How to Use an Affirmative Defense in a Collection Agency Lawsuit

If you've ever had the unfortunate experience of answering the telephone only to discover an angry debt collector on the line, you've probably faced the old, "Pay up or we'll sue" ultimatum. In reality, collection agencies rarely file a debt collection lawsuit unless the debt you owe exceeds $1000. Even then, the trouble of pursuing legal action over a delinquent debt is often more trouble than its worth for bill collectors.

While a lawsuit isn't likely, collection agencies do occasionally sue. If you receive a formal summons and complaint in the mail from a debt collector, you've been sued. Provided you play your cards right and present both the court and the collection agency with an affirmative defense, you may be successful in having the lawsuit dropped.

What is an Affirmative Defense?

An affirmative defense is any defense that stands regardless of if you actually owe the debt or not. For example, unsecured debts carry a statute of limitations. Debt collectors cannot legally file a lawsuit against you after the statute of limitations expires. Because most debtors aren't aware of the statute of limitations, its easy for debt collectors to file a lawsuit and walk away with a default judgment. Debt collection judgments are enforceable regardless of whether or not the collection agency followed the proper protocol when suing.

If a collection agency sues an informed debtor outside of the statute of limitations, however, and the debtor notes the statute of limitations as his defense, he has chosen an "affirmative" defense. Claiming an affirmative defense does not necessarily argue that you don't owe the debt but rather than the collector does not have the right to collect.

An expired statute of limitations is one type of affirmative defense.

Filing Your Affirmative Defense

You can't simply answer the summons and complaint, file a Notice of Appearance and show up in court with a surprise defense. If you plan to use an affirmative defense in court, you must include this fact and note which affirmative defense you're claiming when you file your answer. You must send the collection agency a copy of the answer you file with the court that notes your affirmative defense.

The Collection Agency May Drop Its Lawsuit

Debt collectors don't want to fight you in court. A collection agency's goal with a lawsuit is to obtain a default judgment from the court. The collection agency gets a default judgment if you do not respond to the lawsuit summons and complaint or file a Notice of Appearance noting your intention to appear in court. When you do not respond, the court assumes the collector's claim is valid and awards it a judgment by default. Responding and defending yourself against the debt collection lawsuit places the burden of proof on the creditor.

Collection agencies often lack the paperwork necessary to prove that you actually owe the debt they're suing over. When you respond to the lawsuit, the collection agency's job gets much more difficult. If you respond to the lawsuit with an affirmative defense, however, its unlikely that the collection agency will be able to win its case – even if the fact that you owe the debt isn't in question.

In order to minimize the company's financial losses, a debt collection agency will often drops its lawsuit after receiving notice of your affirmative defense. This prevents the company from having to shoulder the burden of further court costs and attorney fees for a case it stands a high chance of losing. 

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Can Collection Agency Take My Tax Refund?

If you're one of the many lucky Americans who receive a tax refund at the end of the year, the last thing you want to have to worry about is having your refund snatched away from you by bill collectors. Unfortunately, if you owe debt to a collection agency and the collection agency has a judgment against you, losing your tax refund is a very real possibility. If you know your tax refund is at risk of being seized, there are steps you can take to protect your money and prevent collectors from garnishing your federal and state tax refund money.

Tax Refunds Exempt From Garnishment

Collection agencies love garnishment because it provides them with a way to recover unpaid debts without having to rely on the debtor to send in a payment each month. Garnishment ensures that payments arrive on time each and every month until the debt is paid in full.

Certain types of income, such as disability, unemployment, child support, etc. are all exempt for collection purposes. Collection agencies can neither garnish these or levy them directly from your bank account. Your tax refund is a special case, however. While debt collectors cannot garnish your tax refund from the IRS before its sent your way, once you deposit it into your bank account it becomes fair game for judgment creditors to seize.

Government Debt Collection

I can't bring up tax refunds and claim that creditors cannot garnish them when there is one glaring exception to this rule – the government. If you owe back taxes or unpaid student loans, rest assured your tax refund will either be garnished or withheld in its entirety.

