on inadmissible hearsay evidence. The problem for them isthat it is usually prohibitively expensive (or even impossible) for them to do so. Toughluck for them, lucky break for you--usually.

The "demand a witness" approach is not always availing, however. A hostile judge canderail it. One judge’s approach was simply to deny the debtor’s legal demand for livetestimony by claiming he was doing the debtor a favor in that when (not if) the creditorobtained its judgment the debtor would also be on the hook for the creditor's costs inflying in the witness from a distant city. The judge pointedly ignored the probabilitythat the creditor would not be willing to go that far and would have either settled thecase 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 thecreditor causing it. Whether it is because they are in Checksystems, or because theyhave a fear that a creditor will seize their accounts, or because they simply don't trustbanks or the government, many consumers choose to keep a large part of their wealthsomewhere 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., arobbery victim, had $400,000 of his cash seized by the Lima Police Department andturned over to the FBI.74 Because marijuana was found in his home, in order to get themoney back he would need to prove that he had lawfully earned it. A situation like thisillustrates that keeping your money under the mattress (in this case Mr. Ricks had awall safe, which the thieves had been unable to break into--but police with a warrantmade 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/BUSINESS73 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/collectiondefense debt buyer.pdf74 Conflicting Tales Behind Cash Seized by FBIhttp://abcnews.go.com/TheLaw/FedCrimes/story?id=4656671&page=1

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Suppose you do decide to keep cash on hand. Anyone who is going to hoard cashshould staple all the stored bills to their corresponding ATM receipts or bankenvelopes, and should not obtain cash anywhere else but at an ATM or a bank. Spendthe cash in a "First In-First Out" manner so that the oldest withdrawal is always usedfirst and the hoard's average age is rising as little as possible. Cash needs to have ademonstrable 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 novalue if the government itself has failed. It is simply not a lasting store of value (evertried to spend a Confederate dollar?). It will also become more suspicious the longer itis stored--as recent years have shown, the treasury must now change the bills on a moreor less regular basis to deal with the Iranian and North Korean ability to makecounterfeit "supernotes."78

In hoarding cash you will need to cope with the aforementioned question of how easywill it be to spend (or deposit) large bills from two or three revisions ago withoutattracting undue attention. And if your home burns, cash will burn with it. Gold can atleast be recovered from the ashes. If you have decided not to hoard cash, or you receivecash 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 asgold 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 distinguishbetween bullion gold and "antique numismatic gold" having a value of at least twice thevalue of the gold alone.80

In the 1930s private the U.S. confiscated bullion gold government (with compensationpaid in paper currency)81 and it was not until the 1970s that the public was againallowed to legally own gold. If economic times should become desperate enough thiscould happen again. The key difference will be that this time the dollars received bythose who surrender their gold will no longer be backed by gold as dollars were in theDepression era.

The government's re-codification of the distinction indicates that it is laying thelegal groundwork necessary to declare another confiscation. Even if you do not complywith the confiscation your gold will be unmarketable due to the stiff legal penalties thatwill be imposed on the buyer if he or she is caught. Therefore it makes little sense tohold bullion gold, but there is every reason to hold gold jewelry or coins havingnumismatic value. Be sure to permanently retain receipts for any gold purchases youmake. The downside to holding numismatic coins and jewelry is that you will want toinsure them, and insurance records will be available to any judgment creditor whowants to subpoena them. And once the judgment creditor knows what you have, thecreditor is in a position to ask a court to make you give it all up.

78 http://en.wikipedia.org/wiki/Superdollar79 http://en.wikipedia.org/wiki/USA_PATRIOT_Act80 http://edocket.access.gpo.gov/cfr_2006/julqtr/pdf/31cfr103.140.pdf81 http://en.wikipedia.org/wiki/Executive_Order_6102

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aggregate balance in the bank probably exceeds the applicable FDIC insuranceprotection limit, meaning it is exposed to loss in the event of a bank failure. There isalso the risk that the operator of a warehouse bank wills some day claim to have neverheard of you when you go to get your money out of their bank. Because warehousebanks 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 aChecksystems user, you may think you are safe from further problems withChecksystems. Unfortunately, if you order checks from Current, Deluxe, DesignerChecks or Checks Unlimited they share their data with Checksystems, andChecksystems will advise your bank that you are on their list, potentially resulting inyour account being closed. This is only good business as far as Checksystems isconcerned, since even if your current bank isn’t paying to be able to put their badaccountholders into Checksystems, the value of Checksystems to the banks that do useit is enhanced when the former customer finds doors closed unless and until he or shemakes things right with the former bank where the account was held. Where can youget your checks printed? Harland Clarke84 is believed to be a “safe” option, and if youask 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 franklymean it won't make sense, here is a brief description of the foreign banking option andwhy it has nasty surprises of its own. Debtors can and do move their money offshore. Intimes past, countries such as Switzerland had bank secrecy laws on the books thatallowed individuals to hide their money there, and even after Switzerland waspersuaded to open itself to international disclosure of the identities of its banksdepositors (formerly only for non-routine investigations—until recently Swiss bankingsecrecy was still in place in most cases), methods still existed to use third jurisdictionslike Gibraltar or Hong Kong to obscure the identities of depositors.85 Other nationssuch 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 knowwhat they had or where they had it. Although those days are not entirely gone, it is afact that for most depositors of significant funds into foreign accounts the monies willeither be traceable or there will be a violation of any number of customs, anti-moneylaundering or tax laws, including a requirement to check box on Schedule B of your1040 form and the requirement to file a Report of Foreign Bank and FinancialAuthority (more commonly called an “FBAR") every June 30 if you have signatureauthority over any accounts that have over $10,000 total in them at any time during theprior year.86

84 http://harlandclarke.com/solutions/payment/orderchecks85 Swiss Aren’t So Secret Anymore http://online.wsj.com/article/SB125019858099730281.html86 http://www.irs.gov/newsroom/article/0,,id=168194,00.html

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to set up withholding that will give you a refund), but keep in mind that you may beliable for interest or penalties in the event you have underpaid taxes in an amountgreater 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. Acreditor with a judgment against you may get an order garnishing your wages at anytime and without prior notice to you, although there may be notice and an opportunityto go before a judge before your employer is actually required to begin deductingmonies from your paycheck. In other cases you simply notice that your paycheck issuddenly missing a substantial amount of money due to a new line item appearing onthe 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 enforcethat limit. To reduce the amount taken, you must appear before the court with adisclosure of your particular income and financial circumstances and establish yourright to obtain a further reduction in the amount taken out every pay period. If you haveenough dependents, you can potentially even zero out the amount the creditor canobtain. Keep in mind that if you close off this opportunity for the creditor, the next stepmay be for the creditor to attack your bank account, your personal property, your car, oryour home—so if you still have substantial assets your best bet may be to negotiate apayoff 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 nodebtor's prison in the traditional sense.90 In other countries a debtor may be held inprison at the behest of a creditor, which is not true in this country. However, in thosecountries it's typically also true that the creditor must pay for the room and board of thedebtor. What happens in this country is that the debtor is picked up and held because ofa failure to satisfy a disclosure requirement or turnover order of the court, notspecifically because a debt has not been paid.91

Typically this will occur because the debtor failed to provide information requested bythe creditor regarding the debtor's financial circumstances, either by failing to respondto written interrogatories or failure to appear at a debtor's exam, which is a sworndeposition under oath. Typically also, requests for these kinds of disclosures are onlymade once or twice per year. However, in some jurisdictions, creditors’ attorneys havebeen known to schedule them monthly, sometimes even at two-week intervals. Debtors

89 http://en.wikipedia.org/wiki/Garnishment90 http://en.wikipedia.org/wiki/Debtors'_prison - United_States91 Example: http://www.usmarshals.gov/process/body-attachment.htm

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being recorded, and they will get the police involved if you make any threats (in arecent case that appeared in the press a telemarketer did just that to someone who wastired of calls trying to sell him an extended warranty for his car and who had threatenedto burn down the telemarketer’s offices)94. Stay home and use your mail, e-mail or yourfax machine.

Badges on a Percentage

It may seem odd that public functionaries would have an incentive to collect from youbeyond the fulfillment of their statutory duties, but New York City and New Jerseyboth have unique governmental functionaries with vested financial incentives to collecton a judgment against you. In New York City they are referred to as New York CityMarshals,95 and in New Jersey they are Officers of the Special Civil Part.96 If you havebeen sued in Special Civil Court in New Jersey, the officer who is sent to collect fromyou receives 10% of the first $5,000 collected and 5% of any amount collected inexcess of $5,000, and the commissions are paid by you, not deducted from what thejudgment creditor receives.97 New York City Marshals likewise have a financialincentive to collect from you--a "poundage" fee of five percent of whatever theycollect. If they collect enough to satisfy the judgment, then their poundage is additionalon top of what is owed to the creditor, but if they collect less then it comes out of theamount the creditor receives.98 Massachusetts also has poundage, as do Illinois andOhio.

In most other places the sheriff receives flat fees for collecting from you, and even inother parts of New York and other states where the same incentives are available tosheriffs, 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 unpaidparking 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 anyattorneys’ fees they receive based on the contract sued upon. Debtors in both placesoften face practical challenges that debtors in other jurisdictions do not. For instance,because the Marshals are so motivated and empowered, New York City dwellers oftenfind 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 theyare 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=63695 http://en.wikipedia.org/wiki/New_York_City_Marshal96 http://en.wikipedia.org/wiki/New_Jersey_Superior_Court - Special_Civil_Part97 http://www.judiciary.state.nj.us/prose-1.htm98 http://www.nyc.gov/html/doi/html/marshals/marshal_judgments.html - faq24

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Washington, Virginia and Wyoming however, allow judgments to accrue interest at thecontract rate, as does the State of Florida (with the exception that in Florida thejudgment is subject to an 18% usury cap). For credit card holders who have beenratejacked into the 37.99% stratosphere, the result is devastating. For those debtors theonly 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 preventthe 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 inother states according to the U.S. Constitution, there is room for courts to modify orundo results that shock their consciences. If your new state isn’t among the minoritythat let interest run wild, the court in your new state should be unwilling to continuewith the interest on the first state’s judgment as applied by the first state’s judgmentstatute, and should instead substitute the capped interest rate in your new state goingforward—potentially even retroactively to the date you established residence in the newstate.

