If you receive a collection lawsuit, the company suing you may not be the creditor from which you incurred the debt. If this is the case, it is likely that a debt buyer is suing you. Fortunately, there are defenses to debt buyer collection lawsuits that may help you defend against the lawsuit.
What Is a Debt Buyer?
Debt buyers are companies that buy large numbers of debts from creditors for pennies on the dollar. The debt buyer purchases the debts cheaply, so it can make a profit even if it only collects a small amount on those debts. (Learn more about how debt buyers work.)
Once a debt buyer purchases your debt, the original creditor has no legal interest in the debt. Because the debt buyer now owns the debt, it has the right to sue you. Some debt buyers sue regularly, and some rarely or never sue consumers.
Defenses to Debt Buyer Collection Lawsuits
If a debt buyer sues you for collection of a debt, there are a number of defenses you may be able to use to challenge the debt buyer's right to collect on the debt. Here are some of the most common defenses to a debt buyer lawsuit.
In many states, a debt buyer must have paperwork demonstrating the agreement between you and the original creditor in order to sue you or to add interest or attorneys fees onto the balance. For credit card debts, this paperwork is often in the form of a cardmember agreement. Cardmember agreements have information about which state law applies to the case and how much the debt buyer can collect in interest and attorneys fees.
Often a debt buyer does not have this paperwork, and may never be able to get it from the original creditor. Many creditors do no cooperate when debt buyers ask for cardmember agreements, often because they have sold the debt "as is."
Some debt buyers will attach your regular billing statements to the lawsuit, and try to pass them off as the cardmember agreement. However, this is not a sufficient substitute for the actual agreement. (Learn more about using the debt buyer's lack of documentation as a defense to the lawsuit.)
No Standing to Sue
Standing means a person or business has a legal interest in a case. In collection suits, it means a debt buyer must prove that it legally owns your debt.
Because the debt buyer didn't enter into a contract with you, it can only meet the standing requirement by demonstrating that the original creditor sold or assigned the debt to it. Many courts require that the debt buyer produce documents showing its assignment or purchase of the debt.
Inaccurate or Incomplete Credit and Billing Histories
Because many debt buyers purchase debts “as is” from original creditors, they don't know if the original creditor properly credited your payments. They also may not have your billing statements or documents demonstrating when you incurred the debt.
The Statute of Limitations Has Run
The statute of limitations is the time period that a party has to bring a legal claim. After the time limit passes, the law bars the legal claim. The applicable time period to collect on a debt varies by state. (Learn more about the statute of limitations.)
Determining what the statute of limitation is in your case can be complex for several reasons.
- It can be tricky to figure out which state law governs. Generally, your credit or cardmember agreement will set forth the state law that applies to your contract. In many states, if there is no cardmember agreement, the statute of limitations in the state where the debt buyer files the lawsuit will apply.
- The limitation period can vary by the type of claim. Many states have different statutes of limitations for written contracts, promissory notes, and oral agreements. If the debt buyer has alleged multiple claims against you, each may have a different limitation period.
- You can revive the statute of limitations. You can restart the statute of limitation period by saying certain things or taking certain actions, which vary by state.
If it has been many years since your last payment, you may have a valid statute of limitations defense. Often a debt buyer won't know when you made your last payment or what statute of limitation period applies to your debt. If you can get your cardmember agreement and determine which state law applies, you have a good start on determining whether this is a valid defense in your case.
Because the debt buyer didn't make the contract with or extend credit to you, it often must rely on records or documents created by other parties, such as the original creditor, in order to prove its case. In many situations, the debt buyer will have trouble getting the court to accept those documents as evidence.
If you think you may have an evidentiary defense or objection, contact an attorney who understands the rules of evidence in your state.
If there is some other reason why you do not owe the debt, you should raise that defense in the collection lawsuit. Often, debt buyers sue for:
- debts that you discharged in bankruptcy
- credit card debts that a family member, and not you, incurred, or
- debts that are legally invalid for other reasons.
In the above instances, you would most likely have a defense to the collection lawsuit. (Learn about other defenses you may have in a collection lawsuit.)