TIPS ABOUT DEBTS & DEBT COLLECTORS

Virginia law, morality, and I all agree that people should pay their debts.

However, there is also a lot of abuse by debt collectors and companies in general. Virginia is a state that tries to be pro-busiesss for a prosperous economy. But sometimes they go too far and unfairly skew the system against the consumer. I have seen businesses take advantage of too many people in too many ways. Businesses ignore genuine disputes or errors in their billing and simply roll over people.

UNFAIR "DEFAULT JUDGMENTS"

The vast majority of debt-collection lawsuits are lost because no one shows up. If you sit in and watch court some day, you will watch dozens, maybe hundreds, of cases called and no one answers. The judge enters default judgment against the defendant, without any discussion.

Often people do not show up because they know they owe the money and have nothing to say.

But often people do not show up because they don't know about the lawsuit. The whole thing is happening and they know nothing about it.

For example, you open a credit card account or cell phone account 7 years ago. You give them your address back then 7 years ago. In that 7 years, you have moved three times. Seven years ago, you had a dispute and they tried to charge you wrongly for money you do not owe. So you refused to pay what you do not owe. And you have not heard from them in 3 years.

The creditor waits 3 years and then files a lawsuit. They use the address where you lived 7 years ago! The Sheriff "posts" a copy of the lawsuit on the door where you lived 7 years ago. (The Sheriff's deputy usually hangs a plastic bag on the doorknob.) The people who live there now simply throw it away. So when the court date comes around you know nothing about it! So you don't show up, because you can't.

For this reason, in Virginia, it is better if your creditors know your current address. People think that if they hide their creditors cannot reach them. That might work in other States. But in Virginia it actually hurts you if they cannot find you. You should make sure they have your current address so that you will know if there is any activity or court date.

What can you do if you have suffered a default judgment like this? Fortunately, Virginia law has a very fair and very powerful tool, but most people do not know about it. You can go into the court and file a "MOTION TO VACATE VOID JUDGMENT" under Va. Code 8.01-428 at any time. It does not matter when you do this. Even if you wait a long time, it still works.

To win this motion, you need to have proof that you did not live at the address that the creditor used in the lawsuit, and that they could have learned this with reasonable investigation. If your whereabouts were a total secret, that is not the creditor's fault. So you have to show that you did not live there and also that they could have learned that you did not live there if they looked hard enough. (Note: If you had a forwarding order with the U.S. Post Office, this is probably good enough. A creditor can demand an update from the U.S. Postal Service. So if they could have found out from the Post Office that you moved, this is probably enough (depending on the judge's views) to make it invalid for them to use an old address.)

However, if you "win" this motion, the judge will usually then set the case for trial. So you won't get off without paying. As soon as you show up in court, the judge will make you stay in court and schedule a trial, probably in a month or two. So you will have to answer the debt. But at least you will get a chance to show that you don't owe the money, or not all of it. If you have a dispute, you can at least get a chance to respond and fight it through. Note that if you simply don't know (honestly) how they came up with the total they are demanding from you, most judges will consider this a legitimate reason to have a trial so they can prove why you owe the total amount they are asking. However, getting a new trial is not worth doing this if you cannot defend against the debt in some way.

STATUTE OF LIMITATIONS

Virginia law allows creditors to TRY to collect debts that are expired under the statute of limitations. It is possible for a creditor to file a lawsuit even though the debt is expired and unenforceable. The idea is that some people may choose to pay anyway.

However, as soon a defendant objects in court and claims the statute of limitations, an old debt is instantly dead and the lawsuit must end right there.

Unfortunately, nobody tells you that the debt is expired. So if you happen to know, you pay nothing. If you don't know, you get stuck with the full bill. That doesn't seem fair. Those who are 'in the know' are treated totally differently from those who are not informed.

l    The statute of limitations in Virginia is 5 years for the breach of a WRITTEN contract. (The writing can be something very simple or minimal, like the form you sign at the doctor's office that includes a promise to pay or the application form for a credit card, even if it is a fold-over brochure with a small, cramped form in the brochure, if it includes a promise to pay.)

