Credit Card Defendant Wins Lawsuit, Collects $120,000!
Most of the debt collection industry is based on bully tactics. Each stage of the collection process is designed to intimidate and harass until the individual simply surrenders and pays the debt. Collectors send embarrassing letters in pink envelopes marked “URGENT!” or “IMMEDIATE ATTENTION REQUIRED!” They make scores of phone calls at home and work, until you are afraid to pick up your own phone.
Even when there is a valid defense, a credit card company will sometimes seek to bury the defendant with the enormity of its size. Take for example the recent Palm Beach County, Florida, case of Capital One Bank USA, NA v Pincus. Capital One sued Steven Pincus for a credit card debt of $803.95. Pincus offered to settle the debt for a few hundred dollars, and Capital One refused. Pincus then hired an attorney to defend. Capital One responded with a barrage of court filings that ran up Pincus’s legal expense tab to over $100,000.
Pincus moved for summary judgment and dismissal claiming the lawsuit was barred by the statute of limitations. Pincus asserted that the Capital One cardholder agreement states that Virginia law shall have control, and, since the contract was not signed by either party, whatever agreement existed between Pincus and Capital One must be an oral contract. Pincus further argued that since the statute of limitations for oral contracts in Virginia is three years and since Capital One’s lawsuit was filed three and a half years after the date of the last transaction, Capital One’s case is time barred. Capital One defended by arguing that Florida law and its five year statute of limitations should control because Florida was the state where the contract was made.
The Palm Beach County Court found that Virginia law controlled and the credit card agreement was an oral contract based on Virginia law. The opinion cited several similar Florida cases finding the choice of law provision in a cardholder agreement applies to a statute of limitations defense. In granting Pincus’s summary judgment motion and dismissing the case, the Florida court opinion said the credit card company is “‘master of its complaint’ and cannot disavow the choice of law provision contained in the document it attaches to its Complaint so it can take advantage of the longer statute of limitations.”
The Pincus case did not end there. Pincus and his attorney filed a Fair Debt Collection Practices Act lawsuit in federal court against Capital One’s attorneys to recover his attorney fees (Capital One, as an original creditor, is exempt from the FDCPA, but collection attorneys are not). The case was settled after contentious litigation for $120,000.
The moral of the story is “Don’t be bullied!” If you are sued for a credit card debt, seek legal advice from an experienced debt defense attorney. Many bankruptcy attorneys are experts in debt defense and can explain your legal options.
Discharging Credit Card Balances
As a general rule, credit card debt is among the easiest type of debt to discharge during a Chapter 7 or Chapter 13 Bankruptcy. However, in some cases credit card companies will dispute the discharge of credit card debt by filing an adversarial proceeding against the debtor in the bankruptcy court. The creditor may claim that all or a portion of the debt is non-dischargeable. Debts that are declared non-dischargeable may have to be paid during the bankruptcy, or may survive the bankruptcy altogether.
A credit card company may claim that the debtor committed fraud in obtaining or using the credit card. If the creditor can prove that the card was obtained under false pretenses (i.e. that the application was false), the credit card debt may be declared non-dischargeable because of the fraud.
A credit card company may also claim that charges were placed on the credit card when the debtor had no intention to repay the debt. Additionally, a presumption of fraud arises where luxury goods and services are purchased or cash advances are taken shortly before the filing of a bankruptcy case.
Credit card companies are entitled to notice of a debtor’s bankruptcy case, and these companies monitor bankruptcy cases for signs of fraud. Certain actions send up a red flag including:
- Filing bankruptcy on a new card;
- Taking a cash advance prior to filing;
- Charges for travel or vacation;
- A debt transfer from one card to another;
- Credit charges while unemployed; and
- Charges made after consulting a bankruptcy attorney.
The more time between the credit card activity and the bankruptcy filing, the less likely the charge will cause a discharge dispute. The best advice is: if you are considering bankruptcy, stop using your credit cards. Consult with your bankruptcy attorney regarding the best way to discharge your credit card debt.
Debt and the Elderly
Many older Americans struggle each month to pay credit card debt with a modest income. Often paying unsecured debt is a tremendous burden and requires a sacrifice of basic necessities. Sometimes the elderly conserve utilities, or cut back on food, or forego prescription medication to pay credit card companies.