You see, its entirely too much trouble for the IRS to work with commercial creditors in order to facilitate garnishment of tax refund money. Your right to your full tax refund, even if a creditor holds a judgment against you, isn't a way for the government to ensure that you have the money you need. It's merely inconvenient for the IRS to permit creditors to garnish tax refunds before they are sent out.

How do I know this? All other forms of income that are exempt from garnishment are exempt due to a special status as a "benefit" (usually, but not always, a federal one). These benefits are exempt from both types of garnishment. Your tax refund is not a benefit of any sort. It's your money. It was always your money. You just used it to pay your taxes. It's no more exempt from seizure than money you receive when you return an item to a department store.

Protecting Your Tax Refund From Seizure

Because debt collectors cannot garnish your tax refund directly from the IRS, you should receive your full refund. Provided you cash your refund rather than depositing it into your bank account, debt collectors – even those with a judgment against you – will not be able to touch it.

Get your tax refund on a pre-paid Visa card.

One thing to remember: If you are e-filing, request that the IRS mail you your refund via a check or prepaid Visa card (yes, they do that. Cool, huh?) rather than using direct deposit to deposit the money into your checking or savings account. While direct deposit is much faster than getting your refund through the mail, its also much safer and less stressful than waiting with baited breath for your refund to clear before racing to the bank to withdraw it before the collection agency can freeze your bank account.


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Sneaky Collection Tricks: A Sense of Urgency

Debt collectors are infamous for their sneaky and sometimes downright unethical collection tactics. One trick lurking up the sleeves of every major collection agency is a sense of urgency.

Look at your most recent collection letter. Odds are you'll see phrases such as "This offer expires in 10 days!" "Important! Call today!" "this issue must be settled immediately lest we seek further action." and other such drivel indicating that if you don't get off your tush and pay up this very instant horrible things will happen.

The sense of urgency debt collectors create serves as a psychological tool. Urgency creates anxiety and instills a sense of fear in consumers that if they don't follow the instructions they're given, they will somehow suffer. The truth of the matter is that collection agencies have very little power to force you to pay. If your income comes from exempt sources, such as Social Security and you don't own property, you're judgment proof and safe from a debt collection lawsuit. And the "time limits" that collectors impose mean absolutely nothing.

For example, if you receive a collection notice giving you 10 days to pay the collection agency's settlement offer and you agree to the offer on the 11th day, what do you think will happen? They may try a song and dance to get you to pay the full amount, but once a collection agency makes a settlement offer, that offer is always on the table. The same can be said of the "pay within 15 days or risk further action" letters. What is the "further action"? Usually nothing.

The next time you get a collection notice in the mail that gives you a limited amount of time to arrange payments, don't let the sense of urgency the letter creates cripple you with fear and anxiety. Remember, unless the collection agency sues you, they get nothing if you don't pay it voluntarily. You hold the upper hand.

Going to Jail for Unpaid Collection Debts

I used to hear the question, "Can I go to jail for not paying a collection agency?" at least once a week. And I always used to respond the same way: NO. Unfortunately, I can't do that anymore. As it turns out, crafty collectors are hunting for ways to bend the law and toss unsuspecting debtors behind bars for their inability to pay off ancient and inflated debts.

How Debt Collectors Put Consumers in Jail for Unpaid Bills

Leaving your debts unpaid isn't illegal and the financial fallout of the recent economic crumble has left millions of Americans owing debt they cannot afford to pay. The economic crisis is a double-sided coin. Consumers are left without the money to pay their debts, while collection agencies lose revenue. The natural result is more aggressive collection methods.

The plan works like this: The collection agency files a lawsuit for the unpaid debt. The court sets a hearing date for the lawsuit. If you appear at the hearing and defend yourself, the collection agency doesn't have a case. But that's fine by the collector because over 90% of debtors fail to respond to collection agency lawsuits. Those that don't respond and don't appear in court are technically in contempt by disregarding a summons. That gives the bill collector grounds on which to swear out a warrant.