Harassment

The section on zombie collections describes CAMCO. There are more CAMCOs outthere, but most of them are smaller operations that operate beneath the radars of theFTC and the states unless and until enough complaints come in.100 For historicreasons,101 many of these collectors are either based in Buffalo, New York or areoperated by individuals who got their start in Buffalo or with a collector who learnedhis trade there. The Buffalo-style collectors still operate the way debt collectors didbefore there was a Fair Debt Collection Practices Act (FDCPA)102, and you can expectthem to violate it in every possible way.

These collectors will call relatives and neighbors and tell them you are a deadbeat. Ifthey sense that a relative is at all concerned about your well-being or may be concealinginformation from them, they will make threats to the relative. They will call themselvesattorneys, police officers, private investigators, fraud investigators, and any otherposition they can think of that they believe will give them a shred of authority tofrighten you or someone else. They will contact your employer's payroll department orhuman resources department by fax or phone in circumstances when they have no rightto do so (when they do not yet have a judgment), they will harass your boss and yourco-workers and whoever answers the phone where you work. They will send paperworkthat 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 debtcollectors http://www.khou.com/news/local/stories/khou091102_mh_debt-collectors_.27b7d7e16.html?npc101 Marine Midland Bank, one of the founding members of the Interbank Association that evolved intoMastercard, was headquartered in Buffalo prior to its merger into HSBC, and a collections culture sprangup to service those banks that pioneered credit cards.

http://en.wikipedia.org/wiki/Marine_Midland_Bank102 http://en.wikipedia.org/wiki/Fair_Debt_Collection_Practices_Act

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players in this rotten corner of the industry are adept at using shell corporations andstraw men (sometimes even duping attorneys into renting out their licenses) to concealwho they are and what they are doing. Some have even exploited incentives offered bycities that needed to have jobs brought to or kept in the area, collected hundreds ofthousands or even millions of dollars from them and then closed up shop the momentthe heat was on.

Most individual collectors also use aliases known as “desk names” and conceal theirtrue 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 aparticular act of harassment, although some states such as Oregon do require thatcollectors’ desk names be registered with the state. In most cases, reputable collectorswill have a centralized registry of desk names and will be able to identify a particularcollector who uses a particular desk name. Desk names are not per se illegal, and courtshave on many occasions denied debtors’ allegations that use of a desk name was adeceptive practice.106 Courts understand that desk names serve a legitimate protectivefunction.

Another form of harassment is to show up at your house and loudly demand payment ofthe debt, perhaps in full view of your neighbors. Again, these forms of collection areforbidden to third party debt collectors under the FDCPA, but for original creditors youmay need to fall back on state law claims. Debtors who owe large sums have alsoreported being followed by men in cars, sometimes in an obvious way. Tactics likethese are known as rough shadowing, or lockstep surveillance and they are almostalways things that you can sue for. In times past, tactics have even included bumpinginto the debtor, tripping the debtor, spilling the debtor’s food on him in a restaurant andin extreme circumstances debtors have even been beaten up.

Inspection of Property

Creditors who have judgments will sometimes send a sheriff's deputy to inventory thecontents of your home. This is often just an intimidation tactic: unless you are wealthyand have antiques and collectibles there really isn't much point in a creditor trying tosell that couch of yours with the ketchup stain on it. In many states you can refuse toallow the sheriff's deputy to enter your home--some sheriff's deputies will evenstraightforwardly tell you that (remember, if they're not on a percentage basis, there'sreally no additional money in it if you let them in, just a lot more time filling outpaperwork). In most states the creditor would need to go back to court and get an orderauthorizing the deputy to break and enter if necessary. At that point you do have to letthe deputy in. If you live with a spouse or a roommate who is not also a debtor, it maybe 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 thatwould 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%5C1984%5C19841116_0040908.OH.htm/qx

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debtor can sue for if the creditor fails to do its part), while others leave it to the goodsense of the debtor both to insist on getting one and to decide whether, where and whenit gets recorded. In some instances, the debtor might want to omit to record thesatisfaction, particularly if a judgment or lien is near expiration and the debtor doesn’twant to see “paid judgment” lingering on his or her credit reports for another sevenyears.

As the debtor you want to obtain enough originals of the satisfaction to record themeverywhere they might need to be recorded, as well as a few extras that can be stored insafe places in case of fire or flood. If at some time in the future the debtor needs toprove the debt was paid, the satisfaction is proof positive that the debt was paid. If youlive in a state where the creditor is required to record the satisfaction but you want tocontrol its recording, you may be able to negotiate with the creditor’s attorney to sign awaiver of your rights that will allow you to take custody of the satisfaction(s) andresponsibility for the recording process instead of leaving it to the other party. It’ssomething they would just as soon not have to do, so the waiver should not be much ofa problem.

For most creditors, the judgment was obtained in the ordinary course of business andthe satisfaction is likewise just another piece of business. There are, however, smallercreditors who take things personally. There have been situations where creditors haverefused to provide a satisfaction purely out of spite (one even told the debtor shewanted to make her life a “living hell”), even though garnishments had returned to thecreditor every dollar that was due. Your best defense is to keep meticulous track ofevery dollar paid to a judgment creditor by any means, and to document (and recordingrecord) every contact you have with the creditor, especially as it relates to obtainingsatisfaction documents. In the event your reasonable efforts to obtain satisfactionpaperwork are unavailing, most judges will slap the judgment creditor with an order toshow cause and potentially also some sanctions that will put money in your pocket foryour time, trouble, and the damages done to you by having an unpaid judgment on yourrecord 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 onereason or another the creditor simply can’t be found. Although this often occurs witholder judgments, it also happens sometimes with regular tradelines too. In the case of ajudgment, it may be possible to pay the registry of the court the full amount of thejudgment plus interest and obtain the court’s own satisfaction (the court will hold themoney until the creditor claims it).108 If that is not possible, you may need to bring acourt action to close out the judgment in the event the judgment creditor or theirsuccessors or heirs cannot be found. Unfortunately in the event you have to pay thecourt, there will be no opportunity to negotiate any sort of discount—the court willmake an exact calculation and expect you to pay it.

108 Example: http://www.ndcourts.com/court/rules/NDRoC/rule7.1.htm

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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 youfind 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 theirpaperwork, and the bankruptcy court sanctioned them severely.109

In other cases, creditors have been shown to be relying on affidavits of debt signed byindividuals 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 theaccounts they were signing affidavits with respect to consisted only of the briefestglance at information shown on a computer screen.

Reconstructed paperwork is often an effort to sidestep the requirements that a creditormust meet when attempting to re-establish lost or destroyed paperwork. If you canshow a court that a creditor was using the former to dodge statutory or court-createdrules 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-statuteclaim or the restarting of the statute of limitations due to a small payment. But acreditor can get a new claim without a payment—if you mistakenly agree to it. The actof turning an old debt into a new debt is called novation, and the creditor is perfectlyentitled to ask you to do it. Sometimes, however, the request comes deceptively dressedin sheep’s clothing. Sometimes a debt buyer will team up with a credit card issuer andoffer you a brand new credit card with the old debt already on it. Some folks think thisis a good deal and will jump at the chance. What they don’t realize is that (a) the newcredit card represents a novation that restarts the statute of limitations; and (b) the creditcard lender probably won’t leave a reasonably high limit on the card or will even cancelit once the debt is paid. At one time a bank called Bank of Hoven teamed with a sleazyoutfit called The Money Store to offer these sorts of cards, Midland CreditManagement and LVNV Funding have done it and Capital One has been known to doso from time to time.

American Express’s OASIS program should not be lumped in with the bad actors thatplay the novation game. In years past, American Express offered defaulted cardmembers 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 toget an Optima just because they repaid American Express). This was not a deceptiveprogram, and a great many debtors successfully rehabilitated their standing withAmerican Express—including re-establishing a valuable credit history with Amexreaching all the way back to the date the original card was issued. Because during thecredit crisis of 2008-2009 American Express became a bank and now must follow Rule5000, 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/

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$5,000. I can think of only one reason to do the latter type of deal, and a debtor who is apushover is just that reason.

Short Sales With Continuing Liability

Because of the mortgage crisis, many homeowners have concluded that their bestoption is the short sale. Short sales are taught to real estate investors in seminars, andthey are fanning out across the country to relieve both homeowners and banks oftroubled mortgages. That’s the good news. The bad news is that unless you negotiate ashort 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, thelender will still have a right to collect from you on the note even after having agreed toa short sale—unless you specifically negotiate that the lender gives up any further claimagainst 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 senseto 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 bemade to come up with the original note (which may be an impossibility) because lackof the note exposes you to the potential for double recovery (being sued again whensomeone else finds the original note), and to prove its chain of title to the note if it is aJDB. 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 ifnecessary) 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. Acreditor 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 usedand is almost always used on a retaliatory basis in an effort to force a debtor who willnot engage with the creditor to come to the creditor. The creditor will then claim that itwas 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 orslander. One large southern department store chain’s credit department has been knownto 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 ingreat 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/

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Just because neither you nor your parent lives in a state with a filial responsibilitystatute does not mean that you can breathe entirely easy. There have been calls for afederal filial responsibility statute that would apply evenhandedly to everyonethroughout 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 barelymeets standards is likely to ask all the elderly person’s children to voluntarily obligatethemselves 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 andyou treat your financial recovery with the seriousness it demands, you can avoid thevast bulk of abusive situations. It may not have taken much time to get into financialtrouble, but it definitely takes time to get out, along with effort and forethought too. Apolicy of trying to constantly keep track of what you owe, who you owe it to and whatthey might do in order to collect will usually keep you at least a jump or two ahead ofthem. And that may be enough.

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loans and unpaid taxes) hold the weakest type of unsecured debt. They know this. Unlessthey can come to an agreement with you that allows them to collect something they willeither have to sit there with nothing as the debt grows older and approaches the Statute ofLimitations (discussed in detail below), or they will have to sue in court in the hope thatthey will win a judgment that will ultimately prove collectable. For the OC, this is anugly picture since the loss they take will be substantial. For the JDB, it is a numbersgame: a great many accounts they pay 3 cents on the dollar for will wind up having eitherno value or being sold for 2 cents on the dollar, while others will yield a full recovery orsomething 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 yourfinancial position, ongoing (but time-limited) damage to your credit rating and thepossibility 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, youmay be able to settle a claim on a negotiated basis for 30%-50% of the inflated amountthe creditor is now claiming. Negotiated settlements are not necessarily preferable orinferior to take-it-or leave it satisfaction attempts (described below). However, they willtypically have the advantage of providing certainty that you have obtained quietus withrespect to the account as well as documentation that you can use in the event asubsequent holder of the debt claims that it has purchased the debt from the business youare paying. In addition, in the rare circumstance that the business you negotiate thesettlement with does not actually own (or have authority to settle) the debt you arepaying, you will have dead-bang evidence that the business has defrauded you inobtaining money from you.

