How to Defend a Debt Buyer Case
If you have debts that are significantly past due, you likely have or will at some point interact with debt buyers. Many of our clients are unaware of what debt buyers are and that the process for defending a debt buyer case is different from that of an original creditor or collection agency. If you are facing a debt collection lawsuit from a debt buyer, you need to be aware of some important rights and defenses that you have under Federal and Illinois law.
What is the difference between an original creditor, a debt collector and a debt buyer?
An original creditor is an individual or entity that you agreed to borrow money from. If you subsequently default and fail to pay the original creditor, the creditor is likely to do several things. First, the creditor will attempt to collect the debt in-house. This mostly consists of phone calls and letters. If you have not made a payment after several months, the creditor will likely assign your debt to a collection agency.
A debt collection agency is a third-party that attempts to collect a debt on behalf of the original creditor. Collection agencies must abide by both federal and state laws when attempting to collect a debt. The most significant federal law governing debt collection agencies is the Fair Debt Collection Practices Act. In Illinois, collection practices are governed by the Illinois Collection Agency Act and the Illinois Consumer Fraud and Deceptive Practices Act.
At some point the original creditor will “charge off” your debt. This could occur before or after it is placed with a collection agency. What this means is that the creditor is writing your debt off in order to receive certain tax benefits. Once the debt is charged off, the creditor could sell the debt to a debt buyer. Debt buyers are companies that are in the business of purchasing debts. They typically acquire the debt from the original creditor for pennies on the dollar. As long as debt buyers collect more from you than they paid for the debt they will turn a profit.
Debt buyers are also required to abide by federal and state laws when attempting to collect on a debt. Once a debt buyer acquires the debt the original creditor no longer has the right to sue you. The debt buyer, however, steps into the original creditors shoes and may file a complaint against you to collect. Fortunately, defending a debt collection lawsuit from a debt buyer gives the borrower potentially more legal defenses.
Defending a debt buyer case
One of the biggest challenges that debt buyers have is proving that they own the debt and have standing to sue. In terms of documentation, the debt buyer must provide proof of the agreement between the borrower and the original creditor, as well as evidence that the debt was assigned to the debt buyer. It is not uncommon in the debt collection world for debts to be sold many times. Where a debt has been passed around several times, it can be very difficult for the debt buyer to acquire proof of the debt from the original creditor. Many debt buyers attempt to compensate for the lack of the original agreement by providing supporting documentation like old billing statements. These statements are not legally sufficient to establish that the borrower owes the debt.
A closely related defense is the matter of standing. Under the Illinois Code of Civil Procedure, a debt buyer is required to prove how and when it acquired the debt. The easiest way to do this is to provide a copy of a valid assignment of the debt. Most debt buyers are not able to do this. So, what they typically do is submit an affidavit in which an employee or representative of the debt buyer will declare under the penalty of perjury that the defendant owes the debt.
Yet, the debt buyer often does not provide proof of what documents it relied on when making the statements included in the affidavit. All statements made in the affidavit must be based on the personal knowledge of the affiant. Since the affiant is not an employee of the original creditor and does not have access to the original loan agreement, the affidavit amounts to inadmissible hearsay. Moreover, even if the debt buyer has a copy of the original agreement, it will have difficultly introducing it into evidence since they are records of the original creditor.
Many debt buyers get away with this, taking advantage of borrowers that are unfamiliar with applicable law. Those that are not represented by an experienced Illinois debt defense attorney, assume that the debt buyer must have the right to sue. They fail to challenge the debt buyer’s lack of paperwork or unfounded affidavit.
There are some additional defenses that may be available to you when facing a debt collection lawsuit from a debt buyer. One is to challenge the amount owed. Most debt buyers have no relationship with the original creditor and have no way of knowing whether all amounts you paid were properly credited to the account.
The Illinois statute of limitations is another important defense. The statute of limitations is the amount of time that a creditor has to sue you to collect a debt. On open accounts like credit cards, creditors generally have 5 years from the date of the last payment made on the account to file suit. If they fail to do so, then their right to collect on the debt is forfeited. Many debt buyers will disregard the statute of limitations and file suit anyway. It is important to raise the statute of limitations as a defense as the outset of the case.
Creditors and collection agencies face significant fines for violations of federal and state laws. It is important to know what to do if a debt collection violates the FDCPA. Tomei Law, P.C. has many years of experience defending clients in debt collection cases. If you are facing a debt collection lawsuit from an original creditor or debt buyer please contact us today to discuss your rights and options.