What can you do when you face debts and debt collectors? Debt settlements and bankruptcy are hard to deal with on your own. However, with the guidance of a legal expert, you have all chances to become debt-free and take control of your finances.
PissedConsumer.com invited a Consumer Protection Attorney and a certified Ramsey Solutions Master Financial Coach, John Skiba. John is also well-known as a Consumer Warrior across social media channels. As an expert, he provides professional legal advice and helps people with serious financial problems to find a way out.
If you're going to deal with your debt problem effectively, you need to take action.
In this video with Pissed Consumer, John Skiba answers top consumer questions about debts, debt collectors, bankruptcy, and lawsuits. Watch legal expert insights:
Top questions covered in this expert video interview:
- Introduction to debt problems by John Skiba
- Difference between Chapter 7 and Chapter 13 bankruptcy
- Bankruptcy law across the states
- Bankruptcy cases during coronavirus
- How to pay a debt attorney?
- How do debt collectors work?
- How to handle debt fraud?
- About Consumer Warrior
Introduction to Debt Problems
John Skiba: What I find as consumers, when they're dealing with serious debt problems, they don't know what to do. They're losing sleep at night. I often get emails to my law practice in the middle of the night, and I know that's because the consumers are up, they're stressed, they don't know what to do and so they get panicked into doing nothing. That's the exact opposite thing of what needs to happen.
If you're going to deal with your debt problem effectively, you need to take action.
That action may look like debt settlement, it may look like bankruptcy, it may look like dealing with the consumer lawsuit, but taking those initial steps, having that plan in place… I can tell you the number one thing that I see that helps consumers who are dealing with big debt problems is if they have a plan.
That alleviates so much of the stress. Even if we're not sure how it's going to end up, having that plan in place could alleviate so much stress, allow you to sleep at night and know that you're going to be able to deal with this and eventually resolve your debt problem.
John Skiba Experience
John: Well, I'm a consumer protection attorney in the state of Arizona. I've been practicing law for about 17 years, and I help people mostly that are dealing with pretty, what I always say are serious debt problems. They're being sued by credit cards, medical bills. I defend a lot of those suits. The consumers are dealing with those.
As well as we do a lot of Chapter 7 and Chapter 13 bankruptcy for people that are dealing with things that we just can't deal with outside of it. I do a fair amount of debt settlement as well for people who have been sued by creditors, have a judgment against them, and even sometimes before that we'll get involved to help settle those debts out.
Chapter 7 VS. Chapter 13 Bankruptcy: What’s the Difference?
Mike: Please educate our consumers a little bit about Chapter 7 and Chapter 13. What are the differences?
John: I always say bankruptcy, it's never something that somebody wants to file, but it's one of those things that you're glad is there when you need it. I've said the really scary thing would be to consider a world with no bankruptcy or that wasn't an option, because in some countries it's not available.
If you think that the risks that we take when we open up businesses, or if we run into a big medical issue, if we could never deal with that debt effectively, that would be pretty tough. So there are different chapters.
What is Chapter 7 Bankruptcy?
John: There's Chapter 7, there's Chapter 13. Those were the two chapters most consumers deal with. Overwhelmingly, it's Chapter 7. Chapter 7 is designed to eliminate credit card debts, medical bills, personal loans, really any unsecured debt where there's no collateral attached to it.
It will eliminate those debts pretty much completely. Secured debts like home loans and car loans are generally treated differently. Basically, if you want to keep your house, or if you want to keep your car, you've got to continue to make payments on it. So it's a really powerful debt elimination tool. Not only that…
...what's great about bankruptcy, in general, is that it has the ability to stop collectors.
As soon as those cases get filed with the court, it stops any collections. There are no phone calls, there are no snotty letters, there's no repossessions, foreclosures. So a lot of times consumers that are ... They're in a situation where they're going to lose something, where the car is going to be repossessed, or they're going to lose their home, bankruptcy is a way for them to stop that and really give them some breathing room to really make a good decision.
...often that the pressures and the stress that collectors put on consumers lead to bad decisions.
And so what this does is it gives you a little bit of breathing room, puts those creditors at bay, and allows you to work through that. So, I mean, there are obviously downsides to it. It stays on your credit for 10 years. Most people recover much sooner than that. I generally see about two to three years, they'll recover credit score-wise.
So I don't ever sugarcoat it. There's definitely consequences to it, but it's a powerful tool and it generally shouldn't be your first option when trying to deal with debt, but I always say it's there in your back pocket…
...if things get really bad or really tough, you can eliminate debt pretty effectively through Chapter 7 bankruptcy.