A successful fraud case typically pays you back three times what you lost and also coversyour attorney’s fees, so the business that defrauded you is usually ready to hand you backwhat 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 greaterpercentage in settlement than JDBs (for instance prior to the financial crisis Citibankreportedly 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 aterrible deal paying an OC 50% or a fantastic deal paying a JDB 33%. The recentfinancial crisis has greatly increased the junk debt buyers’ willingness to entertainsettlements.115

When you negotiate a settlement, you want to get from the creditor a settlementagreement. 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

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"Accord and Satisfaction" typically requires a separate writing) as potential satisfiers ofdebt under § 3-311, which was a 1992 modification116 that has been enacted (in somecases with revisions) in nearly every state. It is therefore important to distinguish betweenAccord and Satisfaction as a longstanding principle of law that has on occasion beenstatutorily adopted in particular states, and "Accord and Satisfaction by Use ofInstrument" under the UCC which is a recent innovation that affects a significantsubgroup of satisfaction scenarios, all of which involve use of a check or money order. Ineach 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 potentiallydecisive factors. In many states you will find post-1992 cases that seem to discuss one oranother as though the other does not exist, and in some such cases it will seem obviousthat the other should have at least been mentioned. Judges usually decide on (and writeabout) only what is put in front of them, and if one or both side(s) in a case argue that thecase turns solely on issues related to one line of authority or the other, a judge whoaccepts 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 doto your opponents, you should sit up and take notice. A check sent in satisfaction of aclaim is a tempting poison apple that will put the creditor to sleep forever--if it works. Aswith any method of resolving a problem, it doesn't always work for everyone in everycircumstance. And hucksters (notably an outfit called Briggs and Baker118) have evenabused it to the point where some people may tell you that it's a flat out scam. It is not ascam; it is a tool that used correctly and carefully has a good chance of succeeding. Evenused incorrectly and carelessly it can provide a debtor with additional time to resolvedebt situations and in some cases even allow for victory or at least a large discount on thecreditor's part for a further settlement payment rather than having them choose to risk thevagaries of court.

Essentially what happens in a satisfaction scenario is that the debtor's check includeswritten or typed (not pre-printed) language either on the front of the check or at the top ofthe back where the endorsement goes that reads more or less "In Full and FinalSettlement." Your state's statutes or case law may prefer one place or the other, and mayapprove 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 obtaina 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 legalquirks. 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.html117 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.pdf118 http://www.ftc.gov/os/caselist/0323006/040213comp0323006.pdf

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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 theterm) and substituting a complex test that measures the intent of the debtor and theprecautions taken by the creditor to avoid an inadvertent satisfaction--but only when anegotiable instrument (almost always a check or money order) is involved. The statutewas designed to deal with the business innovation of high-volume check processingeither outsourced to a bank or done by extremely low-level employees aided byautomation to the point where they do not pay any attention to language written on thechecks. 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 faithtendered an instrument to the claimant as full satisfaction of the claim, that the amount ofthe claim was unliquidated or subject to a bona fide dispute, and that the claimantobtained payment of the instrument, the following subsections apply.

(2) Unless subsection (3) applies, the claim is discharged if the person against whom theclaim is asserted proves that the instrument or an accompanying written communicationcontained a conspicuous statement to the effect that the instrument was tendered as fullsatisfaction of the claim.

(3) Subject to subsection (4), a claim is not discharged under subsection (2) if eitherparagraph (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 statementto the person against whom the claim is asserted that communications concerningdisputed debts, including an instrument tendered as full satisfaction of a debt, are tobe sent to a designated person, office, or place; (emphasis added) and

2. The instrument or accompanying communication was not received by that designatedperson, office, or place.

(b) The claimant, whether or not an organization, proves that, within 90 days afterpayment of the instrument, the claimant tendered repayment of the amount of theinstrument to the person against whom the claim is asserted. This paragraph does notapply if the claimant is an organization that sent a statement complying withsubparagraph (a)1.

(4) A claim is discharged if the person against whom the claim is asserted proves thatwithin a reasonable time before collection of the instrument was initiated, the claimant, oran 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 neversignificant in a debt context, applying only in situations where the party paying and theparty paid do not know exactly what the claim is worth. If you are in a fender bender and

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the transaction. The UCC provides that its provisions can be varied by contract.120 Itdoes not provide that they can be vitiated. UCC § 3-311 provides several different waysthat a creditor may modify the application of the general rule regarding accord andsatisfaction checks, including the provision of a separate address and the return of themoney within 90 days. Courts should be encouraged to read those variations as anexclusive list, after all Article 3 of the UCC governs negotiable instruments (checks andmoney orders) and defines what they mean, not what the contracts they may (onoccasion) supersede and replace mean. In other words, creditors cannot declare in theiragreements that another agreement can never be made, particularly by a means that theUCC expressly approves.

Because the UCC and the case law typically requires any statement appearing on thecheck to be "conspicuous," I have had my check printer add special language to mychecks 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 addedlanguage reads "Recipient Negotiating Agrees to Any Terms Stated." The languageserves to reduce the possibility that a creditor could successfully claim they were not onnotice of settlement language appearing in the memo field, and thereby serves to give mea better shot at victory under non-UCC case law. One thing you should not do (because itis specifically mentioned in the official commentary to UCC § 3-311 as a reason todisregard the settlement language on a check that is portrayed as being a satisfactioncheck) is to have the check printer include "In Full And Final Settlement" in that space sothat all your checks become ostensible satisfaction checks. Doing so negates the specificintent that you might have with any particular check. Conversely, the printed languagethat I include makes clearer that whatever I write on that check absolutely means what itsays. I don't send a lot of satisfaction checks--perhaps one or two a year. If you are usingthem more often, it is likely you are misusing them and sooner or later you will either runout 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 asbeing defined in § 3-103(a)(4) as not only honesty in fact, but the observance ofreasonable commercial standards of fair dealing. The meaning of "fair dealing" willdepend upon the facts in the particular case. It is difficult to imagine a situation where theconspicuous language on the check could be "dishonest" as to its nature and intent, so wemust move to "reasonable commercial standards of fair dealing." It's a nebulous conceptthat is basically there to give courts an “out” in a case where they see that allowing asatisfaction check to be effective would work an injustice. The requirement is alsomutual, so what may be fair to do to a creditor who never jacked your rate to 38% andwho was always willing to work with you the two previous times you were in moneytrouble may be quite different than what is fair for you to do to a creditor who behavedjust the opposite. What may be reasonable in the instance where you have been payingfor three years without charging a thing on a card that had a high interest rate may bedifferent from what is reasonable where you have run a credit union’s low-interest cardup to its limit and never paid a bill.

120 See UCC § 1-302 http://www.law.cornell.edu/ucc/1/article1.htm

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credit card company except that he was merely seeking a discount and there was nodispute 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 asatisfaction check is just shy of the 90-day delinquency mark. This gives you time to havethe UCC § 3-311 90-day period expire while the creditor still holds the debt. The creditorwill then quite likely purport to sell the debt to a JDB. If the JDB should sue you, there isa strong argument in your favor that the JDB bought nothing. From the JDB'sperspective, they will likely have certain provisions in their purchase from the OC thattrigger repurchase requirements in circumstances where the purported debt is nonexistentor 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 repurchaseagreement it may be necessary for the JDB to lose their court case. You should strive fora decision that is "on the merits" (a judgment in your favor) or that operates as a decisionon the merits (a dismissal with prejudice). If you win your lawsuit and the OC latercomes after you (having been obligated to buy back the claim from the JDB) or sells theclaim again to a different JDB, it will be important to be able to have a court decision inyour hand that gives you claim preclusion, a legal concept that means the matter is resjudicata and that no court should consider it again. The concept is not as strong as thecriminal-law concept of double jeopardy because your freedom is not at stake, but it is asimilar notion.

Another tactic you might consider employing if a JDB enters the picture after you haveused an Accord and Satisfaction with an OC is to send the JDB the same sort of accordand satisfaction check shortly before you send them separate notification that you believeyou reached an Accord and Satisfaction with the OC (being sure you wait nearly the 90days before sending them anything discussing the check you wrote to the JDB, just asyou did with the OC). Yes, it will cost you more money, but it will also muddy the watersso thoroughly that you can quite likely successfully defend a lawsuit brought by either ofthem or by a JDB down the line: "Your honor, I've settled this claim twice, I'm out Xdollars and I still have people taking me to court trying to collect!" If the OC hasrepurchased the claim from the JDB, you can argue that the OC got nothing and the JDBdefrauded them. If the JDB hangs on to the debt and later sues you, you can ask them incourt why they didn't take advantage of their repurchase rights and refund your accordand satisfaction check. In short, you are in court with evidence that you have paid twobusinesses that claimed to own the debt no less than 14% or so in settlement, and in thecase of the JDB you can argue that it recovered what it put into purchasing the claim ontop 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 ifthe JDB comes after you, and if the OC is the plaintiff, you're going to show that youpaid the JDB while the JDB owned the debt, hence the JDB had nothing to sell back tothe 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

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you expect your hands might appear to a court somewhere down the road if the OC, thecurrent JDB, or some JDB down the line takes you there. In short, the question is whetheryou should inform the creditor during the 90-day period that you have sent the creditor asatisfaction check or wait and allow the check to "season" so that the creditor will bebeyond the 90 days and cannot avail itself of the opportunity to send the money you paidback to you. Section 3-311 provides no guidance on this issue, nor does its officialcommentary. However, the UCC generally requires "good faith" and that requirement is astrong shove in the direction of providing them additional notification within the 90 daysrather 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 canthen touch on the financial difficulties that brought you to the point where you needed tosend them an amount that was less than their claim and how you believe that amount isreasonable in light of the amount that some other source of funds (such as Medicare inthe medical context, or a Junk Debt Buyer in a credit card debt context) would provide. Ifyou 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 theyrefund your payment if they intend to abrogate the settlement at attempt to sue you for theentire balance. There are calculators online that will give you an exact day count if youwant to explicitly identify for them deadline date by which they will need to cut you acheck. If you have paid them in preference to other creditors or have paid on the accountfor several years at a high interest rate without making any charges on it, you should statethat as well.

