Debt defense defines a broad range of different types of cases. While it primarily involves credit card lawsuits against consumers and businesses, it can involve any type of debt-related lawsuit filed by banks or other companies against consumers. Once a lawsuit is received, an answer must be submitted within the time period allowed. That is the first real battle. If an answer is not submitted within that time period, then the plaintiff automatically wins by default judgment against the defendant.
If the plaintiff gets a default judgment against the defendant, a wide array of judgment enforcement tactics can be used. One such enforcement tactic is the imposition of a bank levy, which essentially freezes a bank account. In New York State, this can be done for up to double the amount of money that was sued for. For example, if a person was being sued for $10,000 by Citibank, and they were able to obtain a default judgment against that person because they did not answer, Citibank would then be able to hire a New York City marshal or a sheriff to find that person’s account. If they were successful in doing so and there was money in the account, then they could freeze up to $20,000- twice the amount of the judgment. The other potential pitfall of a default judgment is wage garnishment, which means that the creditor can find where a person is employed and take money directly out of their paycheck. In New York State, roughly 10% of a person’s gross income is garnished, which is potentially a very large amount of money. In addition, once a money judgment is obtained against anyone in New York State, the plaintiff is allowed to accrue 9% interest on that judgment.
For people who are being garnished, this is the worst-case scenario. If a person initially owed $10,000 and had their wages garnished for a few years, by the end of it they will have paid significantly more than $10,000. This is the number one reason it is so important to file an answer on these matters and avoid judgment.
There are other ways that creditors can go after consumers and businesses. For example, they can put a lien on a consumer’s home which remains valid for 10 years and can potentially prevent the consumer from selling or refinancing their home. When a judgment is obtained against a person, it has a very negative impact on their credit score and will appear on their credit report. This will serve as a red flag to any potential creditor and will impede their ability to obtain credit in the future. Filing an answer with the necessary affirmative defenses will keep the leverage on the defendant’s side. It will prevent the plaintiff from being able to obtain the default judgment and with them the burden of proof will remain. This not only allows the defendant to defend themselves throughout the case, but also gives them great leverage if at any point they are interested in settling the case.
In New York State, generally speaking, there are two sets of rules regarding time constraints. If a person is served a summons of complaint personally, they have 20 days to file an answer. If an answer in not filed within that time period, then a default judgment can be obtained. If a person is anywhere outside of New York City, they only have 10 days to file an answer. If a person is served in any other manner, then there is a 30 day period within which an answer must be submitted. This means that if the process server leaves the summons of complaint with anyone aside from the person it is addressed to, or leaves it at that person’s door, that person has 30 days to respond.
In order to file an answer, a person must admit the allegations on the complaint, deny the allegations on the complaint, or state that they lack the knowledge or information sufficient to form a belief as to the truth or falsity of the claims. It is very important to attach as many important affirmative defenses as possible. The first and most important affirmative defense is personal jurisdiction. More specifically, improper service is a defense that can be used to have the case dismissed. Before filing an answer, a motion to dismiss can be filed stating that there is no personal jurisdiction because there was improper service. Alternatively, an answer can be filed alongside that affirmative defense.
In dealing with credit matters, a strong affirmative defense would be to dispute the amount of debt owed. A person can also assert the affirmative defense of mistaken identity, which can be a great defense. If, for example, a person had been a victim of identity theft or some other form of fraud, the defense of mistaken identity is definitely a defense they should submit. Oftentimes when dealing with identity theft matters, the creditor or plaintiff will ask the defendant to file an identity theft affidavit and provide a police report.
