Unpaid credit-card bills giving rise to lawsuits

Posted on September 4, 2007
Filed Under Advice, Lawsuit | 21 Comments

In a new trend for settling defaulted credit-card debt, debt buyers are filing hundreds of lawsuits each week at the Tarrant County courthouse.

Starting Saturday, some of that caseload could shift to the eight justice of the peace courts in the county. The state Legislature passed a law this year raising the civil jurisdiction limit of justice of the peace courts to $10,000 from $5,000.

Debt collection by lawsuit is new to many North Texans, and most consumers being served are handling it the worst way — by not showing up in court, according to judges, attorneys and consumer advocates.

“Of the 1,200 cases filed in Tarrant County Court in May, over 1,000 were debt collection, and more than 80 percent went to default judgment because the defendant didn’t come to court,” local consumer advocate Bud Hibbs said.

When a debtor ignores a collection lawsuit, the debt buyer wins an automatic default judgment, which can lead to garnishment suits against bank accounts and liens on nonexempt property, said Fort Worth attorney Jerry Jarzombek, who routinely handles credit-card debt cases for consumers. (In Texas, your house, furnishings and vehicle are exempt from liens to settle debt.)

Hibbs and Jarzombek said they see this scenario play out time and again.

“They need to show up in court,” said Hibbs, author of two books on credit and debt collectors and owner of an advice service for people in debt at www.budhibbs.com. “You don’t need an attorney to represent you in JP court, and most of the judges are very fair.”

Enter the third parties

Although collection agencies representing creditors cannot sue in the state of Texas for delinquent accounts, third-party companies that buy that credit-card debt can, Jarzombek said.

Credit-card companies are starting to wash their hands of delinquent customers and turn those accounts over in large portfolios to third-party buyers.

“It’s a new trend; increasingly, creditors are finding it beneficial to sell these accounts outright,” said Nate Thompson, spokesman for the Association of Credit and Collection Professionals International. “It’s like the secondary mortgage market.”

The trend is turning into an avalanche.

In 1991, $2 billion worth of consumer debt, mostly credit-card debt, was sold to third-party debt buyers, said Rozanne Andersen, general counsel for ACA Inter- national.

Last year, that amount grew to $110 billion, she said.

“The purchasing of debt has become a business model and liquidation tool for outstanding receivables,” she said.

Debt buyers purchase the portfolios for cents on the dollar amount owed, then work to collect what they can from the borrowers, Hibbs said.

Defendants don’t show

The new law also states that companies suing are no longer required to have an attorney represent them in court.

Gary Ritchie, justice of the peace for Precinct 6 in Tarrant County, says he doesn’t expect an avalanche of cases as a result of the change in the law, but he does see a large number of credit-card cases come through his court.

Ritchie estimates that two-thirds of his caseload involved debt settlement, with the majority of those cases credit-card debt.

And rarely does the defendant show up, Ritchie said.

“None of them come to court,” he said.

Hibbs said most people don’t show up for their court date because they are either intimidated by the thought of going before a judge or they think that the serving papers themselves are a scam.

“They think that they are powerless,” he said. “They’re intimidated by the counts and intimidated by the judges.”

But justice of the peace court is more like The People’s Court television show, Hibbs said. The judge can ask questions of both parties to determine the settlement of the case.

Kevin Williams, a credit counselor with Money Management International in Fort Worth, said he is seeing more clients served with lawsuits over their credit-card debt, although not yet from those who live in Texas.

He recommends that the consumer send a certified letter to the collector stating the terms under which they could repay the debt. If the collector doesn’t agree to the terms, then at least the consumer will have documentation to present before the judge that he or she tried to work with the collector.

Challenge the collector

Jarzombek goes one step further and recommends challenging the collector to prove that the defendant owes the debt. Often, he says, the collector will not have access to the original contract or details of the debt to prove his case and any response from the defendant will cause the debt buyer to walk away from the case.

“You can appear in court by filing a written answer with one sentence: ‘I deny the plaintiff’s claim,’” he said. “I tell them to show me a contract, to demonstrate that they have the authority to sue.”

Often the debt buyer is given a minimal amount of information about the debt at the time of purchase that may not stand up in court, Jarzombek said.

“Debt buyers will usually buy a whole portfolio of accounts,” he said. “If you ask them to show the contract or demonstrate they have the authority to collect that debt, they usually can’t.”

ACA International acknowledges data problems resulting from this transfer of debt, Andersen said. Last month, the ACA revised its code of ethics to reflect a need for better documentation of these delinquent accounts at the time of sale, she said. The Federal Trade Commission is holding a workshop in October on the issue.

“We need to work together to identify solutions to transfer the needed … documentation,” she said. “It should not be optional.”

Information given the debt buyer can also be wrong: Mistaken identity was the cause of about one-third of the more than 200 consumer complaints received in 2005 on a consumer hot line run by the American Collectors Association of Texas, according to the former executive director, Dwain James.