If you are concerned that they will send the money back but are not terribly concernedwith 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 latterpart of the 90-day period, although I would make sure the timing of any writtencommunication would allow it to be received and read no later than 10 days before theperiod expires. From the point of view of a court, ten days should be a reasonable amountof time to send a check back. However, from the point of view of a business that is asbureaucratic and incapable of handling exceptional situations as most businesses are, anopportunity that expires in 10 days is one they will have extreme difficulty responding toin 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 oneway or another, you should time the letter so that it will be received ten days or morebefore that happens. Once a creditor enters bankruptcy or is shotgun-wedded to anotherbank by the FDIC, its accounts will be gone over by bank examiners or professionalbankruptcy trustees looking for opportunities to collect more money, but they will notwant to send a check back to you in order to put themselves in a position to do so. In thecase of bankruptcy, the paying out of funds for such a purpose would need to go througha judge or special master for approval, and that just isn't likely to happen. If a letter is inthe file that informed the creditor of a satisfaction check, the potential new owner of that

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experts who oversell the ease with which it can be used by the debtor to avoid debt, thefact remains that for many debtors it will put an end to a painful episode. In short, theStatute of Limitations defense, properly plead in response to a creditors' lawsuit, willdispose of the lawsuit if you are able to prove that it has indeed expired. Yes there areplenty of ifs, ands and buts, however the Statute of Limitations remains one of the mostpowerful secret weapons in a debtor's arsenal. To use it properly though you need tounderstand it fully. If possible you should understand it better than the lawyer who issuing 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 willinclude tables of statutes of limitations for every state in the union. Even if these tableshave been meticulously researched and are correct to the best of the writers'understandings, they still fall woefully short of accounting for all the real-worldvariations in both fact patterns and in the case law that can develop around the statutesthemselves. 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 thehomework.

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 atable of state names with headings like "open account" and "written contract" and periodsof years listed. This information is almost worthless. In most states there are simply toomany things that can affect the running of the statute for you to give the table heavycredence. It will typically merely be a starting point that is potentially applicable to themost plain-vanilla scenarios. To really know what limitations period applies and whetherit has run or not, you will need to know a lot about your debt and you will also need toknow how courts view debts like yours. That information may be easily assembled, or itmay require a lot of sleuthing. The arrangement of your state's statutes in the statutebooks and the presence or absence of "case law" will determine whether your search iseasy or difficult. Ideally, your state statutes group all of the statutes of limitationstogether, perhaps under a heading such as "Limitation of Actions" under the "CivilProcedure" chapter. In a less-than-ideal circumstance the statutes of limitations will bescattered through the sections that cover individual reasons that one person or businessmight sue another.

In researching the statute of limitations in your state you also want to check your state’sconsumer protection statutes for provisions that make it illegal to sue on a debt that istime-barred. North Carolina’s legislature recently enacted one such statute, and it awaitsthe governor’s signature to make it effective as of October 1, 2009.126 If you are sued ona time-barred debt in a state where doing so is illegal, the statute may allow you to asserta counterclaim and collect statutory damages.

A consumer debtor is likely to have five basic types of debt: mortgages, installmentaccounts, medical accounts, credit cards and utilities. Each type of debt will have its ownstatute 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

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(locus sigili) will appear on the signature line, and the statute of limitations will be anextremely long one. Ten years and twenty years are not uncommon, but there are evenstates such as Delaware where documents under seal have no statute of limitations, andany staleness defense to an old contract like that will have to depend on the principle oflaches.128

If the limitations periods are scattered in the statutes, you may catch a break with respectto particular types of accounts that are covered by the Uniform Commercial Code, suchas installment sales like auto loans. In those instances, the UCC is written in such a wayas to place the statute of limitations last in the sections that form a particular Article ofthe UCC. They do this for the convenience of state legislatures, who can simply lop offthe last provision if it conflicts with one that is already part of their statutory scheme. Ifyour state isn't fastidious about keeping all the limitations provisions in one place, they'veprobably left the limitations provisions on the relevant UCC Articles. The UCC statute oflimitations 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 particulartype of debt. That is the case for cell phones and landlines, which have a two-year statuteby federal law.129 There may be other specific instances where federal statutes curtail thestatute 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 oneyear for say a hospital to bring suit for unpaid medical bills from the deceased's finalillness. 130

Finding the time period will be the easy part. Now for the hard part: Just knowing wherethe correct statutory language can be found only gets you part of the way to knowingwhether the statute of limitations has passed for a claim against you. The only way toknow with certainty how a court will treat your particular debt vis-à-vis the state's statuteof limitations scheme is to find a court case that directly addresses the question. The courtcases will be found in the reporter series that covers your state, and a blurb that cites thatcourt case (if it exists) will be found in the annotated version of your state's statutes orcode under the section where that particular limitations period is established. Once youhave the court case in hand, you will be able to know (and prove to a judge and to thecreditor's attorney) that your debt is covered by a particular time limit, and you will beable to determine whether your case is outside that time limit before you answer thecomplaint or talk to the judge. Before citing any court case to a court, you need to learn toshepardize (the act of using a citator service such as Shepard's131 to assess the ongoingviability of the case as precedent in the court you are appearing before). Some cases havebeen 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-.html130 Collection Bureau of San Jose v. Rumsey http://www.precydent.com/citation/24/Cal.+4th/301131 http://en.wikipedia.org/wiki/Shepard%27s_Citations

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Your state's statute of limitations may be lengthened or shortened by borrowing statutesthat adopt the statute of limitations law of the state where the claim arose, or by a statutethat allows a court to lengthen or shorten the limitations period of another state if theapplication of it in a particular case would be seen to work an injustice. The contract maycontain a legal situs provision that in a choice-of-law134 state will determine which state'ssubstantive laws will apply to the claim. Your state may come down on one side or theother of the steadily shifting consensus with respect to whether a statute of limitations issubstantive or procedural law. In matters of procedural law state courts invariably applytheir 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 suchcircumstance would be the legal situs (state) whose law the contract adopts. The interplaybetween 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 orthe other.

If you lived for some period of time in a state that you were living in when its statute oflimitations with respect to one of your debts expired, you can often successfully arguethat the claim was not revived when you moved to a state with a longer statute oflimitations—especially if the state where you live has a borrowing statute that adopts thestatute of limitations of another state if that state’s statute expired before you movedaway. But you must beware state law provisions that can keep a statute of limitationsfrom running at all so long as you are not in a state where a claim arose. A particularlynasty situation is one where that state's court might have made a ruling that the permanenttolling of the running of the statute with respect to people outside the state applies even topeople who have never, ever set foot in the state (New Hampshire).136 In my view such aruling unconstitutionally denies equal protection137 under the law to U.S. citizens whohappen to reside in another state, however it will stay on the books and be good lawunless and until some person goes to court to challenge it. And unfortunately, debtsituations 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 actuallycreating debtor's choice with respect to statutes of limitation by virtue of being anambiguity in the contract that must be resolved against the drafter according tolongstanding legal principles that require that. Although the trend is to treat statutes oflimitation as substantive rather than procedural law, this distinction is one that aconsumer cannot be expected to know or understand, so a consumer can assume that theSOL of the state where he lives applies. Or the consumer can assume that he could takeadvantage of a shorter SOL in the state where the creditor claims situs. Either way unlessthe legal situs provision is specific in stating that it does or does not apply to statutes oflimitations, the consumer has a couple of good arguments that the shorter statute applies.

134 http://en.wikipedia.org/wiki/Choice_of_law135 http://en.wikipedia.org/wiki/Conflict_of_laws136 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.pdf137 http://en.wikipedia.org/wiki/Equal_Protection_Clause

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terms--harsh terms alone (if adequately spelled out in large enough print) would notallow for relief.

Ownership Quandaries

One key element of the tangled fiasco that has been the mortgage crisis has beensecuritization.140 Essentially, loans were sold to investors not as a whole, but sliced upinto “tranches” that were supposed to have been predictable streams of income andpredictable levels of risk. Often the loans themselves were held in trusts that were formedfor the benefit of the holders of the various securities. The trustees of the trusts had dutiesto the owners of the securities to preserve the value of their investments, but becausethose investments had differing characteristics, an action by the trustee that would benefitthe holder of one type of security would likely hurt another. This built-in conflict ofinterest inevitably deprived the trustees of the ability to deal creatively with debtors indefault: all the trustees could safely do was foreclose. Some courts have been extremelyskeptical of these arrangements, and have refused to allow foreclosures to go forwardwithout someone having authority to represent the ownership of the mortgages stepforward and declare themselves amenable to a workout. Congress and the president havealso stepped in with their efforts to add a bankruptcy cramdown provision to allow formortgages 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 takeon yourself, and not something where the help of dubious businesses advertising onradio, 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. Becausesecuritization also took place with respect to credit cards, when such securitization hasbeen used (you can find this out from press reports) courts cannot be certain whether acard issuer or JDB that is suing you is the actual owner of the debt. An issuer known tosecuritize 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 orrepurchased the account in question, along with documentation of those sales andrepurchases. Without a complete and unbroken chain of title to the debt and livetestimony on the witness stand to establish the validity of that chain of title, the degree ofcertainty necessary for a court to render a judgment against you is missing and should notbe glossed over by the court. Although the debt buying industry is not rife with fraud, itdoes happen that a debt buyer will on occasion fraudulently sell a portfolio it doesn’town.142

140 http://en.wikipedia.org/wiki/Securitization141 http://en.wikipedia.org/wiki/Advanta142 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

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often treat the latter with disdain when any real opposition shows up (and sometimeseven when it doesn't).144

For the larger players in the food chain there will be significant amounts of informationavailable on the Internet, often including their financial health as reported by newsorganizations, their actual SEC filings145 if they are publicly traded, experiences writtenup by disgruntled employees, debtors' descriptions of their phone tactics, other debtorsdescribing what percentage settlements they were able to negotiate and whether thecreditor would agree to PFD or to withhold the issuance of a 1099-C form, and anyenforcement 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 thatthe business you are dealing with is not simply using mail service or a tiny office at anoffice-suite business in that building provided by Regus147 or one of its smallercompetitors). Smaller players will often get themselves in trouble by pretending to be alaw firm or a law enforcement agent. A favorite gambit is to form a shell entity or evenjust create a phony business name and sometimes even a "tombstone" style single-pagewebsite with a few lines about the nonexistent business so that when you search on it youwill think it is real. Fortunately, they're not always that creative in how they do it andthere will often be clues that something isn't right. One of my favorites was theessentially nonexistent investigative firm whose made-up name was clearly a division ofan 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 attractivesettlement opportunity and you find at some point you are dealing with a lawyer then it istime to take a much closer look at the legalities of whether collection is possible, as wellas the negotiation option and the disclosure option. If you find instead that you aredealing with a cowboy from Buffalo, it's time to break out the recording equipment andprepare letters to regulatory authorities and perhaps the attorneys general of your ownstate and the one where your opponent is located.