What is Chapter 13 Bankruptcy?
John: Chapter 13 is a whole other animal. I mean, it's something where it's a ... Chapter 7 takes about four to five months to process, which in the federal court world is just smoking fast to get through anything.
Chapter 13 is anywhere from three to five years. Essentially, what it is, it's a forced payment plan of sorts where there's this formula where the court looks at what you can actually afford to pay your creditors, along with a couple of other factors and you pay a monthly payment to a bankruptcy trustee who then distributes that money to your creditors over a three to five-year period.
Then at the end of that five years, if there's any money still owed, say on the credit cards or medical bills, it's wiped out then. So essentially, the idea behind it is you're going to give it your best chance to pay what you can actually afford.
In the meantime, they're going to keep the creditors at bay from collections, and then at the end of that, any balances owed on unsecured debts typically go away. The only little asterisk to that is most student loans don't go away and often taxes don't go away, but most other unsecured debts go away.
So it's a tool there if people need it. There's definitely some other options I think are worth looking at, but it could be really helpful for a lot of people who are in really tough situations.
Does Bankruptcy Law Work Equally in the States?
Mike: You are an attorney in Arizona, but does it work equally in other states?
John: Yeah. I mean, the bankruptcy code is actually a federal statute. I mean, it's the same law that's applied in all 50 states. There are little differences in each state though, as far as for some procedures and in particular things that are called exemption laws. Like I said…
...the powerful thing with Chapter 7 is it gets rid of that debt. The downside to it, besides the credit hit, is that you can actually lose stuff.
The courts can have you disclose all of your assets, and if there are any what we call non-exempt assets, the court can take the asset, they sell it, and give the money to your creditors.
Each state has its own exemption laws. So a lot of people have heard of the homestead exemption that could protect your home. There's exemption laws usually for vehicles and household goods, retirement accounts and that protects those belongings as you go through Chapter 7. So that part of it is different from state to state.
So I know in Arizona where I live right now, the exemption on the homestead is $150,000 of equity is protected, even if you're in bankruptcy. There's other states where it's much lower. I've seen some states on the East Coast that are ... It's literally $5,000, and then there's other states like Florida where there's no limit.
There's always a joke, that's why OJ Simpson lived in Florida for so long because there was no limit to the homestead exemption. So you could have a home worth a million dollars and if it's paid for, I mean, you could keep it.
So, that's where the state to state thing turns. If people are looking at bankruptcy, that's why it's important for them to find an attorney that works in that state because those exemptions, knowing what they are and how they interplay with the federal bankruptcy code are pretty important to make sure your bankruptcy case is successful.
Mike: The court system has been flooded with cases even before corona started. Now, courts operate at 20% capacity in Florida. As far as I understand, you can't get judges in the room, you cannot get the jury into the room. How does it affect your line of business? What's happening in Arizona?
John: Yeah. The courts in Arizona are, I mean, they're open, but everything is almost done over the phone or some judges will do like the video conferencing kind of thing. So in some ways, it's a little bit more cumbersome. Frankly, in some ways, it's a little bit easier. I mean, like they're allowing us to file a lot of our documents via email, something that some of the courts didn't allow us to do before.
So in some ways, it's made it a little easier to deal with these cases. The hard part is like trials. It's always very difficult if you're trying to ... And I see this with consumers, I see on my YouTube channel, they're responding, "Hey, I'm trying to go to trial and review their documents," but we're doing it over the phone and it makes it very difficult.
So with that aspect, it makes it a little tougher. One thing I thought is everybody anticipated, particularly when everything's shut down in March and April, that the bankruptcy filings would totally spike. I haven't seen that. And that's pretty across the country we haven't seen that. And if anything, I think bankruptcy filings may be down a little bit.
And I've talked to other bankruptcy attorneys about that as far as why that is, and I think that there have been enough of this kind of stop-gap measures that were put in place, the grants that came out and stimulus payments, I think that helped people.
I think probably the bigger thing has been a lot of lenders, car lenders, student loan lenders, they gave a forbearance period and some of them are still allowing that, where there haven't been payments made for an extended period of time.
I know in Arizona, the governor put a moratorium on evictions. It actually expires on October 31st. Most federally backed loans cannot be foreclosed on, mortgage loans until the end of the year. So there's things in place that I think have helped people to avoid having to access the court system, particularly the federal courts here in Arizona for bankruptcy protection.
Our concern is we're kind of just kicking the can down the road a bit. It's not solving the problem. It's just eventually, on October 31st in Arizona you can't be evicted, but on November 1st you can, and then all of that rent will become due.