It’s also important for consumers to know that no one can sue for debt after four years from the default date, Jarzombek said. Another tactic of debt buyers is to try to change that date to the last date of payment or when they acquired the debt, but neither will be accepted in court, he said.

Bottom line: Don’t ignore a court summons, and get some legal counsel if you’re served.

If you are sued for credit-card debt

Don’t ignore the case when you are served with court papers. If you do, a default judgment will automatically allow the debt buyer to put liens on your property and to garnish bank accounts to settle the debt.

Open all mail. Under privacy laws, collection companies cannot put a return address on the outside of envelopes with letters discussing a debt. Don’t assume it is junk mail.

Check your records for the default date. A debt-collection suit must be filed within four years of the default, which is not the date of your last payment or when the debt was sold.

Mistaken identity can happen. If you are not the person named in the lawsuit, go to court and prove it. Debt buyers often do not get complete information in the portfolio they are buying on the individual debts and can serve the wrong individual with a lawsuit.


21 Responses to “Unpaid credit-card bills giving rise to lawsuits”

  1. Reliever on April 17th, 2008 9:59 PM

    Debt Relief Consolidation May Not Be Financially Viable In a lackluster job market many people find themselves unemployed or underemployed often making far less money Posted 15 March 2008† Benjamin Brook Personal Finance‡ Comments (0) Tagged:…

  2. Doug Johnson on May 3rd, 2008 5:47 AM

    This is excellent information to protect one from these rampaging predatory userous bottom-feeding debt buyers and collectors. They prey on the weak and underemployed in this vacuous materialistic corporate fascist country.

  3. MoanaLisa on May 13th, 2008 7:22 PM

    In recent times many financial Institutions providing loans like Student loan refinancing, Student loan consolidation, International student loans. That is how people get conditioned to use credit already at a young age!

  4. Shelley B. on July 7th, 2008 7:58 PM

    I have been unemployed since October 17, 2007. While receiving unemployment, I was able to keep up my payments on my credit cards and loans. I had just graduated from college and I applied for deferment and was granted. Then the unemployment ran out. I had not been late on any credit card until then. One card was my gas card. I talked to a representative and we agreed to have a certain amount automatically be withdrawn from my account for 3 months and then my credit card would be reinstated. The final payment was not taken out and I did not realize it until I went to balance my bank statement. I called the company and since I had just received my income tax refund I wanted to go ahead and pay off the balance. They took my money and when I asked when it was going to be reinstated, I was told that it would not be. I felt that the company was not being fair. They also told me that they could not make automatic withdrawals. It was funny that they had for 2 months; but now they couldn’t. I received a message from the gas company thanking me for being a loyal customer. I understand that I owed the money, I have no problem with that. What I do have a problem with is that I was trying to establish a good credit history and now I am back to square one. All other credit cards, which I had insurance on, are working with me. Bye-the-way, I do not purchase gasoline at that company anymore.

  5. Angie L on September 23rd, 2008 10:38 AM

    I am facing one of these collector’s in court tomorrow and this information was very helpful. I still do not know what original debt they are evn collecting for, so I will have to ask “do I owe this debt?” Like most mid-income people I have fallen into the credit card traps of the “rebuild your credit” $300 credit cards that come to you with $115 available balance on them. I also screwed up a few of those, so I think this must be one of those. Who would have ever thought when you are accepting those credit cards that they could one day really sue you…that’s a good way to help us poor folk out of the hole we are obviously in since we can’t pay the bill to begin with…

  6. Joanna on October 15th, 2008 1:27 AM

    Thank you so much for this honest information. It is so refreshing to see freely accessable advice that really protects and empowers those out there who are struggling with past and current debts. I was shocked and horrified when my husband received a summons, but now I feel some hope after reading this article. Hopefully others will also not roll over and play dead if this unfortunate situation comes into their lives. Thank you very much again!

  7. Betty on November 6th, 2008 9:52 AM

    I’m not understanding how they can’t collect after 4 years. I also don’t understand how you’re claiming that the SOL isn’t the last payment date. What establishes the SOL then?

    I live in Missouri and the SOL is 5 years. I’m currently being sued by Discover Card and have to go to court in 4 weeks. They’re claiming that the last account activity was in October 2004, which is their charge off date. The card agreement states that the governing law is Delaware, which has a 3 year SOl, so I’m using that as a defense in court but am doubtful that it will work.

    Any suggestions?