Conditions Precedent

Many types of legal claims cannot be brought unless certain things have happened orhave 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 conditionprecedent is simply something that sets up the ability of a party to claim the benefit of alaw on the books or a clause in a contract. Without the condition precedent there can beno 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.pdf145 http://www.sec.gov/edgar.shtml146 http://en.wikipedia.org/wiki/Google_Street_View147 http://www.regus.com/148 http://en.wikipedia.org/wiki/Condition_precedent

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done, but it is a much stronger claim where the debt was business debt properly incurredfor 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 inallowing or disallowing certain evidence, but if the creditor proves its case the court doesnot 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 judgediscretion with respect to whether to grant a judgment at all. One example is mortgagedeficiencies in the State of Florida. The Florida Statute on foreclosures puts the grantingof a deficiency judgment in the "sound discretion" of the trial judge.155 Case law has put afurther gloss on the subject, and it provides that the judge must put down a reason fornot granting a deficiency judgment.156

The requirement that the judge put down a reason merely gives an appellate courtsomething to look at in deciding whether the trial judge has committed an abuse ofdiscretion, so that "my lunch isn't agreeing with me and I want to go home early and notwaste time determining how much damages this mortgage holder gets so I'm giving themnothing" isn't going to hold up. But a sympathetic judge will almost always be able towrite down something that will help the debtor while satisfying any concerns an appellatecourt might have. What the judge cannot do is overcome evidence in the form ofpaperwork and photos. Which means that if you are foreclosed on, you want to leaveyour 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 paintparting invective on the walls, or let your ferret redecorate the carpets for several weeksprior to moving out.

If a potential claim against you is going to be discretionary with the court, you also wantto do everything possible to look like the good guy when the court gets a chance to lookat the case. That means that you do not only do you not do unnecessary damage; youdon’t leave a paper trail of profanity-laced letters directed to your creditor. As a practicalmatter, you may want to consider every potential claim against you as discretionary withthe court. Unless there is a court reporter at all of the key hearings and there is case lawthat flat out says the judge can’t do what the judge did, and the creditor is willing toappeal, 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 -0702.06156 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

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some creditors do not provide media to firms with whom they do not have a contractualrelationship, which means that buyers at the second, third and fourth placement levels areunable to purchase the media directly from the creditor even if they want to. They may beable to buy or obtain it from a JDB further up the food chain, however. And for olderaccounts, some or all of the media is often simply unavailable because of corporaterecord retention (destruction) policies. In other cases, the media will beimpermissibly reconstructed (as discussed in the Chapter 4--Nasty Surprises), and shouldnever be admitted in court as evidence to be relied upon. Discover Card and CountrywideMortgage have on occasion been caught reconstructing their media.

Because they are playing a numbers game, most JDBs are largely undaunted by mediaproblems, they go right on buying “tapes” with only lists of names, account numbers,social security numbers, addresses and defaulted balances from creditors, and when theyreceive a validation request they make a decision whether to sue immediately, put theclaim aside, sell the claim to the next buyer in the food chain or pony up to order themedia. The decision is made based on the JDB's historical effectiveness in suing in yourlocality, your credit score, what it can sell the debt for and the cost (and quality) of themedia it needs to buy. JDBs do adjust the prices they are willing to pay for debt based ontheir experiences with the quality and availability of cooperation from the OCs, includingthe OCs' media. In some cases where a JDB decides to sue, the media its attorneyattaches 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 partthat correctly named the debtor. The body of the allegations had the debtor's name wrongand named a creditor that the JDB had not purchased the debtor's debt from. The contractreferenced yet a third debtor and the statements reflected the name of a fourth debtor andyet another creditor. The debtor I was corresponding with researched the claims filed ather local courthouse by the particular attorney representing the particular creditor andfound that 97% of them were faulty in one way or another. The attorney dismissed theaction against her after being confronted with these facts in mediation. Likewise in NewYork, an Urban Justice Center study in 2006 found that in a sampling of debt actions in99 percent of cases where default judgments had been rendered that the evidence used toobtain the judgment did not meet the state's legal standards.157 That does not necessarilymean that if the debtor had defended the case he or she would have won, but it does meanthat the debtors were foolish not to show up and engage in the process. In some cases thecreditor's attorney will be unable to correct the flaw in a timely way, while in other casesan impatient judge will have seen enough of faulty cases and their claim will bedismissed, perhaps with prejudice. In New York, as of January 1, 2008 court clerks wereno longer permitted to enter default judgments unless they were accompanied by anaffidavit that asserts the attorney pursuing the judgment has reviewed the original recordsconcerning 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.pdf158 http://www.newyorkconsumerlitigation.com/new-york-city-civil-court-adds-safeguards-for-consumers-sued-for-debts/

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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 yourpersonal information is safe, and creditors can sometimes look at your buying habitsdown to the register-tape level if you are a member of a discount club at a grocery storeor pharmacy chain. Every time you do something that generates a public record or makeor miss a credit card payment, that information becomes available to your creditors byvirtue of Choicepoint, Lexis/Nexis and the CRAs. Any movement on any database thatindicates an increased ability to pay on your part may be reason for them to wake up andperhaps even to pounce. Creditors also use scores like Equifax's Bankruptcy NavigatorIndex or BNI.159 BNIs range from 1 to 300--higher scores predict lower risk of abankruptcy filing. If a collector reasonably believes you'll go bankrupt then your file maynot even get worked. If there is little chance of triggering bankruptcy, they'll beclamoring to get paid. The bankruptcy score cannot improve much without data pointsthat indicate things like going back to work (many debtors foolishly start applying forcredit again the moment they have a job) or paying off creditors (a good reason to keepsettlements confidential, as mentioned below).

You can fight back against being tracked by living an all-cash (or even barter) lifestylethat denies creditors a peek at your personal information. You can have any cars that youdrive titled in relatives' names; you can avoid turning on electricity or signing a lease inyour own name. At work, you can ask the human resources department to double-checkwith you before responding to any inquiries about your employment or pay status. Youcan opt out of marketing lists and you can avoid buying electronics and appliances new atbig-box retailers. These choices become more and more onerous the harder you work toavoid leaving footprints. And at some point a lack of paper and electronic footprintsbecomes 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 somepoint also cause you difficulty down the road by turning you into a ghost. Ghosts areindividuals whose credit files have become exceedingly thin or have even emptied outentirely. 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 yourcredit 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 settledwith omit to show the settlement on your CRA reports, and delaying or avoidingrecording judgment satisfactions depresses your credit score and keeps other creditorsfrom 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 individualhas to put money or move money or other assets from categories that are nonexempt andcan be reached by creditors to categories or places where creditors cannot legally reach. Itdoes not involve any failure to disclose or any impropriety. Methods of asset protectioninclude putting money in retirement accounts, moving to states where state-lawexemptions from creditors remedies are generous (such as Texas and Florida), theformation of asset protection trusts inside or outside the U.S., and dispersal of assets intomany 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 learningwhat assets you have and where they are. Asset hiding techniques would mostly comeunder the heading of moving assets physically away from your home or putting themsomewhere within the home where they could not be found during an inspection. Assethiding is not particularly effective where records of your purchase of the asset exist andare 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 registeredvehicles, 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 withcriminal law sanctions, including imprisonment without trial (asset hiding and assetevasion 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 RevenueCorporation, and his business practices with respect to his horse farm got him sued for $5million in 1994. He sold his company and created an elaborate scheme to make it look asthough he lost the proceeds of the sale in various failed investments, meanwhile themoney actually went overseas to the Bahamas, the Cayman Islands and to GuernseyIsland in the English Channel, Canada and the tiny nation Luxembourg. Mr. Shultz,162 hisbrother, as well a Canadian accountant,163 a London attorney, Florida attorneys, a Floridaaccountant and others were also convicted or plead guilty in the scheme to defraud boththe IRS and Schultz's creditors. One of the Florida attorneys committed suicide the dayafter he was indicted.164 While living in a trailer park after his release, Richard D. Schultzcommitted suicide in March of 2009.165 In general, any asset hiding and asset evasion thatleaves a paper (or electronic) trail is courting disaster.

162 http://www.creditcollectionsworld.com/article.html?id=20061016C941SSVR163 http://www.usdoj.gov/tax/usaopress/2003/txdv03ohs30627_2.html164 http://www.creditcollectionsworld.com/article.html?id=200610163UKY31QU165

http://www.azdailysun.com/articles/2009/03/20/news/local/20090320_local_193069.txt

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Consumer Attorneys and Legal Aid

If your income is low enough, you can often get help from your local legal aid office. Ifthe misconduct of the creditor is bad enough, you can often turn to consumer lawattorneys in your area (check NACA.net)167 on a contingency basis (meaning they don'tget paid unless they win a judgment or settlement from the collector). In addition, statesattorneys general168 are often quite interested in collector misconduct, as is the FederalTrade Commission.169 Don't expect the latter two to necessarily help you out as anindividual, but in many cases they will go after and fine or shut down abusive collectorssuch as CAMCO. One thing that is important to realize though when a collector is shutdown is that the assets (which include the junk debts) of the collector may go intobankruptcy proceedings and wind up being bought by another collector who will start thecycle all over again. Just because one collector is made to stop collecting a debt does notmean that the debt is dead.