I anticipate the bankruptcy filings for 2021 will be up significantly.
We are still seeing people too that job loss, medical issues, people having to stay home with their kids because the schools aren't open, all of that have been creating kind of this storm that I think has been held up for the most part because of some of these regulations and things that the government has done to help, but we're concerned about it going forward, what that's going to mean for people once those are removed.
Can I Pay For an Attorney If I Have Debts?
Mike: If a consumer needs to talk to an attorney, what does a typical relationship with an attorney would look like?
John: Yeah, no, it's a good question, particularly for bankruptcy. I get that question all the time. People say, "How do you get paid if someone's really struggling financially?"
The different areas of consumer law are a little bit different, but maybe let's talk about bankruptcy first. Bankruptcy is interesting because typically the fees are somewhat regulated by the bankruptcy court. And so what you see is…
...most attorneys work on flat fees, they don't charge hourly like most attorneys and usually, there's, they call them no-look fees.
Essentially, they're fees that the courts have said look, as long as the attorneys charged within a certain range, we don't care. If it goes really high above that, then we're going to kind of see what's going on and they may have to justify the fee.
So traditionally, Chapter 7 bankruptcies had to be paid in full before the case was actually filed. And that was always a big hurdle. I mean, it could be expensive. The federal filing fees right now for a Chapter 7 bankruptcy in Arizona, they're $335. And then you'll see bankruptcy fees anywhere from $1,500 up to $3,000.
And so it always puts consumers in a tough spot because they had to come up with a pretty big chunk of cash to be able to get that done. Traditionally, what I saw with people, a lot of people would borrow from family or have money gifted to them to cover the court costs and the legal fees.
Also, it's interesting, if you look at the statistics, you'll always see a spike in bankruptcy findings around March or around April or May. And that's because people are getting their tax refunds, so a lot of people will use those funds for that.
How to Pay a Debt Attorney?
John: We're starting to see a trend throughout the country where the bankruptcy courts are allowing consumers to make payments to their attorneys. Now, the reason why the fees typically had to be paid upfront is because it's one of these things where any debts that you have incurred prior to the filing of a Chapter 7 bankruptcy are eliminated. And so if your bankruptcy attorney said, yeah, you can just make payments to me over the next year or whatever, technically, that debt goes away.
...the bankruptcy attorney is in this position where they want to get paid for the work that they're doing, but their clients don't have to pay them because the debt was discharged.
And in fact, the lawyer could actually be in violation of what's called the discharge order at the very end of the case, because they're trying to collect on a debt that the person agreed to pay prior to filing.
There are some ways that the courts are allowing attorneys to work around that a bit where you're seeing where they'll allow them to make payments afterward. I won't go into all the details of it, but there are ways it can be done correctly and we're starting to see that more and more.
I think that's a huge breakthrough for consumers. Because like I said, there was always this catch 22 of, hey, I'm broke. I'm probably in my worst financial position that I've ever been in and now you're wanting me to come up with 2,500 bucks to file for bankruptcy. And so I'm glad to see that it's moving in that direction. I think that'll help consumers considerably.
Chapter 13 bankruptcy fees are generally a portion of them are paid upfront and the rest are paid out through the payment plans that I mentioned, the last three to five years. So that's how bankruptcy works.
What is the Fair Debt Collection Practices Act?
John: In other areas of consumer law, there are a number of attorneys that will actually file lawsuits on behalf of consumers against debt collectors who are violating some of the federal collection laws. The main law is the Fair Debt Collection Practices Act. We call it the FDCPA.
Most attorneys take those cases on a contingency, meaning that they will file the lawsuit for no money upfront and then they take a percentage of any monies they collect from the debt collector. And the FDCPA actually has as part of the statute that if you sue a debt collector and win, the attorney can recover their legal fees from the debt collector.
So that one's a little bit different, usually, consumers aren't paying anything upfront to be able to collect those. But when it comes to some litigation, it varies a little bit. I know I work on flat fees. If someone comes to me with a debt buyer lawsuit, we generally will work on a flat fee that's paid either upfront or over a few payments to represent them throughout that litigation.
I went to a conference once, I remember there were some attorneys in Texas, I know they did it. Their fee was based on the percentage of the amount that the consumer is being sued for. So, if you were being sued for a thousand dollars, maybe their fee would be 25% of that or 30% of that and that would be your fee.
Really, the only area where it gets, there's a lot of similarities is in bankruptcy just because the court plays a role in that. But other than that, it's usually, I see a lot of flat fees. I rarely see hourly billing in consumer cases because it just gets out of control.
