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Tuesday, January 09, 2007


Everyone knows the old saying, nothing is certain but death and taxes. Well, even in the world of debt collection, taxes are a certainty. Unfortunately, taxes are a certainty that many consumers are told to expect and come as a nasty after the fact surprise. Millions of Americans are working with debt consolidation companies to have part of their credit card debt forgiven. It sounds almost too good to be true, the interest and late fees and other penalties and fees are magically wiped out and the debtor is allowed to repay the principal debt on a monthly basis without more interest accruing. Sometimes, if the debtor's situation is extremely dire or the debtor can offer a large lump sum payment, some of the actual principal debt may be wiped out. Compromises of large balances are almost the norm for second and third tier debt purchasers. In other words, if you default on your credit card balance, the credit card company may write off your debt as a bad debt and then sell your account to a debt buyer for pennies on the dollar. Your debt may even be sold multiple times, each time for less money. The company you end up paying may be more than happy to accept a deeply discounted payment as payment in full. But months later, you will receive a nasty surprise. You will receive a 1099 C which is the IRS form the creditor used to report the cancellation of part of your debt. You see when you don't have to repay a debt you have incurred, the IRS says that becomes income and as income, you owe them taxes on it. Under IRS rules and regulations, any debt forgiven which is more than $600.00 must be reported on a form 1099 C Cancellation of Debt and stated as income on your tax return. In other words, if you run up a credit card bill of $10,000 and the credit card company or whoever buys their bad debt accepts $5,000 as payment in full, you have received the benefit of $5,000 dollars you didn't have to repay. In the eyes of the IRS, it is the same as if you earned $5,000 at your job. If you fail to report it, you can be guilty of tax fraud. But don't worry, the IRS will already know about it because they will receive a copy of the 1099 C the creditor sends you and they will recalculate your return, assess taxes and penalties and interest against you. So when you are feeling great about getting your debts cut in half or even better, remember that Uncle Sam will come looking for his and usually with interest and penalties.

Wednesday, January 03, 2007


15 United States Code § 1692, et. seq. is the codification of the Federal Fair Debt Collection Practices Act. It is a law that was passed by Congress in response to the actions of a small minority of disreputable and unethical debt collectors. On its face, it purports to be a law designed to protect the individual consumer. However, as with all things which are birthed from Capital Hill, it is in fact the product of high powered lobbyists. Those lobbyists made sure that the FDCPA was stripped of any and all teeth and what was left is merely an illusion. Unfortunately, most consumers who get into debt trouble are falsely led to believe that the FDCPA is at best a sword to be used against their creditors, and at worst a shield to protect them from their creditors. It is neither; it is an urban legend, an internet myth, a tragic illusion that the FDCPA provides any real substantial protection to a consumer.

15 USC § 1692g(a) sets forth the "validation" requirements in collecting a debt. When any debt collector is attempting to collect a debt, whether a collection agency or an attorney such as myself, begins collection activity, we must validate the debt by providing the information set forth in 1692g(a). The information required by the law is (1) the amount of the debt; (2) the name of the creditor; (3) a statement that the debtor has 30 days to dispute the debt or it will be assumed valid. That is all of the information that is required by 1692g(a). No additional information is required by the law. If a debtor disputes the debt within the 30 day period, 15 USC § 1692g(b) provides for the debt to be verified. This simply means that the debt collector must send a written statement to the debtor with the name and address of the original creditor and the amount of the debt. This is all a verification is. The verification does not require the collector to produce original documents evidencing the debt. In fact, the debt can be verified by a simple sworn affidavit.

The one tiny bit of protection provided by the Act is that once the debtor disputes the debt, the debt collector must cease collection activities until he puts the verification in the mail to the debtor. Again, though, the verification required is extremely simple and extremely easy to prepare or obtain. Therefore, this supposed protection turns out to be an extremely brief pause in the debt collection process.