  8. Wilma Thompson on November 11th, 2008 3:49 AM

    I married a man 15 yr’s younger than me. He had never been married, no kids, just owned an old Van and a small sail boat, he lived on or stayed at his mother’s or sister’s. I married him in 1984 and only owed $17,000 on my house which we sold and I made $l36.000.00, and we bought a sail boat (47′ Yacht) Lived on it 3 yrs, decided to sell it and moved to HI and build a home. He was going to build it. He had bought all kinds of tools and tool boxes, a back hoe, a truck and a van and shipped it over. He and brother bldg. house themselves.We were there about 11 months and he told me he was having an affair and wanted a divorce and marry her. I was devastated and started drinking to kill the pain. He made up the divorce papers, and I signed them without reading them (drunk) and he had used a credit card of mine and bought materials for $12,000.00. I got a ph call today asking for Wilma M. (married name) and said they wanted their money and I could put in on another credit card and pay $8000.00. I told them I was 72, retired, disabled and lived on $1100.00 a mo. and could not pay it. I am on food stamps and barely making it. I didn’t authorize him to use the card and didn’t even know he had used it.I am not sure what I can do, as I don’t even know what was bought or where on the island, or where he bought what. I don’t know what to do. It has been 16 years. I am alone and planning to move back to CA. They were very rude and I was angry and told them I could not pay it etc and they gave me a ph # and said think about it. Can they do anything or does anyone know what I can do? I had received a letter years ago and thought it had been written off by now. Email me if you have any suggestions. Thank you

  9. Wilma Thompson on November 11th, 2008 3:57 AM

    On my last comment, I have not drank in years, just after I got over the shock, and got on with my life. Had car accident and post fractured back and totally disabled now. Still don’t know how to handle this. Thanks for any help

  10. Krystal Williams on November 21st, 2008 1:40 PM

    I received a judgement against me this week for 6k on a 2k debt, although they did not have a copy of the original contract. The judge had asked parties in cases heard prior to mine, but said it wasn’t necessary when I requested that same information. I am trying to appeal the judgement and can use all the help I can get.

  11. karen smith on December 8th, 2008 9:49 PM

    My BF just found out that he has a judgment on his credit report. The bill was back in 2000 and he never paid it. The original bill was $1500 and now it is $6000. He wants to pay what he owes and not all of this other accumulated amounts. Court papers were delivered to his parents’ home and he doesnt live there, so no one thought to tell him that he had received papers about 2 months ago. I need advice on how to handle this. He is willing to pay what he owes, but not the other added amount.

  12. Kevin Hall on January 14th, 2009 8:08 PM

    If you are served with a lawsuit over a credit card, you need to contact a lawyer immediately, Most of these credit card companies cannot produce a contact, billing statements, charge receipts, payment records, etc. A good lawyer to contact in the Houston area is Frank Wang at 281-501-3111. Good Luck!

  13. Jerry Shaw on February 16th, 2009 2:27 PM

    My son Jeff opened a credit card with Chase in 2004 with a $500.00 limit. Card was closed out in 2006 because he was unable to make payments. He is now being sued by a third party and they advise the balance is now $2100.00. The third party is willing to make a settlement but have not stated what they will settle for. I do not believe they have any original contracts or paperwork. What is typical for a settlement balance in a case like this? Court date is 2/26/09.

  14. tny on February 23rd, 2009 2:03 PM

    Hello- I have a judgement from law firm which came from Citibank. My balance on my Visa Citibank card I owed about 10 years ago was for $4800. With interest it went up to I’m guess around $7500. I paid law firm for 2 years $200 a month plus $400 to unfreeze my acocount. I missed a month and they garnish my wages (10%)for 3 months but then I lost my job. So I’m guessing I paid them around $5000-$6000 not sure but now they send me a letter stating I owe them $3926 but they will settle for $1963. What should I do? Do i have the right to question the amount I original owed? and how much I paid since then?

  15. Laurie Hughie on June 29th, 2009 12:31 PM

    Thank you so much. This web site has helped me in more ways than you will ever know. I never knew a debt collector was not suppose to leave their return address and other advise was very helpful.

  16. nirali on July 16th, 2009 10:40 AM

    Hii..I am have to pay a amount of 6000$ in citi creditcard. and I lost my job before 3 months. I wanna know that what if i cannot pay my amount ? i mean what action Citi bank might take if in case i cannot pay the bill? Also is that OK if i will pay after 1 yr…plz reply

  17. Robin on August 29th, 2009 6:53 PM

    Please help. Beneficial of Florida is suing me for what they say is now $6,500. The original amount I borrowed in 2003 was $2,500. I paid faithfully for 5 years until I could not longer pay. I begged them to accept $50 when my husband became unemployed. Later he died with a brain tumor. I am a single mother and widow. They got a default judgment when I didn;t show but I thought the papers were fake. They were real. I sent a letter to the judge asking to reopen the case. I told him Beneficial will not mail me proof of the debt of what I had paid for the last 7 years.

    Please help!!!

  18. Loader on September 23rd, 2009 7:00 PM

    It is also possible to get a bad credit student loan if your parents have a good rating. A PLUS loan is a loan that is granted to parents instead of the students. They are intended to cover the amount of fee that the parents are obligated to pay.

  19. Fixy on February 18th, 2010 1:33 PM

    I must put a bookmark on this page….

  20. Cecil Grass on September 9th, 2010 11:54 AM

    Great read, thanks a lot this will help as I’m traveling this fall for the first time ever. I’ve also found mention of a great service at that can handle
    accepting international credit cards and it seems like it would be useful too.

  21. Eloise Villarreal on October 6th, 2010 8:31 PM

    This is great that we can receive the credit loans moreover, it opens new chances.