I mean, I always say the last thing I want to do is make somebody's life worse. If they're dealing with something that's stressing them out, I don't want to throw a bunch of attorney's fees at them that's going to make their life worse. So that's generally though what you're seeing in the consumer field is flat fees or contingency type stuff.
What Is a Flat Fee for Chapter 7?
Mike: What is a typical flat fee for a typical Chapter 7, or each case is different?
John: Well, each state is different and each attorney's a little bit different. I mean, I put my fees on my website. I'm fine with what I tell people I charge. So, a Chapter 7 or in my office, you're going to pay about $2,000 for the legal fee, plus you're going to pay $335 for the filing fee, so you're looking at about 2,300-2,400 bucks. It can change.
Sometimes someone will come in with a really complex situation where they have a business involved and I know that there's going to be a lot more moving parts to that, a lot more work, so it could go up. Sometimes you'll see super low bankrupt Chapter 7 fees of three or $400, $500. I'm always a little bit skeptical of that just because I don't know how a lawyer can literally do all the work that's involved. It's a four to five-month process and there's a lot of work involved. But you will see that. Chapter 13s does vary from state to state.
How Do Debt Collectors Work?
Mike: Sometimes, I hear funny stories about what debt collectors go to in order to collect debt from consumers.
John: The big ones we see is they threaten jail. I hear that all the time, where people, they call them up. I've literally had a client once who the collector would call and they said, "Hey, I'm sitting outside your house."
Stuff that was just so far out of bounds. I mean, they weren't, but they would do stuff just to scare people. "Hey, I'm sitting across the street in a car. The sheriff's deputies are on their way to haul you in."
...something I am always surprised, I always tell clients upfront, you're not going to jail.
Debtor's prisons were abolished in the 1800s. But a lot of us feel bad because I think that people want to be able to pay, they just usually are in a position where they can't. They've had a job loss or a medical issue pop up and they just can't do it and so they're scared.
They feel like, oh, I've done something really wrong. I am going to go to jail. Nobody's going to jail. We always start with that baseline. But I see collectors do that a lot. They often will call family and friends. When you fill out a loan application, they often ask for referrals or references.
Really, what they're doing is they're collecting information to go after you, to try to do some kind of debt collection if the loan goes south.
It's totally against the Fair Debt Collection Practices Act for them to call family members and discuss your financial situation.
But we see them do it all the time. They call employers. I had a client once where the collector called nonstop. I mean, they were just calling their work all day long almost to the point where she got fired. She didn't, gratefully. She came in and we were able to get it to stop and that debt collector ended up writing a check to my client. But you see that fairly routine.
Something that I have noticed in my career, the more egregious the behavior of the collector, often the more difficult it is to sue them and get them to stop. That's the frustrating thing. Most legitimate debt collectors who are licensed, you're not going to see that kind of stuff.
They may be annoying and they may be persistent, but you're not going to see the threatening to go to jail or calling up your mom and asking, hey, why is so-and-so not paying their bills, that kind of thing.
I had a case once where we had a collector doing some really crazy stuff and the collector was in the state of New York. And we actually filed a suit because I felt like I did my due diligence. I Google mapped and I found the company. They were there.
And so I remember we filed the suit and I called the attorney up there and the attorney said, "Hey, you don't know how this works. If you sue us, we just close up and open up somewhere else." And I was surprised that another lawyer would really say that out loud to me. But I was shocked because a month later when we tried to serve some additional documents there, the business was gone.
They had closed the doors and there was a for lease sign at the thing and they just moved somewhere else. So you see a lot of egregious behavior out there.
A lot of people, a lot of consumers accept it because they're unaware of really what their rights are.
And so I think that's, again, part of why I do what I do on YouTube because I think people if they know what it is that they can do to avoid this harassment or deal with a lawsuit or deal with the debt altogether so you're not dealing with it, the better off they'll be.
Can I Sue Debt Collectors?
Mike: So you're saying if a debt collector behaves not by the book, not by the rules, the consumer actually has the right and power, and you will assist them in going after the debt collector? And you actually mentioned that you would be able to collect money from those debt collectors that misbehaved in the process?
John: Oh, yeah. And it all falls under this Fair Debt Collection Practices Act, that FDCPA. The FDCPA is essentially the federal regulation on collectors, saying that, hey, that they've got a job to do, they're trying to collect on the debt, but they've got to do it in a way that is not oppressive.