Unfortunately, just as there are unscrupulous and unethical debt collectors, there are unscrupulous and unethical debt advisers. You can find them at any number of over a thousand websites on the internet. Some of these self-proclaimed gurus will for a small fee teach you how to fend off debt collectors using the FDCPA. There are in fact others who will provide this information for free if you are more diligent in your Google searching. They will provide you with form letters guaranteed (they don't ever tell you what you will get if their guaranteed product does not work like they say it does) to stop debt collectors dead in their tracks. Unfortunately, I have begun to receive evermore of these forms letters obtained off the internet. In my mind, this is an absolutely tragedy because these are desperate people who are being given false hope and who are being led down a path which ends in a worse situation and a larger debt. These form letters tell the debt collector that he must furnish information which is not required by the FDCPA and make hollow and even ludicrous threats, such as reporting to the Federal Trade Commission. Rather than strike fear in the heart of the collector, when I receive one of these form letters hot off the internet, I mark the file for what I call internet attention. This simply means that I know I am dealing with a debtor who has no clue what they are doing or what the law actually is and that this will be an easy debt to collect once I locate assets. Because this person has been given false hope by an internet scam artist, I know I will be wasting my time in attempting to reach a reasonable and amicable solution or settlement of the debt and proceed straight to the quickest possible judgment and collection activity.

What the internet scam artists do not tell consumers is that the FDCPA contains a virtual "get out of jail free" card. 15 USC § 1692(k)(c) provides that in order to punish a debt collector for violation to the FDCPA, you must prove that the violations were intentional and that there will be no punishment whatsoever if the debt collector can show that the violation was unintentional and that the debt collector has in place policies and procedures to provide with compliance with the FDCPA. Therefore, I and the collection agencies I represent maintain meticulously policy and procedural manuals regarding what is and what is not a violation of the FDCPA and I require all of my employees to review and sign off on that manual on a regular basis. I am not saying that my office is perfect and that we do not or have not on occasion unintentionally and purely by mistake violated the FDCPA. I am saying that my staff is well educated on the FDCPA and that we do not engage in an intentional pattern and practice of violation and therefore, no court is going to award a debtor damages for a mistaken violation. Now I know you are saying, "Wait a minute, I have seen recent headlines where debt collection agencies have been slammed by the Federal Government for violations of the FDCPA." You are absolutely correct. Those were cases of completely unscrupulous and unethical agencies which deliberately and intentionally and over a long period of time engaged in actions which are directly prohibited by the Act. What the consumer is not told is that those agencies or collectors are punished by the Federal Government by the imposition of large fines or the revocation or collection licenses and that has absolutely no effect on the validity of the consumer's debt. That debt remains outstanding and will simply be sent to another collection agency for collection.

So, if you are a debtor how should you use the Federal Fair Debt Collection Practices Act? You can take advantage of the anti-harassment provisions and protection provided by the Act. You can tell the collector not to contact you at work if you so desire. You can tell the collector not to contact you at all if you so desire. However, if you refuse all contact with the collector, you should assume that the debt will be forwarded to a collection attorney for suit. You can request a verification which will delay collection of the debt. You can use that time to raise funds to pay off the debt or to contact the collector and attempt to make some arrangement for satisfaction of the debt. If you are being harassed by a collector, repeated phone calls, threats of criminal prosecution, threats of providing information about your debt to your employer or friends or family, etc., you can and should report those violations to your state licensing commission and you can file a lawsuit. However, as with all lawsuits, you will be at a distinct disadvantage since the collection agency will be represented by an attorney. However, if you are not being harassed or if the collector has not intentionally violated the FDCPA, do not threaten to sue them. You will only draw attention to yourself and to your ignorance of the law. The bottom line is that the FDCPA is more myth, than sword or shield.

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Tuesday, January 02, 2007


A large portion of my debt collection practice is made up of the collection of past due medical bills. Unfortunately, the vast majority of the people I end up suing for past due medical bills are not the large numbers of uninsured about which congress is constantly concerned. They are people who actually have health care insurance, but their insurance has denied the claim or failed to pay. Despite any number of modern myths, this is the bottom line everywhere in the United States when you go to the doctor's office, you will be asked to sign a Patient Financial Responsibility document, which in layman's terms says you are responsible for your own bill whether you have insurance or not.

When you go to the doctor, the doctor provides you services and you are responsible for paying for those services. You may have a contract of insurance, but that is a contract between you, as the insured, and the insurance company. It is not a contractual relationship between the doctor and the insurance company. The doctor's office files your insurance claim as a courtesy to you. Even your policy of medical insurance will state that you, and not your doctor's office, are responsible for filing the claim. So the first great truth that every patient must understand in today's modern world is that they are first and foremost responsible for payment of the doctor and hospital bills, even if they have insurance.

