LEGAL COLLECTIONS Truths & myths about how collection lawsuits & bankruptcies really work in Kansas & Missouri A presentation for HFMA 1pm Thurs 1/28/16 Brio on the Plaza By: Scott Walterbach, Attorney at Law Bessine Walterbach, LLP www.bw-llp.com [email protected]
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LEGAL COLLECTIONS… · FDCPA - private or public ... Prior to the court date, many cases are paid or otherwise resolved ... Collection agencies know the legal collections industry.
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LEGAL COLLECTIONS Truths & myths about how collection lawsuits &
Lived in KC since 1987, 4th of 8 kids, now married
with 2 boys & living in the northland
Graduated from Indiana University School of
Law – Indianapolis in 2007
Practicing in creditors’ rights & collections since
February 2010
DISCLAIMER TIME: I’M “AN”
ATTORNEY, NOT “YOUR”
ATTORNEY [don’t change anything you do based on what you hear today; at
most, go back & speak to your attorney about whether you
might change what you’re doing with relation to any specific
matter.]
This presentation is intended to provide general information about the subject matter covered & is designed to help the audience stay current and maintain competence in their industry. I do not render any legal advice here. Though I am an attorney, for purposes of this presentation I’m not your attorney. Before taking any action in reliance on the information provided, especially a change in how you
operate or respond to a situation, you should speak with your attorney. Unless you conduct original research & work with an attorney to develop an opinion with regard to
a specific legal matter or set of facts, you bear the risk of negative consequences & results based on the action taken. This is not legal advice & you may not rely upon it.
If I do represent you on specific cases, I have/will render opinions to you on those cases. However I am not your attorney for all matters, just those matters you have sent to me. Your in-house counsel is your attorney for general matters. This is not legal advice, & is general information only & you may not rely on this as legal advice.
Please interrupt at any time with
questions.
Raise your hand or shout it out, you
won’t offend me.
Progression of a receivable to legal
In-house billing cycle proves unsuccessful
Hire a third-party collection agency to assist in contacting
the debtor(s)
Allow the debt to mature but without waiting too long
Review for potential suit Where are they?
Ability to pay (assets, bank, place of employment)
Does it make sense to spend money on the legal process?
Agency knows good attorneys to use & has negotiated high-
volume rates with that attorney or those attorneys
Agency knows what info the attorney needs to proceed
Collection attorneys are highly regulated
FDCPA - private or public (state A.G.) enforcement
CFPB / FTC - federal government enforcement of Dodd
Frank
& Consumer Financial Protection Act
FCRA - if you furnish data to the CRAs HIPAA - if you
collect on medical debt
UDAAP – usually based upon FDCPA
Rules of Ethics, Procedure, Evidence – specific to each state
Client audits
CLE requirements – specific to each state
Nuts & bolts of a basic collection case
Information is given to the attorney for review
We look at things like ability to pay, location information for
defendants, venue, amount of the debt, legal interest, proper
party names, statutes of limitation, evidence, & any known legal
issues
If everything is in order, petition is drafted naming creditor as
plaintiff & debtor(s) as defendant & most proceed through a
“summary” track
Missouri – associate court
Kansas – limited actions
Will be filed (usually electronically nowadays) along with
things like cover sheets, summons requests, filing fees,
service fees, etc.; whatever is necessary according to the
county in which we are filing
Once filed, clerk processes the information & produces a
summons for each defendant
Sheriff or a special process server undertakes service of the
papers, according to our request (& cost, efficiency, law,
etc.)
Nuts & bolts, continued
If server can’t locate them for service, case will eventually be
dismissed
Once served, there is a court date set (usually in the 15 – 45 days
after service)
Prior to the court date, many cases are paid or otherwise resolved
Many people represent themselves, but some hire attorneys
to help them
If it proceeds to court, defendants must admit or deny the
allegations in the petition
Sometimes they file a written answer, especially to preserve
Cases can be resolved by settlement agreement / dismissal,
by consent to judgment, by default judgment, or by trial
judgment
Parties appear at regular docket calls to inform the court of
the progress of the case & readiness for trial (every 30 – 60
days)
Cases proceed through discovery, usually with little court
intervention; rules of civil procedure apply
Eventually a trial date would be set, where Plaintiff
presents their evidence regarding the allegations in the
petition
We are trying to change one part of MO’s business records
hearsay exception to mirror the federal rule, as 48 other states
have
Can be appealed by the aggrieved party
Nuts & bolts, continued – Post Judgment
Must wait 14 days after judgment
Post-judgment motions can be filed
After that time, legal efforts can be taken to collect on the
judgment if voluntary payments are not arranged & made as
promised
Garnishment of wages (MO in process of changing much of their
garnishment laws, adding a “continuous” wage garnishment)
Garnishment of bank accounts
Attachment & sale of assets
Levy
Liens on real estate
Judgments are enforceable for a limited time
10 years in MO; 5 – 7 years in KS
TRUTH OR MYTH?
[legal collections]
A collection agency can help you use an
attorney wisely & cost-effectively.
Truth.
Collection agencies know the legal collections industry.