Believe it or not, it gets worse. Bill collectors are notorious for "gutter service." Gutter service occurs when a collector fails to serve you a summons prior to a lawsuit or intentionally sends your summons to the wrong address. If you aren't aware of the pending collection suit against you, there is no possible way for you to show up in court – and no way for you to compile a defense. The collection agency simply waits until you  miss the hearing before filing for a warrant and sending the sheriff to pick you up.

There Is No "Get Out of Jail Free" Card

Once you're safety behind bars, the collection agency has the upper hand. State laws vary, but some states require you to pay some or all of the debt before releasing you from jail. Unfortunately, paying anything toward a collection debt restarts the statute of limitations for lawsuits. Even if the arrest was due to your failure to appear in court after being sued that does not mean that the bill collector had the legal right to sue you in the first place. 

Under normal circumstances, you could have the collection judgment overturned merely by filing a Motion to Vacate and using the expired statute of limitations as a defense. If you have to pay a portion of the debt to be let out of jail, however, you essentially hand the collection agency the ammunition it needs to legitimize its lawsuit.

Debt Collectors That Threaten to Put You in Jail

The Fair Debt Collection Practices Act bars collectors from threatening to take any action against you that they lack the legal right to take. This includes threatening to put you in jail for not paying your debts. If you want to get technical (and I really, really do) those who are put in jail for nonpayment aren't arrested because they did not pay a collection agency. They're arrested for their failure to adhere to court orders – even if they weren't aware of those orders.

While the prospect of being hoodwinked by a collection agency and subsequently arrested is jarring, no bill collector has the right to threaten to call the police if you don't agree to make payments. Debtor's prisons were abolished in 1883. If a debt collector threatens to call the police – call the bluff, but make sure to inform the collector that his threats violate Section 810 of the FDCPA.

Forcing Payment in Full

If filing a warrant against nonpaying debtors weren't bad enough, some judges are setting bail for the exact amount the debtor owes and then turning the bail money over to the collection agency when the debtor raises enough money to free himself. Although this isn't going on in all states, its going on in Minnesota. The Minneapolis Star Tribune recently published an article detailing this exact practice. I'm linking the article below if you're interested in taking a look.

Minneapolis Star Tribune article

What You Can Do to Protect Yourself

There is no surefire way to protect yourself from unethical debt collection procedures, but you can make yourself less of a target in the following ways:

Know the age of your debt. The statute of limitations kicks in as soon as you default on the account. Keeping track of the statute of limitations means you'll know immediately whether or not a collection agency's lawsuit is legal or illegal as soon as you receive the summons. If the statute of limitations has already expired, you can use this as an affirmative defense when you file your answer – resulting in the court dismissing the debt collector's case and eliminating any chance the company may have had to have you arrested.

Never ignore a summons. In most cases, ignoring a court summons won't result in the collection agency filing a warrant for your arrest – but it will result in a judgment. Plus, answering the summons demonstrates to the collector that you are willing to fight for yourself and not an easy target.

Keep old collection letters – and the envelope too. Keeping old collection letters and the envelope they came in with your name and address clearly visible serves as proof that the collection agency knew your address when it filed its lawsuit. If a debt collector sues and you receive the summons, having the letters isn't necessary. If the collection agency uses gutter service to ensure it receives a judgment, having proof that the company participated in illegal activity in an effort to extort payment from you through an arrest gives you one heck of a case against the collector.

Tout your "judgment-proof" status. Do you lack a job? A home of your own? Nonexempt income? Being judgment-proof doesn't stop a bill collector from getting a judgment, but it does stop the collector from using the judgment to force you to pay. If you're judgment proof, make sure the collection agency knows it. Collectors want to focus their major collection efforts, such as lawsuits and sending debtors to jail, on those they can actually collect from.

Related Articles:

How to Respond to a Debt Collector's Lawsuit

Can You Reset the Statute of Limitations on a Debt?

The Debt Collection Lawsuit Threat