The second myth widely held by the public today is that unless you receive a bill from a doctor's office, you don't owe them anything. I cannot tell you the number of times I hear during the day "well, they never sent me a bill." A bill or a dunning letter is not a pre-requisite to establishing or enforcing a contractual debt. The instant the service is performed, the debt is incurred and is owed. The mere fact that you don't have to pay the full bill when you leave the doctor's office or are discharged from hospital is a courtesy to you. That is not a courtesy that you can take advantage of by not paying. This leads me to the second great truth of the modern world of medical bills and insurance. It is entirely the patient's responsibility to keep track of whether or not their insurance company has paid a claim or not. This is a difficult truth for many busy self-absorbed, distracted Americans to take to heart. What it essentially boils down to is that if you go to the doctor and you do not receive an EOB (Explanation of Benefits) from your insurance company showing where they have paid that doctor, you need to pick up the telephone and call your insurance company and find out why they have not. Likewise, if you receive an EOB showing that your insurance company has denied a claim, you need to file a dispute in writing with your insurance company and do everything necessary to appeal that decision and have the claim paid. If you do not, more than likely, you will not receive a bill from the physician's office, but rather you will receive a collection letter from a collection agency stating that your bad debt has been turned over for collection. The doctor's office will not fight with your insurance company to make them pay your bill for you.

The third hard truth of the modern world of medical billing and medical insurance is that if you drop the ball, you have to pay. The reason for this is what is known in legal and insurance circles as "timely filing." All insurance companies have in their policies a requirement that a claim be timely filed, and that phrase is defined in each individual policy as a specific period of time. The standard is ninety (90) days; however, there may be variations. What this means is that if you have services at a physician's office or hospital, and no claim is filed within that 90 days, the insurance company is relieved of their contractual obligation to pay your medical bill. This is a horrible trap for the unaware consumer. If you go to the doctor and the doctor's office fails to file your insurance claim through their own negligence or oversight and 90 days passes, and you receive a letter from a collection agency saying you owe a doctor's bill, then you owe a doctor's bill. I reference you to cold hard truth number 2; it is your responsibility to make sure your insurance company pays your medical bills. If you go to the doctor and you don't receive an EOB within 90 days, you must contact the doctor's office and find out if they have filed the claim and your insurance company and find out why they have not processed the claim. If you fail to do so, then you will be contractually responsible for full payment of that bill, even if you had valid insurance at the time of the treatment.

Now, I know as you read this you are saying to yourself, "that's not fair." Well, I hope by now you have learned as an adult that life simply is not fair and if you intend to stand before a judge in opposition to a suit I filed and plead the "it ain't fair" defense, then be prepared for the Judge to agree with you and summarily rule against you.

The fourth truth of the modern world of medical insurance and medical bills is that your wife's bills are your bills; your children's bills are your bills, regardless of whether you knew about them or authorized them. In most states, a spouse in a marriage is responsible for his or her spouse's medical bills. This normally comes up where the service or treatment was provided before a divorce and the now ex-spouse is being sued for his hated former companion's medical bills. Regardless of divorce, in most states, a mother or father is responsible for the medical bills and debts of their minor children, regardless of the circumstances. This most frequently arises where the ex-wife takes the child to the doctor without telling her ex-husband and runs up a large medical bill and does not pay. Then the ex-husband, who never knew anything about the bill, that has the better job, is sued. I realize this once again falls under the heading of life is not fair. However, it is perfectly legal and if you have a good divorce lawyer when you are divorced, your Marital Dissolution Agreement should allow you to recover those funds or at least one half of those funds from your ex-spouse. Your Marital Dissolution Agreement should also have a provision that requires both parties to notify the other party of any medical treatment and to provide medical bills and records within a certain period of time. Failure to do so may get a former spouse cited for contempt in Divorce Court. All of that, though, has no effect on the collection of the medical bill.

Now having painted a very dismal picture for the common patient, I will provide the one sword the patient can pick up and fight with. In today's modern medical insurance world, the vast majority of insurance policies are in fact not insurance policies, but Preferred Providers Organizations or Health Maintenance Organizations or some other alphabetic variation of a PPO or HMO. In order to be a member of the "network," the healthcare provider (i.e., your doctor) must sign a contract with the insurance company agreeing to provide his or her services at a certain rate for network members. This usually represents a discount from what the man on the street would receive. More importantly, these agreements often contain contractual requirements that the medical services provider submit the claim to the PPO and not take action against the member (i.e. you). If a doctor's office drops the ball and does not file a claim and then files suit against you, that PPO or HMO agreement may be used in your defense.

In conclusion, when and if a medical debt collection attorney sues you, do not expect to pick up the telephone and call his office and tell him "but I had insurance" and have everything be made alright.