Debt buyers

Debt buyer lawsuit: What you need to know.

A debt buyer lawsuit is a collection lawsuit brought by a company that bought the debt after it went into default. It's a completely different animal than a collection lawsuit brought directly by the original creditor.

What is a debt buyer?

A debt buyer is a company that purchases delinquent debts from creditors for pennies on the dollar and then tries to collect the full amount, often making a nice profit in the process. Debt buyers have strange names like Midland Funding, Cavalry Portfolio Services, or Unifund CCR Partners. As with any business, they come in all shapes and sizes. Some debt buyers operate nationwide and have millions or billions of dollars in accounts. Others operate regionally and have much smaller debt portfolios. Some specialize in certain types of debt, like credit cards, second mortgages, and the like.

Here's a partial list of some of the debt buyers I've come across:

  • Asset Acceptance

  • Cavalry Portfolio Services

  • Central Prairie Financial

  • Dakota Bluff Financial, LLC

  • Debt Equities, LLC

  • Equable Ascent Financial, LLC

  • Livingston Financial, LLC

  • LVNV Funding

  • Midland Funding

  • Palisades Collection

  • Pipestone Financial, LLC

  • Portfolio Recovery Associates

  • Red Rock Lake Financial, LLC

  • Unifund CCR Partners

Why it's critical to answer a debt buyer lawsuit

Debt buyers are notorious for filing collection lawsuits in bulk. According to a 2009 article in the William Mitchell Law Review, debt buyers obtained 2,400 default judgments a month in Minnesota. These judgments were obtained by default because the consumer didn't show up in court. In almost all of these cases, the debt buyer didn't have to present any evidence to a judge.

This last point is crucial because debt buyers acquire accounts in bulk and often don't have the account-level documents needed to prove their claims. That's why it's so important to answer a debt buyer lawsuit within 20 days of being served to ensure that a judge reviews their evidence.

Possible defenses to a debt buyer lawsuit

One good way to defend a debt buyer lawsuit is to challenge their proof of ownership. Because they didn't extend the credit, they should be required to prove their ownership of the account and their entitlement to collect the balance. The more times a debt has been bought and sold, the less likely it is that the current debt buyer can prove each step in the chain of ownership.

Another possible defense is to dispute the debt buyer's evidence. Under the court rules, if a party wants to introduce documents (like credit card billing statements, for example) it must provide testimony about the reliability of the documents. This can be difficult for the debt buyer to do properly because they didn't create the account documents in the first place.

An additional defense to consider in a debt buyer lawsuit is the statute of limitations. The statute of limitations is the length of time that a creditor has to start a lawsuit after the account goes into default. In Minnesota, it's generally six years, although there are exceptions. It's not uncommon for a debt to be bought and sold multiple times and some debts bounce around for years before a legal action is taken. These repeatedly-sold accounts are sometimes called zombie debts (because they never die) and the statute of limitations is often a powerful defense in these cases.

There are other possible defenses that are more fact specific and will depend the particular facts and circumstances of your case. There are also some bad defenses that consumers often put in their answer. It may be wise to discuss your case with an attorney experienced in defending debt buyer lawsuits before proceeding too far to see what defenses apply to your case and how strong they are.

Who are Asset Acceptance, Unifund CCR Partners, and LVNV Funding?

Asset Acceptance, Unifund CCR Partners, and LVNV Funding are three of the biggest debt buyers in the collection industry. Other debt buyers include Midland Funding, Cavalry Portfolio, Crown Asset Management, and Palisades. A debt buyer is a company that purchases delinquent consumer accounts from original creditors such as Capital One, HSBC, Discover, and Wells Fargo. The debt buyer purchases the accounts for a tiny fraction of the balance and then attempts to collect the entire balance from the consumer. Debt buyers file thousands of lawsuits and obtain thousands of default judgments each month. They are then free to garnish people's bank accounts and wages, and as a result, collect millions of dollars. This leads to huge profits, even in the current economy. But debt buyers have a dirty little secret: they can almost never prove their case in court. Because they didn't originate the debt, they are at the mercy of the original creditor to provide them with the documents, such as credit applications and billing statements, to prove their case. Sometimes the original creditor refuses or is unable to provide the debt buyer with these critical documents. Debt buyers also have a difficult time providing thorough documentation of their purchase of the debt. Because of this, most debt buyer lawsuits can be successfully challenged. But because the majority of people don't respond to debt buyer lawsuits, the debt buyers obtain thousands of judgments by default. In most states, this means that debt buyers obtain the judgments without having to provide any proof.

If you have been sued by a debt buyer, you should answer the lawsuit and force the debt buyer to prove their case. If disputed properly, most debt buyer lawsuits can be defeated. Even if they can't be defeated outright, challenging them can lead to good deals in the form of settlements.

The first step when you've been served with a debt buyer lawsuit

A debt buyer is a business that purchases delinquent accounts from the original creditor and then sues consumers to collect the debts. Because the debt buyer did not originate the debt, it is at the mercy of the original creditor to provide it with evidence to prove its case. In some cases, the original creditor doesn’t provide the debt buyer with any evidence of the debt. And when the original creditor does provide evidence, it often is just a single billing statement that was generated long after the account became delinquent.

Although it seems ridiculous for debt buyers to initiate lawsuits without knowing what, if any, evidence exists to prove their claims, debt buyers nonetheless initiate thousands of lawsuits each month. Why? 95% of collection lawsuits proceed by default and result in judgments being entered against consumers without the debt buyer having to prove its case.  This basic premise is why collecting purchased debt is a thriving sub-industry. Debt buyers know that they can obtain thousands of judgments without having to produce a single piece of evidence.

If you are sued by a debt buyer, the first step is answering the lawsuit in a timely manner. An answer is a legal document that responds to the allegations in the complaint. If you are unsure how to do this yourself, contact a consumer lawyer immediately to help you. Failure to answer the lawsuit within the required time will likely result in a default judgment being entered against you without having an opportunity to go to court and defend yourself. But if you respond to a debt buyer lawsuit properly and engage in the ensuing litigation process, you will force the debt buyer to prove its case in front of a judge. Often they can't.