However, warning: The 5 years is not measured from when the contract is signed. This is 5 years from the date of "breach." That is, from the date when "something" (anything) that was promised in the written contract should have been done, but was not done, the statute of limitations starts running. It is possible that the contract was "breached" earlier than the date when payment was due by some other broken promise. However, it is also possible to sign a contract 15 years ago such as for a mortgage or a credit card, and breach the contract only 1 year ago. If you paid your credit card for 14 years, and then stopped 1 year ago, the statute of limitations has not yet run out.

Note: In contrast to a verbal contract, making payments does not restart the statute of limitations for a written contract.

l    The statute of limitations in Virginia is 3 years for the breach of a VERBAL contract including what is called an "open account" (or revolving account).

However, warning: There is a strange rule here. The 3 years is measured from either the date of the last payment that you made on the account or the date of the last services or products provided under the account.

So if you have a debt that is 10 years old and then you make a payment on the debt today, you are punished for this good act. The statute of limitations is restarted as of today, the date on which you made a payment.

Similarly, suppose you run a cafe and you order food and supplies from a wholesale distributor on "open account" over a period of 10 years. You make payments, order more food, make payments, order more food, etc. Then you stop paying. The 3 year statute of limitations will start running from the last time the wholesaler delivered food under the open account. (Also note: Often there can be a written contract as an "umbrella" contract for this relationship. Sometimes this requires investigation.)

Also note: Usually a credit card account was opened with a written contract, specifically the application form that the card holder signed. However, typically credit card companies cannot find the original signature. So a credit card might be treated as an "open account" or perhaps as a written contract, depending on how good their archives and record-keeping are.

l    Promises to pay: Beware: If you make any promise in writing to pay a debt, this will restart the statute of limitations "clock." This often comes up when you are trying to negotiate a payment plan over time. So if you write a letter saying "I promise I will pay $150 a month until it is paid off," you have lost the statute of limitations defense. The statute of limitations will restart the "clock" as of the date of that letter. Or if you write a letter saying "I am sorry, I will pay you when I can," you are punished for this by losing the statute of limitations defense. It is okay if you do not make it is a promise.

Instead you could say, for example, "Suppose I pay $150 a month, would you accept that?" That does not count as a promise; it is only a question. So that will not get you in trouble.

l    DECEPTION in dates: Sometimes debt collectors and/or creditors will either lie about the age of a debt or perhaps become confused. They will sometimes issue a new invoice, with a current date, re-stating the old account balance. This makes it look like the debt is much newer than is actually true. This practice of "refreshing the date" can be fraudulent or even illegal. Creditors cannot falsely claim that a debt is newer than it is.

ADDING RANDOM FEES

Many debt collectors (and some creditors acting alone) will add fees to your account for no apparent reason. Under Virginia law, if you lose in court, the court will enter a judgment for the original principal amount, plus court costs (the filing fee for the lawsuit plus costs of official "service" of the lawsuit), and interest at the "statutory" (default) interest rate of 6%.

The only way that a creditor can legally add additional fees is if you signed a contract in which you agreed to pay them. Sometimes the creditor cannot find the contract with your signature on it. If they cannot find the contract, then no such fees can be added.

However, if you signed an agreement in which you agreed to pay higher interest, attorneys fees, late fees, collection fees, etc., the court will follow the contract. I have seen interest rate as high as 29.99% ordered in court judgments. If you agreed in the contract, monthly late fees can be added.

Attorneys fees can be added. Usually, contracts refer to "reasonable attorneys' fees." Most Virginia courts consider 25% of the principal to be "reasonable." (Some courts use 20%.) Sometimes a contract does not use the word "reasonable" but agrees to payment of actual (total) attorneys fees, which could be much higher than 25%.

Very rarely, some contracts agree to payment of "costs of collection." This is the only time that a debt collector can add fees to the debt. Unless you agreed in the contract to pay collection costs, these fees cannot be added to your bill.

Unfortunately, sometimes these fees have already been added into the total before a final invoice is issued. If you push to find out how they calculated the total, you may discover this.

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