Conclusion

Debtors are often unaware of the powerful tools they can wield against the creditor. Eventools that are arguably improper can often improve the debtor's position, if the debtor iscareful 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 wroteoff your debt and got a tax break from Uncle Sam for it, you will need to judge who ismore 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

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utterly defeated, but because that is the way to illustrate what can happen—and show thateven defeat isn’t necessarily all that bad). Along the way, I’ll mention each and everypoint 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 youowe and to obtain a bankruptcy score that it can use in order to calculate how much itmight recover from a case against you. In many cases a public record report will also bepulled to try to ascertain what you own. Anything that you own in your own name thathas 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 bythe creditor to be available to it to the extent they are nonexempt or that their valueexceeds bankruptcy exemption amounts. However, the creditor will deduct the value ofany liens on the property. Because mortgages are public record and on your credit reportand car loans are likewise typically on your credit report (along with most if not all ofyour credit cards and other loans), the creditor can make reasonably accurate estimates ofwhat you own and owe to the extent that you have not taken steps to obscure ownershipand the resolution of any other defaulted debt.

If the asset and liability picture makes you suitworthy, the creditor will send its file overto an attorney with direction to contact you in an effort to get you to pay up. Typically atthis stage the attorney’s office will attempt to increase the claim against you by chargingyou some threshold amount for its charges just to take the case. The attorney’s office willalso have a pre-determined settlement authority, and the ideal settlement from their pointof view is 100% of what the creditor is claiming plus the attorney’s fee. They will morelikely agree to full payment over time (at an ongoing interest rate) than to a lump sumreduced settlement. Keep in mind that if they can get you to agree to a settlement that youpay over time, that will constitute a novation and will start the statute of limitations clockrunning again from day zero—regardless of whether the case was out of statute whenthey contacted you.

Attorneys are very careful to attempt to calculate the statute of limitations accurately andbegin 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 whileowing a defaulted debt. However, you can be sure that if the statute of limitations israpidly approaching they either have a strong argument for why the date you’reconsidering 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 theattorney from pursuing the case and the statute date may pass because the attorney andthe creditor made a mutual decision to allow it to do so, such a circumstance is rare oncea 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 getdefault judgments and collect even on older cases. In some instances, the attorneys areextremely unethical and they string together several misdeeds in an effort to collect: if thecase is out of statute, they file it anyway and make sewer service on the defendant, thenthey get a default and they let it “season” for a year to make it harder to reopen on a

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the law that are quite technical and that will require more knowledge than you may beable to acquire in the time that you have available. The greater the amount at stake, thegreater the number of statutes or acts involved in the case, the greater the number ofwitnesses 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 filedwith the court (exception: states like Minnesota and Washington have pocket service, andmuch 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 claimscases) or file a formal answer (which may need to be sworn in some cases) and file youraffirmative defenses unless you are filing instead a motion to dismiss or another type ofmotion that is proper to file before the answer. But first there must be service of processon you.

Service of process means that a copy of the complaint and any supporting documents areattached to a summons, which is a legal document identifying the court in which the casewill be tried and how, when and where to respond to the complaint. The summons insmall claims actions will typically direct you to a pretrial hearing on a certain date, whilethe summons in a court with jurisdiction over larger amounts must be responded to inwriting (not with a mere letter, but with a legal document called a pleading, that eitherseeks to dismiss their case, or an answer that mirrors their complaint and responds to itpoint by point). Do not send a letter to the court or the attorney. You must send aresponsive pleading (which looks like the complaint they sent you), and it must go toboth the court and the attorney.

Creditors' attorneys often win default judgments because of sewer service, which issimply a term for a fraudulent return of service by a process server. Process servers aresupposed to find the defendant and personally serve him or her (or someone in thedefendant's household over a certain age) with the lawsuit. In some cases, states permitmethods of service that are not guaranteed to provide actual notice of the lawsuit to thedebtor. These kinds of service are often termed nail and mail, meaning the process serverneeds 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 toascertain where the defendant lives and they are supposed to have their process serversmake reasonable efforts to make good service. The problem comes when the defendanthas moved and either did not make his move "open and notorious" (by, say, filing achange of address notice with the post office), or when the lawyer filing the case eitherchooses to serve an invalid address or the process server does not follow the appropriateprocedure.

A lawsuit that is never served on you but which has a false return of service will stillresult in a default judgment, however that default judgment is voidable and can typicallybe vacated easily, regardless of whether you had a meritorious defense, provided youaddress 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 chargesand payments. They may have every piece of paper they need, but without someone fromthe original creditor to testify to their validity and correctness, their paperwork shouldnot come into evidence because it does not qualify for the business records exception tothe 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 willattempt 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 forthe debt. If the debt has moved through several JDBs, they need to prove that the OC soldit to JDB1, that JDB1 sold it to JDB2, that JDB2 sold it to JDB3, and each of these salesneeds solid paperwork to back it (the sale documents are called assignments and bills ofsale)—paperwork that must be able to satisfy the business records exception to thehearsay 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 2008issue 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 courtsneed without needing to provide detailed documents from creditors that judges often wantbut don't really need?'"171 Never mind the documents Barbara, what about the witnessesto support the admissibility of the documents? The fact is though that evidentiarystandards are not higher for JDBs, the evidentiary standards are simply much, much moredifficult to meet because the JDBs have purchased claims they cannot (profitably) proveunder the standard of proof that courts rightly require.

Without making efforts that are out of proportion to the size of the dispute, JDBstypically can’t adequately prove they own the debt, they can’t adequately prove the chainof custody of the debt from one buyer to another, they can’t adequately prove the detailsof the account or that there even was an account. And if any of those proofs provesflawed the court should toss the case. Once cases get past the stage where the debtorordinarily defaults, JDBs prosper in court only to the extent that they are able tohornswoggle courts into winking at the requirements of the laws that are on the books inevery state in the nation—unless they really do produce those witnesses at trial (whichseldom if ever happens).

For the debtor, solid motions to strike affidavits along with requests for admissions andinterrogatory questions designed to expose weaknesses in the creditor’s documentationwill 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’redealing with and what their motivations are can mean the difference between frustrationand a good result.

171 Collections & Credit Risk, February 2008, p. 25

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Attorneys may also want to attend hearings telephonically. Even though it is moreconvenient for the opposing attorney (and your first reflex might be to oppose allowingthem to attend telephonically), there are few circumstances where you would want toobject to an attorney attending a hearing telephonically because the attorney is giving upa key advantage. An attorney who is talking to a judge on a speakerphone is at a distinctdisadvantage compared to a party to the case who is in the courtroom or judge’schambers. The judge can see you, and you are clearly showing that the case hasimportance for you by actually making the trip. The attorney who is “phoning it in” isweakening his position, and has no opportunity to assess the judge’s (or your) facialexpressions and body language.

Judges

Judges are the key players in the court game. Judges determine the facts, analyze the lawand apply the law to the facts to reach a decision that almost always sticks. It reallyhardly matters what their attorney does, what you do, what the clerk does, etc. if thejudge wants to do something that isn’t in line with what they’re doing the judge’s choicewill prevail. Judges answer to the chief judge of their court, the board that disciplinesjudges, 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 areonly going to undo what they have already done in a very exceptional case. The appellatecourts that review judges’ decisions carefully throttle the number of cases they are calledupon to review and perhaps change.

The key mechanism the appellate courts use to weed out the cases they will look at is thestandard of review. The standard of review can be thought of as a yardstick for whetherthe appellate court will fix mistakes. Small mistakes are seldom if ever addressed byappellate courts. In situations where lower court judges have discretion (mainly thoseregarding the establishment and interpretations of facts), the standard of review is abuseof discretion, which means that to get the judge overturned the party to the case whodidn’t like the result has to prove that the judge made a decision so bad that it can becalled abusive. If a judge lets in a piece of evidence that he shouldn’t have, that may notbe an abuse of discretion. If a judge doesn’t let one side speak at all, that would definitelybe an abuse of discretion. Situations in between are often hard to guess, though there willbe a lot of case law on what is or is not an abuse of discretion because it is often all thatparties 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 lawwrong, the losing party can often appeal on that basis if the losing party wasn’t the onewho urged the judge to get the law wrong and if the losing party properly preserved thepoint for appeal by pointing out to the judge that the judge was getting the law wrong atthe time the judge in fact got the law wrong. There is another doctrine in the law thatprevents 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.

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Judicial Assistants

Judicial assistants are the judges’ secretaries. They cannot give you legal advice. Theykeep the judges’ calendars, type their letters, answer their phones and otherwise serve asa buffer between the judges and the public. Judicial assistants cannot advise youregarding the law, but they can help with scheduling hearings, which is the key reason todeal with them. If you file a motion, you will need to schedule a hearing on it in order toget 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 youhave a hearing date (actually she will give you a set of hearing dates), you will contactthe other side’s legal assistant and obtain their agreement to one of the dates. Then youwill 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 werereceived is tracked, then they route those papers to the appropriate file jackets. They seethat the file jackets get to judges’ offices when they are needed and are refiled in the rightplaces when they are not in use. The assistant clerks who man the desks at the courthouseare there to make sure that the papers you present are in good order and that they go withthe appropriate files and that the correct fees (if any) are collected. They cannot give youany 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 incourt proceedings and also in depositions. They charge for this service. The partyrequesting that the court reporter attend a session pays the court reporter to do so, and anyparty that orders a transcript also pays for the transcript. Unless a court reporter is presentfor a court hearing, most of what the judge says and does in the hearing will not begrounds for appeal. You always want to know whether the other side will have a courtreporter in attendance, and if they are not planning to hire one, you may want to hire oneyourself.

Attacking a Debt Case

In court, a debt case typically stands on four legs: standing, liability, damages, and beingfiled within the limitations period. If they’re not the creditor (or they can’t prove it), theydon’t have standing. If you’re not the debtor (or they can’t prove it), you have noliability. 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 onthat 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 withmoney in the future, their suit is pointless and it doesn’t make sense for them to bring it.

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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 aposition to make the creditor drop those claims that are something else. If possible, youwant to leave the creditor with a claim that cannot be proven, but if that isn’t possible youwant to leave the creditor with the claim that minimizes the damages.