What is necessary to file
What is necessary to collect
What attorneys are effective in processing cases
A trusted collection agent or collection attorney can
handle your cases within certain parameters, with only
exceptional circumstances brought to your attention
A lawsuit costs money at the time it is
filed.
Truth.
Clerk will not accept & file your case until the filing fee is
paid.
Varies by county, but generally $30 - $100 in the KC region.
Creditor (plaintiff) pays the costs. However, prevailing
party is awarded costs, so the debtor becomes responsible
for costs if Plaintiff prevails.
Payments typically are applied to costs first, to reimburse.
Lawsuits are only cost-effective for
larger balances.
Myth (depending on your definition of “larger”).
We file cases on balances as low as $100.
There is no rule or law against it, but for most law firms the
economics don’t make sense. We have a unique system that
accommodates these claims.
Lower balances tend to have higher recovery rates; higher
balances tend to result in bankruptcy or take much longer
to collect.
To collect on a debt through the courts, you
must file the lawsuit where the debtor lives.
Myth.
Though this is often true & is the most typical place to file
a lawsuit, there are many exceptions.
The FDCPA, a federal law governing collection agencies &
collection attorneys, limits venue to (a) where the debtor
currently resides or (b) the county in which the debtor
signed a writing giving rise to the claim.
State law may be either more or less restrictive; one of the
things we do before filing is a full venue analysis.
A lawsuit takes a lot of time by a
supervisor or staff person working with
the attorney.
Myth.
While some lawsuits take a considerable effort, most
runof-the-mill collection lawsuits take little or no time
away from your daily work.
In rare cases, you may have to answer discovery &/or
appear for a trial, but a good attorney can minimize
disruption to your normal work flow.
In both MO & KS, you can dismiss a case once anytime prior
to trial, for any reason or no reason, as a matter of right.
Once an account is placed for legal, the
attorney takes over & resolves the debt
as necessary.
Myth.
The attorney is your representative in the legal process;
whether to resolve the claim, when & how is always up to you.
In fact, the file & everything in it is YOUR property, cover to cover, we
simply maintain it for you as your agent.
The attorney advises, client decides. If the attorney is
experienced & trusted, most clients defer to their expertise but
they don’t have to.
Attorney often is best situated to understand procedural status,
legal defenses, etc. & protect the client’s interests.
Before I talk to anyone about their debt,
I’m required to inform them I am a debt
collector.
Truth.
FDCPA requires certain disclosures, including attorneys.
You may have heard what we call the “mini-Miranda”: this
is an attempt to collect a debt and any information
obtained will be used for that purpose.
If the defendant doesn’t appear for their
court date or file an answer, a judgment
can be entered.
Truth.
This is called a default judgment, & is typically entered in
the amount(s) prayed for in the petition.
Other prerequisites sometimes must be met, such as
verification or testimony regarding the amount of
damages.
Missouri tends to have more stringent requirements than Kansas,
but it depends on the county.
If the parties do not resolve the case, it
would be presented to a jury to make a
decision.
Myth.
Unless a party makes a jury demand, the case would be
heard & decided by the assigned judge.
The overwhelming majority of cases are not tried & get
resolved. Those that are tried are typically tried to the
bench because the amount in controversy is not sufficient
to warrant the extra time & expense of empaneling a jury.
Once a judgment is entered, the debtor
must pay or make arrangements to pay
within a reasonable time.
Myth.
Many judgment debtors lack the means or willingness to pay the
debt, even after a judge legally determines it is owed.
You’ve probably heard of the term “judgment proof”; many
judgments never get paid & lapse
At all stages of litigation the attorney along with the client
should be weighing not only the likelihood of prevailing on the
merits, but the collectability of any judgment, especially in the
context of settlement negotiations.
The real expertise of a collection attorney is in collection of
judgments, not just obtaining the judgment. Some are paid
voluntarily (credit, moral obligation, desire to avoid further
legal action), some are paid involuntarily (liens, garnishments,
levies, foreclosures, etc.).
A real property lien is a way to collect
on a judgment immediately.
Myth. It is effective in some cases, but usually not right away.
We place a lien in county records by having the judgment
transcribed, & is effective against the property whether you know
what property the debtor(s) has/have an interest in or not.
A real property lien can be foreclosed. However, all senior
lienholders would get paid the proceeds of the sale first, every
penny, in order (mortgages are usually first lienholders).
In practice, what happens is that rather than foreclosing on the
lien, it remains attached to the property until it is either sold or
refinanced, at which time a title insurance company will insist
that it be paid by the homeowner, either up front or out of the
proceeds of the sale. We like those calls.
The best collectors & collection attorneys
are stubborn, rude & disconnected from
normal human emotions.
Myth! We are people, believe it or not.
I find most people want to pay their just debts, but there
are of course exceptions. Likewise I find, nearly without
exception, people want to be heard & treated with respect.
The best collectors & attorneys listen & have a capacity for
empathy. They are also knowledgeable about the process, savvy
& creative. There are many opportunities to work with people, if
you know what to look for.
We believe this is what our clients would want. We believe we
are an extension of our clients. How we treat every single person
is important every single day. How we do anything is how we do
everything.
