Over the past year I have seen junk debt buyers like Midland Funding and Portfolio Recovery Associates file debt collection lawsuits here in Arizona on accounts where the amount is relatively small – some for amounts less than $1,000.  I have literally had clients come into my office who have been sued by Midland Funding for $600!

The reason why this is so crazy is because the time, effort, and court fees it takes to get a lawsuit filed and served in Arizona will cost nearly as much as they are suing for.  For instance, in the justice court system here in Arizona the following are costs associated with filing a debt collection lawsuit:

  • Arizona Justice Court Filing Fee:        $96.00
  • Process Server Fee:                           $120.00

Total Fees:                                               $216.00

That $216 dollar amount doesn’t include the cost of hiring a lawyer to file the lawsuit.  Granted many of these low dollar lawsuits are dealt with in house with Midland Funding’s sister company Midland Credit Management, Inc., but still – a third to a fourth of the total amount they are seeking it paid in court costs!

Does it Make Sense to Hire a Lawyer on a Low-Dollar Lawsuit?

The short answer is no, it usually doesn’t.  I try and keep my fees low and affordable and even then I typically charge more than the amount being sued on.  So what an you do ?  Here are three strategies you can use to deal with your low dollar junk debt buyer lawsuit.

#1 – Fight Back – Make Midland Funding and Portfolio Recovery Associates Prove their Case in Court

I won’t go into all of the details here, but cases filed by junk debt buyers are full of holes. They don’t have the right evidence, witnesses, or law to prove their case.  Their business model plans on over 90% of the people they sue just ignoring the lawsuit and having a default judgment entered against them.

So, if you press them on this, many times they will either fold and dismiss the case or agree to work out a settlement.  If they are unable to prove their case at trial the court will enter a judgment in your favor.

The trick is that it the court system can be complicated and overwhelming to navigate.  The debt buyer will be represented by an attorney who will know the court system inside and out and will try and use their knowledge of court procedure to throw you off and lose your case.  That is why it is so vital to have an understanding of not only the court procedures but the substantive law as well.

That is why I started The Consumer Warrior Project (CWP).  CWP is a set of Do-It-Yourself online video course and forms that give you the information and strategies to prepare the documents you need to file with the court.  Currently I offer these courses:

Using an online course like one of the above is can be an economical alternative to hiring a lawyer and still fighting back against the junk debt buyer.

#2 – Settle the Debt for an Amount Less than What is Owed

The next approach is to settle the case before it goes any further.  While the debt buyer wants to settle the case (because that means you paying them money) there are tactics you can use to get the lowest settlement possible.  In negotiating with creditors to obtain a settlement it is best to create a plan as to what you can realistically pay in the form of a settlement.

Then, evaluate your current situation to see if there is anything you can use as leverage.  Here are a few of the items you can use as leverage to get a better deal:

  • Social Security Income:  Are you receiving social security retirement or social security disability as your sole source of income?  These types of income are exempt from garnishment.  This means that even if the debt buyer obtains a judgment against you they won’t be able to garnish your wages.  This can be a source of leverage because wage garnishment is the #1 way debt buyers collect on their judgments. If they can’t garnish your wages they may be willing to take a lower settlement offer.
  • Past Due Child Support or Alimony:  Not all debt is created equal. If a person owes child support or spousal maintenance (alimony) this debt comes first.  When people fall behind on their child support often their wages are garnished until the support is brought current.  This means that if a debt collector obtains a judgment against you they will have to wait in line, potentially for years, before they get a penny.  Once a debt collector realizes this they may be more willing to take a lower settlement amount.
  • Tax Liens:  This falls into the same category as child support.  The government makes the rules and they have decided that they should get paid before any of your other creditors. If you have a tax lien then this acts as a lien against all of your real estate, personal property, and your wages.  Again, this makes it more difficult for creditors to collect because they aren’t first in line.
  • Bankruptcy:  This is often the first place consumers go when trying to increase their leverage in debt settlement.  Because everyone tends to “cry bankruptcy” many debt collectors have become immune to this and even though they won’t receive a penny in bankruptcy it likely won’t move the needle much when it comes getting a better deal.
  • CFPB Consent Orders Against Midland Funding & Portfolio Recovery:  If you are being sued by Midland Funding, Asset Acceptance, or Portfolio Recovery Associates you can gain some leverage by reviewing the Consent Order issued against all of these companies in September 2015.  The Consumer Financial Protection Bureau sanctioned all of these companies for their illegal collection tactics.  You can use these as leverage to get a lower settlement.

#3 – File for Bankruptcy

If you are being sued by a debt buyer for a low amount (under $2,000) then bankruptcy should not be your first choice – unless the lawsuit is just the tip of the ice berg and you have a lot of other debt problems.  Bankruptcy is a very powerful tool.  Think of it as the nuclear option.  You don’t want to use it, but if you need to it can really get results.  If you are facing overwhelming debt problems bankruptcy may be your best bet for finally turning things around and starting over.

The point of this article is that you have options.  Often when you are facing difficult debt problems and particularly when you are facing a lawsuit you will feel hopeless – like there is no way out this mess.  But the good news is you can make your situation much better by educating yourself and taking action.

Schedule a Free Consultation!

John Skiba, Esq. John Skiba, Esq.

We offer a free consultation to discuss your debt problem and help you put together a game plan to eliminate your debt once and for all. Give us a call at (480) 420-4028

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