How to Fight a California Debt Collection Lawsuit - Borowitz & Clark

How to Fight a California Debt Collection Lawsuit

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Table of Contents
  1. Debt Collection Defenses
  2. Bankruptcy and Debt Collection Lawsuits

During the pandemic, Californians and people around the country were protected from a variety of debt and financial-related risks. Student loan payments and collection of delinquencies were suspended. Evictions were put on hold, and a federal order halted residential foreclosures for those with government-backed loans. But, debt collectors remained active. In some cases, those attempting to collect on unpaid credit card debt, high-interest personal loans and other unsecured debts kicked into high gear. 

Debt collection lawsuits were already the most common type of civil litigation in America before Covid struck. Between 1993 and 2013, the number of debt collection suits filed annually increased from about 1.7 million to about four million, according to a report from The Pew Charitable Trusts (Pew). About the same time, the Consumer Financial Protection Bureau (CFPB) reported that about 5% of all adults in the United States had been sued by at least one debt collector. Among those with debt in collections, that figure jumped to more than 14%. 

Stimulus checks and enhanced unemployment intended to help people weather the pandemic looked like an opportunity to debt collectors and debt buyers. One large California-based lender, Oportun, dismissed thousands of small claims suits and suspended collections after The Guardian reached out to inquire about the large number of collection suits it was pursuing as the pandemic raged on and unemployment set new records. In 2019, that company filed more than 15,000 debt collection suits in Los Angeles County.

That’s just one lender, and includes only direct lawsuits and not suits filed by debt buyers.

Debt Collection Defenses

Perhaps the most discouraging thing about the flood of debt collection lawsuits in Los Angeles and around the country is that many of these suits could be won. But, most consumers who are sued for unpaid credit card debt and other collection accounts never answer the complaint or show up in court. That means the lender or debt buyer wins more or less automatically–even if their claim isn’t valid.

The Burden of Proof in a Debt Collection Case

In a debt collection lawsuit, the burden is on the plaintiff to prove that the person being sued owes the debt, and that the plaintiff has the legal right to collect on the debt. But, if you aren’t there to hold the plaintiff to that burden, the court can take their claims at face value. That usually means that you miss your chance to respond and the court enters a default judgment against you. 

The Pew study referenced above estimated that about 70% of debt collection lawsuits ended in default judgments. In some areas, the numbers are even higher. That’s especially unfortunate when the plaintiff is a debt buyer. 

Debt Buyer Lawsuits

Debt buyers are companies that make their money purchasing delinquent debt from lenders and from other debt buyers. They typically pay pennies on the dollar for the debt they acquire. That means you can often settle with a debt buyer for a fraction of the original balance. But, that opportunity is usually lost if the debt buyer gets a judgment against you. With a judgment in hand, the debt buyer has new options, such as requesting a wage garnishment order or to attach some of the funds in your bank account. At that point, they’re much less likely to settle. 

But, the reason debt buyers pay so little for the debt they purchase is that much of it is uncollectible, or very difficult to collect on. Because debt buyers tend to purchase debt in bulk, the transfers are often sloppy. For example, the debt buyer may receive a spreadsheet with hundreds or thousands of accounts listed. 

Often a debt buyer will show up in court without sufficient proof that it owns the debt. If the defendant is there to ask for that proof and the debt buyer can’t produce it, the case will usually be dismissed. In some cases, the court will give the debt buyer more time to produce the documents. But, they may not be able to do so. And, with large numbers of cases against people who never show up to defend themselves, they may not bother.

The debt buyer also has to prove that the outstanding balance is correct, and that your contract with the original creditor allows for any interest or collection fees they may be asking for. But, their files are often incomplete. They may have only a balance reported to them by the original creditor, or even passed along from another debt buyer who may have obtained it from yet another debt buyer. When you don’t show up in court, you miss out on the opportunity to raise these issues and perhaps get the case dismissed.

Bankruptcy and Debt Collection Lawsuits

Most debt collection lawsuits involve unsecured debts such as credit card debt, medical bills, and personal loans–debts that are typically dischargeable in Chapter 7 bankruptcy. Many people worry that if a judgment has been entered against them, it’s too late to file for bankruptcy. But, most judgment debts can also be discharged in bankruptcy, if the underlying debt was dischargeable. 

Still, you’ll want to explore your options and take action quickly if a judgment has been entered against you. You can still file bankruptcy, stop collection, and discharge a debt once wage garnishment has begun or your bank account has been attached. But, you may not get that money back. The sooner you act, the better. 

At Borowitz & Clark, we’ve been helping Los Angeles consumers resolve debt for decades. We offer free consultations to ensure that people like you have the information they need to make good decisions and avoid costly mistakes. You can schedule yours right now by calling 877-439-9717 or filling out the contact form on this page.

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