Phase One and the Courts
Phase One Starting
Governor John Bel Edwards has declared that on May 15th, 2020, the stay at home order will be lifted from Louisiana. This process is known as Phase 1, and it will involve the reopening of restaurants, hair salons, and other local businesses. Importantly, Phase 1 will involve the reopening of the state’s courthouses. Ever since the lockdown began in March, the courthouses within New Orleans, Jefferson, and all other parishes within the state have been physically closed and operating at minimum capacity. Attorneys have been able to file documents and other important information, but the ability to open new lawsuits has been greatly diminished. In addition, businesses have been running at minimum capacity. Working from home has slowed down processes for the multitude of businesses who were not previously equipped or prepared for remote work, and this has made companies less likely to take legal action during this time.
With the state reopening, these businesses will be able to file lawsuits and the courts will be operating well enough for these lawsuits to be served. For companies dealing with debt, this is a big deal.
What Phase One Means for Those In Debt
Debt collection agencies usually begin by calling those who are 60 days past due on a bill. They do their best to coerce the person in debt to paying back the amount, regardless of the person’s financial situation. In theory, the guidelines set down by the Federal Trade Commission (FTC) prevent harassment by legitimate and honest debt collectors. Some of the protections are as follows:
Calling at all hours: A debt collector can’t contact you at inconvenient times or places, such as before 8 a.m. or after 9 p.m. They can’t contact you at work if you tell them you’re not allowed to take calls there.
Impersonation: They can’t pretend to be someone else when contacting you, such as an attorney or government agency. They also can’t falsely represent that they work for a credit reporting company.
Excessive Harassment: Harassment, threats and deception are illegal. This includes using profanity, threats of violence, calling repeatedly, saying you’ll be arrested if you don’t pay your debt or that they’ll garnish your wages unless permitted by law to do so.
Limits on contacting others about your debt: Debt collectors may contact people you know, but they can’t discuss your debt with anyone other than you, your spouse or your attorney. They can contact other people to find out your address, home phone number and where you work. They’re usually prohibited from contacting third parties more than once.
Written notice: Every collector must send you a written “validation notice” telling you how much you owe within five days of first contacting you. It must include the name of the creditor and how to proceed if you think you don’t own the money. In most cases, this must be sent within five (5) days of the first contact. It does not necessarily have to be received by you within that time, but it must be sent.
Unfair practices: Collectors can’t engage in unfair practices when trying to collect a debt. These include trying to collect any interest, fee or other charge on top of the amount owed unless state law allows the charge; deposit a post-dated check early; take or threaten to take your property unless it can be done legally; contact you by postcard.
Dishonest debt collections agencies rarely care about violating these laws. In general, if a debt collection agency is breaking the rules listed here, or any of the laws created by the FTC, your best option is to contact a lawyer.
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In 2009, the debt collection agency ‘Oxford Collection Agency’ was found guilty of performing abusive practices to those indebted, resulting in a large settlement (https://www.ftc.gov/enforcement/cases-proceedings/062-3177/oxford-collection-agency-inc).
If coercion does not work, debt collection agencies will typically resort to suing those indebted, if they believe it is worth it. When this occurs, the debt collection agency typically has a bankruptcy attorney and files a lawsuit with the state court, asking for a judgement in their favor. Typically, this judgement would include the amount owed, interest on the amount, and any filing fees that the agency incurs while filing. This means that if you are the person indebted and a judgement is made against you, you would end up having to pay for the agency to sue you! With the state moving ahead with Phase 1, this is once again something people need to be on the lookout for.
Most of the time, when someone is sued for a debt, it is very difficult to fight. Debt collection agencies rarely move forward with a suit unless they are almost certain they can win. Typically, this means having all of their documentation in order. This involves evidence showing that:
The debt exists
They are the holders of the debt
The liberative prescription has not expired (i.e. the ‘statute of limitations’ has not passed)
The debt has not been paid
The amount of debt that has not been paid off
Because all of this information is essentially vital for a debt collection agency to win their case, they rarely move forward without documents showing each of those 5 points. As such, these cases are difficult to win, except in extenuating circumstances.
Furthermore, even if you feel your situation should qualify for extenuating circumstances, the decision is up to the courts, and they’re often not as empathetic as a regular person dealing with real life could be or should be. Debt is extremely common, and if you have any reason to believe that the courts are against you, you need to contact an attorney ASAP.
Bankruptcy in the Face of Debt Collection
However, just because you are sued by a creditor does not mean that you will necessarily lose the case. In a matter of lateral thinking, it is possible to get around the lawsuit through Bankruptcy.
Filing for personal bankruptcy puts a hold on all debt collection. The legal term for this is ‘Automatic Stay’. The details of what an automatic stay entails are laid out in 11 U.S. Code §362 (https://www.law.cornell.edu/uscode/text/11/362). The most import notes to take from this section are that these actions are not allowed:
The commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.
This means that a debt collector cannot begin or continue a lawsuit against the debtor that involves trying to collect on a debt that was created before the bankruptcy was filed.
The enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
If someone in debt was sued and lost the lawsuit, they are provided some protection. This protection means that the consequences of their previously-lost lawsuit are put on hold, at least for some time.
Any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
This means that the person filing for bankruptcy cannot have their property or their estate messed with by debt collectors. Until the bankruptcy is over, their property is theirs, and it cannot be repossessed or threatened in a meaningful way.
Any act to create, perfect, or enforce any lien against property of the estate;
This means that if someone filing for bankruptcy has a lien on their home, that lien cannot be enforced. In addition, no new modifications can be made on the lien and new liens cannot be placed on property. A lien gives another entity partial ownership of a property until a debt is paid off. So if a debt collector places a lien on someone’s property, that debt collector now ‘owns’ part of that property.
Any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title;
This is essentially a combination of points 2 and 4. It means that whether the debt collector had a lien placed on a property themselves or had the courts place the lien using a lawsuit, the lien is still paused.
Any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
This means that the debt collector cannot try to collect from the person filing bankruptcy.
The setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor; and
This means that if, due to a court case, someone’s debts were partially reduced or discharged, the reduction is put on hold until the bankruptcy is finished.
The commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title.
This means that if someone is being sued by the United States Tax Court for owing taxes, the lawsuit is put on hold. This is very similar to point 1, but is specific to the US Tax Courts.
While 11 U.S. Code §362 contains numerous other provisions, it can be generally summarized as ‘If you file for bankruptcy, creditors have to stop any action they have taken against you until it resolves’. It is like a pause button on legal proceedings resulting from debt. And if bankruptcy is successfully filed, this pause button can turn into a stop button.
The Advantage of Personal Bankruptcy
This is an enormous advantage to filing for bankruptcy. If currently being sued by a creditor, the lawsuit is put on hold. Given that the purpose of bankruptcy is to remove one’s debts, this can mean that the debt would be wiped away by the time filing is over. In essence, you win the lawsuit simply because there is no debt anymore. The majority of debts that a person is sued for are included in those erased in Chapter 7 bankruptcy and Chapter 13 bankruptcy. In theory, every type of debt can be eliminated with these two filings, but some types, namely student debt, can be difficult to be removed. However, debts such as medical or credit cards are often removed using either chapter of bankruptcy.
Because of the courts reopening, if someone has overdue bills or their debt collectors are threatening to sue, now is the time to take action. While filing for bankruptcy does put an Automatic Stay on any debt collection attempts, it is best to never give them the opportunity to begin filing a lawsuit. It could make negotiations easier in the future and prevent anxiety related to lawsuits. If you or a loved one are in debt, and fear that a lawsuit is coming, take action now.