A good recovery rate for legal
collections is about 80%.
Myth!
Our statistics tend to show that a good recovery rate is in
the 35 – 40% range, of total principal balance placed for
collection.
Why?
People move, residence & jobs, & they’re hard to track.
Some people are judgment proof (living on public assistance,
social security, disability, file bankruptcy, etc.)
Remember, legal collections is the place of last resort; we don’t
get the ones that pay easily, we have to work at it.
TRUTH OR MYTH?
[bankruptcy]
Bankruptcy is governed exclusively by
federal law.
Truth, mostly.
The Bankruptcy Code is a federal law, just like the tax code.
However, it does incorporate state-level debtor exemptions so
the state you live in & where you file might still matter.
Why federal? Important to have a more uniform approach
throughout the country.
If the defendant files bankruptcy,
there’s nothing you can do.
Myth, partially.
Bankruptcy estate established on date of filing, automatic stay
means all collection efforts must cease (generally).
You can’t do anything to prevent someone from filing, but you
can file a claim telling the bankruptcy trustee what you are
owed.
Bankruptcies filed by consumers are either Chapter 7
(liquidation) or Chapter 13 (reorganization). If you don’t file a
claim, you won’t get paid.
Personal bankruptcies are becoming
more common.
Myth.
The American Bankruptcy Institute reports year-over-year filings have
declined for 50 consecutive months. For example, January 2014 had 65,347;
January 2015 had 56,588, representing a 13% decline.
Why?
Perceived high cost to file (much more than it used to be)
Sustained low interest rates on debt (if rates go up, they expect more
filings)
Restructuring of bankruptcy laws under BAPCPA of 2005 (Bankruptcy Abuse Prevention & Consumer Protection Act) made filing more difficult, time-consuming, etc.
According to a recent study from the American Bankruptcy Institute, filings
declined 10% in 2015 (as compared to 2014), reaching their lowest levels
since 2006. Total commercial filings fell 14% for the same period.
According to American Bankruptcy Institute, total non-business bankruptcy
filings in 2014 were 875,648; in 2015 total was 789,222.
Most people file bankruptcy because
they have medical bills & no insurance.
Myth.
According to a recent Harvard study, 62% of personal
(nonbusiness) bankruptcy filers cite medical bills as their
primary reason for filing; however, 78% of those had health
insurance.
Other reasons for filing bankruptcy, in order, were:
Loss of a job
Unwise use of credit (usually credit cards)
Divorce
Bankruptcy cases last several weeks.
Myth.
According to a 2014 BAPCPA study, of all Chapter 7
(liquidation) cases closed in 2014, they last a median of 107
(Western) & 112 days (Eastern) in Missouri; median of 140
days in Kansas. That’s about 3 – 4 months.
According to the same study, of all Chapter 13
(reorganization) cases closed in 2014, they last a median of
1,435 (Western) & 1,172 (Eastern) days in Missouri; median
of 1,543 in Kansas. For comparison, 3 years = 1,095 days,
and 4 years = 1,460 days.
Chapter 13 bankruptcies are thought to proceed successfully to
discharge in about 1/3 of cases.
MO’s 7-13 split = 68/32; KS’s 7-13 split = 57/43
Bankruptcies are most common in the
most populous areas of the east coast.
Myth.
The American Bankruptcy Institute tracks
bankruptcy filing rates. In all the US, in
2014 it was about 2.93 per 1,000
citizens.
What states had the highest filing
rates in 2014?
1. Tennessee 6.10
2. Alabama 5.28
3. Georgia 5.24
4. Utah 4.85
5. Illinois 4.66
Missouri was #16, 3.42
Kansas was #29, 2.61
In 2015, national filing rate was
2.63 per 1,000 citizens.
What states had the highest
filing rates in 2015?
1. Tennessee 5.73
2. Alabama 5.36
3. Georgia 5.02
4. Illinois 4.34
5. Utah 4.28
Missouri was #15, 3.14
Kansas was #26, 2.38
TRUTH OR MYTH?
[worker’s compensation]
If the services rendered were related to a
worker’s compensation claim, there’s nothing
you can do.
Myth, partially.
There is a “stay” similar to bankruptcy in both MO & KS.
Health care providers can file claims letting the parties
(employer, insurer, patient) know what is owed.
In MO, 2 types:
Application for Additional Reimbursement of Medical
Fees
Dispute with insurer over amount of payment
Application for Direct Payment
“Lien” while parties dispute whether the incident giving
rise to treatment is a compensable work-related injury
TRUTH OR MYTH?
[probate]
If the debtor dies, there’s nothing you
can do.
Myth, partially.
Some people die without any property & no estate is opened.
In that case there is, practically speaking, nothing to be
done.
If the decedent has assets, an estate will be opened (or can
be forced open by a creditor) so the assets can be accounted
for & distributed according to law. Distribution will be
affected by (a) the will if there is one, or (b) intestacy laws.
You can file a claim in the decedent’s estate, which notifies
the administrator & court of what you claim is owed.
No cost to file claim
In MO, priority claim if services were provided for last illness.
THE END Legal Collections & Bankruptcies: Truths & Myths