There are two types of creditors that sue on these sorts of accounts. The first type is the original creditor such as American Express or Bank of America. The second type is called a debt buyer, of which there are many. In the hands of debt buyers, a person’s debt can be bought, sold and transferred numerous times without the debt holder’s knowledge. Oftentimes, these companies will even add their own fees and interest. The most important defense that can be used in a situation where a person is being sued by a debt buyer is a standing defense, which states that the defendant had no relationship with or knowledge of the creditor’s existence. The defendant can argue that they have never signed an agreement with them and request proof otherwise. The standing defense is a very important defense, specifically when dealing with debt buyers. Another defense that is very important and commonly used is the statute of limitations defense. Basically, these companies’ banks have a general specific time period to sue consumers or businesses. In contract law, that is generally six years in New York State. If a person was sued after that time period, that can be used as a great defense. However, there are some caveats to the statute of limitations defense. For instance, the defendant must determine when exactly they defaulted on the debt in order to even begin calculating the amount of time that has passed. Another caveat is that if a person’s debt is from a bank that is centered out of state, then that state’s statute of limitations would be used. For example, the statute of limitations in Delaware is three years. If a person were being sued by a bank that is centered in Delaware, they could use the three-year statute of limitations as opposed to New York’s six-year statute of limitations.
Bankruptcy can also be used as an affirmative defense if the debt in question had been officially discharged through a previously filed bankruptcy. This defense could be used to not only dismiss the debt, but also to dismiss a judgment if one had already been obtained. There are some other defenses that are less common but can be used in certain situations. For example, in some instances there is a failure to mitigate damages defense, which is used most often if a landlord is suing a tenant. Generally speaking, this defense brings to light the landlord’s duty to try to lease the property to someone else. Another example is the defense of unjust enrichment. This defense makes the argument that the plaintiff is asking for an excessive amount of money in comparison to the original debt owed.
A defense of unconscionability claims that the contract itself is unfair in its terms, which is similar to another defense- the violation of the duty of good faith and fair dealing. For example, if the plaintiff in a case is the one who actually breached the contract that they are suing on, then a defense like the violation of good faith and fair dealing can be used. There are also some defenses that can be used if the defendant is in the military. For example, it would not be fair for a member of the military to be sued while on a deployment, as they would be unaware of the lawsuit and lose by default judgment. If a defendant is in the military, the court is supposed to stay any proceedings and/or appoint counsel so that judgment is avoided in that sort of scenario.
It is also important to know that in New York City, all creditors are required to put their license number in the complaint. So, if a person is being sued notices that the creditor’s license number is not listed, that in and of itself can actually be used as a defense. The Department of Consumer Affairs requires that every debt collection agency and law firm in New York be licensed as well.
I have discussed the most common, and probably the best defenses that can be used in different scenarios. But once all the defenses are used in a particular lawsuit, there are also certain counter claims that can be used. A counter-claim allows for the defendant to assert their own claims against the plaintiff. Counter claims can be very useful in terms of providing leverage, especially if at some point the defendant wants to settle the matter.
It is actually quite common for cases to be settled. Probably 90- 95% will eventually settle in order to avoid a protracted legal battle that will end up costing a significant amount of money in fees. If a person can save 60- 80% of the amount owed by settling, it makes sense to do that. However, it is very difficult to get to that point without strong affirmative defenses. As previously mentioned, having very strong counter claims will also help by bringing more leverage onto the side of the party that’s being sued.
An example of a commonly used counter claim is the Fair Debt Collection Practices Act, which can be used if there were deceptive or misleading representations made by the creditor. It can also be used in situations involving harassment or abuse, obscene language or threats of violence by a creditor. However, this act applies only to collection agencies and debt buyers, such as Midland Funding, Portfolio Recovery Associates, Forster & Garbus or Ruben and Rothman. It does not apply to original creditors such as American Express or Bank of America. Another counter claim that can be used in New York is general business law, section 349. It is similar to the deceptive acts or practices of any conduct for any business, trade, or commerce.
Ultimately, quality affirmative defenses coupled with strong counter claims are useful not only to defend and potentially defeat a creditor, but alternatively, to negotiate and potentially mitigate damages.
At What Point Should Someone Retain An Attorney For Debt Defense Purposes?
In my opinion, a person should always seek legal counsel in these matters, because the alternative is a default judgment. A person not only needs to know the legal and technical terms in order to submit answers, but also needs to form their defenses and counter claims. If this is not done, or it is not done properly, the person will automatically lose. It is a very big risk to take on these cases without the assistance of an attorney.
For more information on Debt Defense In New York, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (888) 605-2705 today.