Damages and standing are proven by an account history. The account history isestablished by one or more written documents that must be admitted into evidence inorder for the court to rely upon them. In order to be admitted into evidence, they mustmeet an exception to the hearsay rule (the court rule that says that things not directlyexperienced 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 thecreditor is the “business records exception.” The business records exception applies whena records custodian from the business that generated the records testifies that they areauthentic. In order for that person’s testimony to be accepted, they must know the recordkeeping operations of the business inside and out. The records must also have beengenerated at the times they purport to represent—later reconstructions should not beadmitted into evidence.

Finally, if applicable, the statute of limitations defense is the fourth prong of attackagainst a typical debt case. The defense is part of the answer, but is not plead in directresponse to any of the allegations (you answer each and every allegation of the complaintjust as though the affirmative defense was not in the mix). Instead you add a separatesection to your complaint entitled “Affirmative Defenses” and you place your statute oflimitations defense there, along with any other affirmative defenses you may want toplead. The precise language to plead an affirmative defense in your state is beyond thescope of this book, but in many states a simple statement such as: “The plaintiff’s causeof action accrued prior to the September 22, 2006 (X years prior to the filing date), andwas filed on September 22, 2009, hence it is barred by Y state’s (the state chosen in theagreement) applicable three year statute of limitations.” Usually you’re in small claimscourt, and there won’t be a discovery process. The judge will ask the other side to comeup with evidence of a more recent payment or an explicit new agreement on your part topay (a novation). In a court with jurisdiction over greater dollar figures where thediscovery process is in play, it is up to you to prove your defense, so you will need torequest 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 Masonalways pulling out some surprise witness to unravel the hapless prosecutor’s case. Youhave probably heard countless times that court isn’t really like that. On Boston Legalcases seem to get filed one day and tried the next … again, they’re on TV, not in the realworld. In real life, court cases are tried months, sometimes years after they are filed, andthe small percentage that are tried get to trial after a long process designed to wring outthose cases that are not real, substantial candidates for trial. A major part of that process

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2. Cause your opponent to commit to using witnesses identified to you early andallow 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 provetheir case.

The details of discovery are not something that is within the scope of this book. In mostcases 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 entitledto. One key line of questioning that you should object to in a debt case would be anyquestions about your assets and liabilities. Unless and until they have a judgment, it ispremature to ask you information about your financial circumstances. You should objectto making any such answers.

Legal Issues

At some point in the case, certain legal issues may emerge and the other side may submita memorandum, or the court may ask you to submit a memorandum. For someone who isnot a lawyer, this is a difficult situation. Nonetheless, non-lawyers can and do write legalmemoranda. 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 thescope of this book, but here are the general principles you need to know. Legal principlesflow first from the English Common Law,178 a body of laws that arose in the courts ofEngland 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 courtthat the court you are in answers to is binding precedent, while a decision of a court inanother part of your state or in a different state is merely persuasive. Each decision thatyou will rely on in preparing your memorandum must be Shepardized (looked up inShepard’s citator179) to assure its continuing validity. If other cases routinely follow itthen it is a leading case and your court should follow it too. If other cases havequestioned it, your court may not give it as much weight as it does other cases. If it hasbeen overturned, its precedent value is largely destroyed.

Legal issues can be substantive or procedural. The former will typically be the laws ofcontract, debt, and accord and satisfaction. The latter will be governed by a different setof rules typically known as the Rules of Civil Procedure.180 The statute of limitationsoften straddles the fence between substantive and procedural law, although the modern

178 http://en.wikipedia.org/wiki/Common_law179 http://en.wikipedia.org/wiki/Shepard%27s_Citations180 http://en.wikipedia.org/wiki/Civil_procedure

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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 isadmissible. In some cases, one side or the other will want to disqualify certain documentsor even witnesses from testifying, and this is accomplished using a motion in limine (toeliminate) those items that are undesired by one side or the other. The court rulesevidence admissible or not according to the rules of evidence, which provide clear-cutanswers in some cases, and in others require a court to determine whether evidence ismore prejudicial than it is probative. In cases tried without a jury, courts are much morelikely to just decide what to pay attention to on the spot rather than go throughevidentiary motions. Juries need to be shielded from inadmissible evidence, while judgespresumably 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 betweenyou and the opposing party’s attorney, with a mediator also in attendance. Mediators aretypically 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 ofthe matter; however if it does not settle, the mediator sends a report to the judgeregarding the mediation. That report may call one side or the other unreasonable. Youdon’t want that to happen to you.

Trial

Trial is the process of addressing and hearing evidence about any issues in the case thatare 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 thecase and about the certainty with which they know those facts. The court will hear all thetestimony, and then the jury (if any) will reach a verdict and the court will make itsjudgment.

In general, you should know your case better than the other side, and you should be readyto question each witness who is favorable to you and to cross-examine each witness whois not favorable to you in such as way a to call into question their credibility on the keyissues. Or you should hire an attorney, even at the last minute, to come in and do that foryou.

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 trialin anything other than small claims court. But if you cannot get a case dismissed near theoutset, you can often put a case in a position where the other side will not receive asummary judgment, and less frequently you will be able to ask for a summary judgmentof your own. In the meanwhile, you can plan for a way to resolve the case for the fewestpossible dollars.

183 http://en.wikipedia.org/wiki/Mediation

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But if nothing much happens do not make the mistake of believing that the creditor isnecessarily 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 Chapter5--Debtors’ Secret Weapons for the concrete steps you might take to make the creditor’slife more difficult and your negotiations to settle the claim potentially more favorable toyou. Collections attorneys often refuse to take less than 100 cents on the dollar, at least atthe outset; however months or years of frustration on their part can change their minds, orcause them to sell the debt to another junk debt buyer--and the next owner may be moreamenable to negotiation because they paid less for the debt. Judgments can also beentirely forgotten by the creditor.

Before you have a judgment against you, you should know what your state’s exemptionsfrom levy are. If you are facing wage garnishment, you should know your state’sexemptions from garnishment. Some states exempt heads of household while other stateshave family and hardship exemptions that can reduce garnishments, often to zero. Youwill 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’ttake the time to understand how court works and they consequently allow themselves tobe intimidated from participating in the court process, if you arm yourself withknowledge and are willing to show up and state your piece to the judge you can usuallyimprove your position. Do not ever make the mistake of just rolling over by ignoringpapers 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 acrushing judgment that almost reached six figures, but it was only chief among a lot ofother financial blows. They lost their home, but found a nice rental nearby. They had togo to a single deposition in aid of execution—the creditor never collected a dime andnever troubled them again. They did not declare bankruptcy, and never received a form1099-c. Within 7 years their credit was clear and they did things like trade in cars fornewer 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 pensionand bought a house in the exurbs, a single county away from their former home—eventhough the judgment had technically not yet expired and with interest was worth well intosix figures. The judgment wasn’t on the CRA reports and wasn’t picked up in theunderwriting process, and within months it finally expired without ever having beenrenewed. The creditor simply didn’t have the will to continue to sink money into trying torecover on that judgment, even though he could have garnished the breadwinner’s wagesafter the death of the spouse and potentially also attacked the breadwinner’s bankaccounts and even taken a paid off car with considerable value over and above theexemptions.

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Chapter 7 -- Bogus Solutions and otherPitfalls

"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 thatsimply do not produce the best results. One of the most prevalent among the bogus onesis the “no money lent” debt termination scam.185 The fraudsters take $2,500 or so of yourmoney and claim to teach you the secret that banks do not actually lend real money andthus they cannot recover from you in court. This is blatantly untrue and courts do notaccept it. Other scammers attempt to convince you that your debt can be transferred byyou to some irresponsible third party who will then be the only one the creditors can goafter. Again, this isn’t true (although the creditor can sell the debt to another buyer—theycan transfer, you can’t). In another dodge they would have you claim that the name theysued in isn’t you because it is printed in all capital letters and somehow refers to a “strawman” who doesn’t really exist and isn’t the debtor.186 In general, the Fifth Amendment tothe U.S. Constitution requires that every court in the land uphold contract law even whenthe government itself improperly tries to impair it, and those few artful dodges thatsidestep 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 longerenforceable against you by them (or by a third party who buys the debt from them). Thatis simply not the case … nearly all loans can be sold or otherwise transferred (the nearlyuniversal clause that allows it is termed an assignability clause) and the new ownersimply steps into the shoes of the old. The sole caveat is that the assignment must beproperly documented and if necessary witnesses need to be produced in court to qualifythat documentation to be admitted under the business records exception to the hearsayrule.

Volenti Non Fit Injuria

This is another bogus legal argument. In tort law (the law you use when a negligentdriver injures you, for example), if you consented to the other party’s act you have noright to sue.187 If you’re in a boxing match and get hit in the stomach, the doctrine meansyou can’t sue your opponent because your appendix burst. Some folks will try to

185 http://www.debtjurisprudence.org/invalidation.html186 IRS Revenue Bulletin 2005-14 on the “Straw Man” http://www.irs.gov/irb/2005-14_IRB/ar13.html - d0e756187 http://en.wikipedia.org/wiki/Volenti_non_fit_injuria

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solution for someone with smaller balances and the prospect of better days aheadeconomically, it is usually not as good a solution as a debtor might obtain in formal oreven informal bankruptcy. The credit counselors are basically working for the creditorsas a kinder, gentler form of collection agent (the creditor kicks back to them a smallpercentage of what the debtor pays, which is called the “fair share” payment). Theysimply will not negotiate your balances down, though they may eliminate some interestand penalties.

Many credit counseling services were fly-by-night, and the IRS began taking a very hardlook at their nonprofit statuses several years ago.188 That does not mean that there are notlegitimate, ethically unblemished credit counseling services out there. It just means thatyou may need to put in some effort to find a good one. A good starting place is thewebsite http://www.nfcc.org/. 189

If you do choose credit counseling, it is best to withdraw each account from creditcounseling one or two payments before it is paid off. When you do this, the notation forthe account will not show credit counseling. Paid off TLs that do not have a creditcounseling 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 fromyou periodically with no guarantee that it is actually making it to creditors and reducingyour debt. Debt settlement companies keeping the money they paid in and leaving themno 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 debtsettlement firms. A major drawback to debt settlement firms is that they do not negotiatefor the creditor not to issue a 1099-c form, which can leave you owing thousands in taxesyou didn’t expect (this is something you need to negotiate for on your own if younegotiate settlements to your debts). Debt settlement firms also will not typicallynegotiate the notation on the TL.