The subject of bankruptcy is especially difficult for elderly people who may cling to preconceptions that are out-dated or otherwise incorrect. There have been many changes in the laws that protect an elderly person’s ability to meet basic monthly living expenses. Many retirement accounts and social security income are protected from creditor garnishment. Additionally, elder Americans are often judgment proof, meaning all income and assets are protected from creditors. Unfortunately, many older Americans fail to take advantage of these protections because they believe they can honor their obligations by paying minimum payments each month. The sad truth is that it often takes decades to pay off a credit card by making minimum payments.
The stress and worry over repaying unsecured debt can cause health issues for young and old. A great deal of this stress and worry can be alleviated by choosing a feasible plan to either pay or discharge this unsecured debt. Bankruptcy is one tactic for managing unsecured debt and for reorganizing an elderly person’s finances. An experienced bankruptcy attorney can explain your options and provide solutions for living on a fixed income. Don’t let credit card debt turn “the golden years” to rust.
The Consequences of Ignoring Your Debts
I recently read a newspaper advice column written by a Certified Financial Planner who suggested that, as a practical matter, there is no difference between ignoring your credit card debt and filing bankruptcy. Well, let’s look at the “practical effects” of ignoring your credit card debt:
First, ignoring credit card obligations will cause a persistent series of harassing telephone calls and letters from credit card companies, collection agencies, and finally law firms. Phone calls are systematically made to the debtor’s home and work, and sometimes to third parties including neighbors, extended family, and your employer. The agencies that collect credit card debt are experts at telephone harassment – it is one of their most important weapons.
Bankruptcy, on the other hand, stops all collection calls.
Second, your credit score will be ruined on a continuing basis. For each month that a credit card goes unpaid, the creditor will report negatively to the credit reporting bureau. Additionally, collection agencies will often further harm your credit score by “resetting” the date of last activity when the account is transferred to a new collector.
Bankruptcy stops all negative reporting. Discharged debts should be identified as “Discharged in Bankruptcy” with a zero balance. The debtor’s credit report and score can begin to recover from the date of the bankruptcy discharge.
Third, you can (and will) be sued. The typical consumer will undoubtedly lose a lawsuit over a legitimate debt. The resulting judgment may include substantial penalties, interest, court fees, and attorney fees. A judgment creditor can collect from your wages, your property, and your bank account. While there are some people who are judgment proof, they are the exception and not the norm. Most people have assets that a judgment creditor can attack.
Bankruptcy prevents all lawsuits and even stops collection actions from judgment creditors.
Many consumer advocates have likened credit card debt to an illness. Like any illness, the cure is not found in ignoring the problem, which will only make things worse. If you are sick from credit cards and are unable to pay your debts, consult with a bankruptcy attorney and find the cure!
Question: What Should I Do If I Can’t Afford To Pay An Increased Credit Card Payment? Should I Contact A Debt Consolidation Company Or Consider Filing A Chapter 13 Reorganization Bankruptcy?
Before you take any affirmative steps to reorganize your debt with a debt management company or file for bankruptcy, you should sit down and work up a detailed financial budget for you and your family so you know how much disposable income you have each month to apply towards your credit card debt.
When you have completed your budget, contact your credit card companies directly and see if you can get them to agree on changing the terms of the repayment of the debt. Unfortunately, most credit card companies will not change the repayment terms unless you fall at least three months behind. Of course, if you stop making your payments, your credit score will drop significantly.
If you are unable to negotiate directly with your creditors, then consult with an attorney to consider all of your options including hiring a debt management company or filing bankruptcy.
A common question we receive in our offices is “what’s the difference between private debt consolidation and filing Chapter 13 and which is better?” Though the concept is nearly the same, there are many important differences. If you’re interested in maintaining a good credit rating and you don’t want your debt problems to become public record, then private debt consolidation may meet your needs. Private debt consolidation, however, can’t give you guaranteed court protection from your creditors. Creditors can still proceed with legal action against you to collect their debts. On the other hand, Chapter 13 offers significantly more protection to you and your family, allowing you to pay your creditors a percentage of the debt owed (often as low as ten percent) and discharges the remaining balance. And perhaps best of all, creditors cannot repossess or foreclose on your property.
What’s best for you will naturally depend on your specific debts, personal priorities and income status.