In order of preference, you would want the notation to be paid in full, paid, settled, settledfor less than amount owed (provided you do not have other debts you will need to pay, inwhich case the order is reversed)—if you accept any notation at all rather than insistingon a pay-for-delete or an agreement not to update the account and not to respond to yourdisputes. Typically a debt negotiation firm’s work will stick you with the last, worstnotation on the foregoing list. They also will not negotiate the timing of the reporting ofthe payments or the creditors’ non-responsiveness to future disputes. In other words, theyleave 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

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assets, you need an attorney (Chapter 7 “no assets” cases are more amenable to “do ityourself” bankruptcy). If you are an impoverished provider for your children and yourwages are being garnished, local legal aid or a law school legal clinic should be able tohelp you reduce or even eliminate the garnishment. Many attorneys will give you a freeconsultation, and it often makes sense to organize all your documents and go in, just toget a read on how much an attorney can really help you. Attorneys who do (or may) workfor 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 adebt from you. Do not trust that person is actually an attorney. Do not trust that they areactually admitted to practice or authorized to collect in your state. Do not trust thatanything they propose is the best alternative for you. Do not trust any statement that youdo not need to answer any court document or attend any court hearing. There are far toomany tales of woe from individuals who signed paperwork that revived expired debts, orwho skipped a hearing the attorney told them they didn’t need to show up for, or whowere told they had no possible defense to a debt case that could have been defended onany number of grounds. Don’t take anything they say at face value. Assume there isalways a better solution than what they propose.

As an attorney, I find creditors’ attorneys who trick debtors to be the most unethicalcreatures walking the face of the Earth. The rules of professional conduct for attorneysare 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 itgoes out the window for a significant part of the creditors’ bar, and they are rarely held toaccount.192

“Helpful” Collectors

Every collector just wants to get your money and be done with you. A great many willtell you that up front, but others take a different approach. Starting in the late 1980s andreaching its zenith in the mid-1990s before going spectacularly bust in 1998, BillBartmann’s Commercial Financial Services, Inc. pioneered a new approach in workingwith defaulting debtors: they were nice.193 The collectors took a “cooperative” rather thana confrontational tone with debtors. As a result, CFS appeared to prosper. Today manycollectors attempt to emulate CFS’s approach.

The problem for the debtor is that these firms really still just want one thing: money. Andthey have committed themselves to using every analytical tool and every psychologicaltrick in the book to get it. Dealing with this sort of collector on the phone is like cozyingup with a seduction specialist from the CIA. You need to constantly keep in mind that nocollector ever wants to help you more than they want to help themselves. In dealing withthem, you still follow the same rules and get the same assurances in writing before

192 Ethical Considerations Particular to the Collection Attorneyhttp://www.dudleyandsmith.com/mktethics.html193 http://en.wikipedia.org/wiki/Bill_Bartmann

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back.195 CRAs have internal auditing software and procedures that they do not tell theiremployees 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 identificationnumber) with the IRS and attempt to pass it off as an SSN (social security number). Atone time, this gambit (known as file segregation) actually could succeed in getting yousome 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 bookcalled The Paper Trip197 and obtained the birth certificates of children who had died ininfancy in order to assume their identities and avoid the draft. Others who had bad creditwould do the same thing. It’s fraud, and it’s a lot harder than it once was, especially in apost-9/11, Patriot Act and RealID world. In short, if you try to do this you will get caughtand you will be looked at as some sort of terror suspect and you will have a lot moretrouble 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-credit31196 ‘File Segregation’: New ID Is a Bad IDea

http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre23.shtm197 http://www.edenpress.com/category.asp?index=15

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acceptable terms, and leaving the others to twist in the wind or sell the debt to someoneyou can negotiate with or conquer if need be.

Different ways of dealing with debt have either time-honored names or newly mintedcatchy names: Bankruptcy, Credit Counseling, Debt Settlement, and Debt Elimination.Thousands are already using the methods suggested in this book, but the methods have nocatchy name. The closest I can come is the term Debt Navigation, which gives somehints 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 andthat you may have to respond to when they suddenly arise. Whether you choose to thinkof the environment in which you are working toward solving your debt problems as amountain climb, or a trip down a hazardous river or along a rocky archipelago, or makingyour 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 arenecessary should give you the intensity of focus you will need if you are going to achievesuccess. Ultimately, it is more your determination, persistence, and willingness to roll upyour sleeves and do the work to battle your opponents that will determine your resultsmore 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 backand improve your credit rating. Because it would be such a costly mistake to try to do thatwhile under the debt cloud, I have for the most part left the techniques of improving yourcredit 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-ScarredCredit Report.”

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CHARGEOFF– the creditor’s decision that an account is not performing and must bedeclared a loss for tax purposes.

CHECKSYSTEMS – A reporting agency that solely tracks consumers’ performanceunder the agreements governing their checking accounts. A negative entry onChecksystems (commonly known as Chex) can prevent the opening of bank accounts atany banks that participate, and can lead to closure of accounts at nonparticipant banks ifthe 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 forpersonal or household purposes.

CONSUMER LOAN – a loan or credit, secured or unsecured, which is granted to anindividual or individuals for the purpose of financing the purchase of consumer goods orto defray personal expenses.

CONTACT – an actual written or verbal response to a creditor or collector from thedebtor or the debtor’s legal representative.

CREDIT BARTERING – A creditor’s deletion of a negative tradeline in return forpayment by the debtor. Often said to be illegal, it is actually only a violation of thecreditor’s contractual duties to the CRAs.

CREDIT (DEBT) MESSAGE BOARD – A website where users share their knowledge ofcredit and debt situations in message forums. At present some of the best known arecreditboards.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 andwas 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 netrecovery from the auction or sale of the collateral for the loan.

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

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PAY FOR DELETE (PFD) – The consumers’ term for credit bartering.

POCKET SERVICE – A procedure available to plaintiffs in a few states which allowsthem to begin a lawsuit without actually filing the case with the court. Because no casenumber appears on the documents, some defendants are confused and consequently allowthemselves to be defaulted because they are unable to confirm the case filing with thecourt and therefore believe there is no “real” case.

POISONING – Repeated hard pulls in an effort to drive down a consumer’s credit scoresand prevent others from granting the consumer credit.

PRIMARY PLACEMENT (sometimes also termed “Prime”) – an account defined as aNew Chargeoff or Fresh Chargeoff account at the time of purchase by the originalcreditor 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 onthe 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 beheard from again.

RATEJACK – term to describe what a creditor does when it suddenly raises aconsumer’s interest rate by a large increment.

REAGED ACCOUNT – an account that is brought to a current status, even through thetotal 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 toput or keep a TL on the debtor’s reports.

RIGHT PARTY – The debtor. In the event a creditor is calling, the FDCPA requirescreditors to be assured they are speaking to the right party before discussing the debtbecause discussing the debt with third parties is prohibited.

RMCR – Residential Mortgage Credit Report (a/k/a “Full Factual”), this report can begenerated on a mortgage for over $150,000 and unlike a consumer credit report it willalso show tradelines older than 7 years.

SECONDARY PLACEMENT – an account that was defined as a Primary PlacementChargeoff account at the time of purchase by the debt buyer selling the account.

SETTLEMENT – payment that achieves quietus with respect to an account; (b) writtensettlement documentation evidencing a settlement.

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APPENDIX – SAMPLE SETTLEMENTAGREEMENT

IN THE CIRCUIT COURT FOR NONESUCH COUNTY, FLORIDABUSINESS 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, andMARY 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 civilclaims against all parties to this litigation and their predecessors and successors relatingto the subject matter of this litigation, which have been or could have been asserted byany 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., JOHNSMITH and MARY SMITH, (collectively, the “Defendants”);

WHEREAS, Defendants have contested the claims in the complaint and Plaintiff hascontested Defendants’ counter-claims; and

WHEREAS, the undersigned Parties have agreed to settle their litigation pursuant tofinancial terms acceptable to all Parties.

NOW THEREFORE, it is hereby agreed as follows:

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"Released Parties"), from any and all manner of civil claims, demands, actions, suits, andcauses 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 inany 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 anyinsurance or indemnity obligations regarding claims for personal injury or propertydamage to third parties that accrue prior to the date of this Settlement Agreement, but thatare not asserted until after the date of this Settlement Agreement.

The Parties hereby covenant and agree that they shall not, hereafter, sue or seek toestablish civil liability against any Released Party based, in whole or in part, upon any ofthe Released Claims. The Parties agree that this covenant and agreement shall be acomplete defense to any such civil action or proceeding.

The claims herein being doubtful and disputed, the Plaintiff herein shall not file a form1099-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 withrespect 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 isnecessary for the interpretation and/or enforcement of this Settlement Agreement, theprevailing party shall be entitled to its reasonable costs and attorneys’ fees in securingsuch 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 andresolved by the Nonesuch County Circuit Court in Tampa, Nonesuch County, Florida.

V. MISCELLANEOUS

A. HEADINGS. The headings of the paragraphs and sections of this SettlementAgreement are not binding and are for reference only and do not limit, expand, orotherwise affect the contents of this Settlement Agreement.

B. NO ADMISSION. This Settlement Agreement and any proceedings taken hereunderare not intended and shall not in any event be construed as, or deemed to be, anadmission or concession or evidence of any liability or any wrongdoing or theforgiveness of debt whatsoever on the part of any party or any Released Party. The

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any of these terms to any third party other than their attorneys, accountants and taxprofessionals or as may be required by law. The Parties and their respective attorneys, ifthey have one, agree that they will not in any way publicize or cause to be publicized inany news or communications media, including but not limited to, newspapers, magazines,journals, radio or television, the terms or conditions of this settlement. Upon inquiry bythird parties other than Credit Reporting Agencies about the status of the dispute betweenthe parties or of the Lawsuit, the Parties may indicate only that the dispute has beenresolved and that all claims in the lawsuit have been dismissed with prejudice. Withrespect to Credit Reporting Agencies, the Plaintiff shall not respond to any dispute theDefendant(s) may lodge with same.

L. LIQUIDATED DAMAGES – In the event the Plaintiff shall fail to fulfill any of itsduties under this agreement, the Defendant(s) shall be entitled to $2,000 for each suchfailure 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