I mean, they can't threaten things that aren't legitimate, like you can't threaten jail. They can't swear at you. There are even timeframes, they can't call before eight o'clock in the morning or after nine o'clock at night. There are all these statutes.
I mean, it's lengthy as far as what they can and can't do. They have to put a certain language on letters that they send out. If the debt is outside of the statute of limitations, they have to put that on the letters that they send you so that you're aware of that. So there are all these things that they have to do.
And if they violate it, it's what we call a strict liability law. If they do it, if they send a letter without the required language on it, they're in violation and you can go after them for damages, and there are statutory damages, attorney's fees.
I mean, some of these cases are just, they're relatively small, but some of them are really big. There are attorneys out there, I don't do a lot of FDCPA work, but I mean, there are attorneys out there that get several tens of thousands of dollars for extreme violations of the FDCPA.
So those, typically, are the cases that attorneys take on a contingency too, so meaning that the consumer doesn't have to pay anything upfront, the attorney will collect their money on the back end out of the money that they get on your behalf.
So, that's definitely something if consumers are feeling like, hey, they're saying some stuff to me that isn't accurate, or they're calling my brother and telling them all my personal business, those are the kinds of situations you need to go get an FDCPA lawyer, that pursue them. Because you'll get them to stop and they're going to end up writing you a check over that.
Can an Attorney Resolve Issue Out of the Court?
Mike: So, when the debt collector is after a consumer, let's say it's Midland that purchased someone's loans, and that Midland is threatening to file a lawsuit. Is this a good time to come to you and have a conversation about negotiating that debt and perhaps resolving this out of the court? Would you say you have a higher chance of resolving it before the court starts or wait until the Midland files?
John: I think that anytime that before the lawsuit is filed, we do have, I mean, that's some leverage that we have because we can say, "Look, don't waste money filing this with the court. Let's just try to resolve it now, put some kind of a settlement or payment plan in place."
The problem that consumers have with most debt buyers, debt buyers are not like your traditional collection agency. They typically aren't the ones calling you all day long. The debt buyers will usually send out one letter as soon as they receive the account, and it'll tell you you have 30 days to request any information on it, and then they usually just file a lawsuit.
Their business model is file suit, get a default judgment, and garnish your wages. That's how they make money. And so I have found though, I mean, if you get that initial letter, it's good to reach out to an attorney and say, "Hey, let's see if we can put something together so that the lawsuit doesn't get filed altogether."
For sure if you get served with a lawsuit, a big part of what I preach on my soapbox on my YouTube channel…
...if you get sued, if a process server comes by and knocks on the door and hands you a lawsuit, you need to do something.
95% of the people don't do anything and it just gets worse from there because once a judgment is entered, it's super hard to unwind that. And so if you get that initial letter, that's when you should either the consumer should be reaching out. I always say, there's no harm in trying to reach out and resolve something.
Settlement discussions, they're not admissible in court. There's a rule of evidence that says, look, they want the parties to engage and try to avoid litigation. So it's not something where if you reach out to them and say, "Hey, I'll pay you $500 to get this to go away," they can't then run to the judge and say, "Well, they already offered to pay me 500 bucks, clearly, they own the whole thing." So you can try to resolve it or hire an attorney at that stage. You may have a little bit more leverage.
But even after the lawsuit is filed, you could file an answer, you can try and get a settlement. Even after you file an answer, you can try to settle it. And often we do with those cases. So, yeah, I mean the main thing is to take action. You're going to put yourself in a much better situation.
Often, I'll get people who call me and there's a wage garnishment in place and they want me to try to settle it, super hard at that stage because the debt buyer will just tell us to pound sand because they can do nothing. And they're going to get ... In Arizona, they can garnish up to 25% of every paycheck and so that money just starts coming in, and then it makes it tough. So the whole key is there to take action whether it's at that first letter or the lawsuit.
How to Handle Debt Fraud?
Mike: I've heard of cases, and I was part of it once, where the company was coming after me saying that I owed the money when I've never received any services from them. Right. There was no contract, but the company for some reason has my name, my address, and they're coming to me for the debt that never existed. What can be done in this case?
John: I'm experiencing one right now in my own house. My wife showed me, just two days ago, we got a bill in the mail and it was a medical bill. And medical bills are the worst at this. Where I got a medical bill saying that they did an x-ray or something, and my wife and I said, "That's weird, nobody in the family has had an x-ray anytime in the last year."
And all of a sudden somebody wants $226 from me for some diagnostic fee. What you can do there, I mean, particularly if it's a debt collector that's reaching out, part of, we talked about the FDCPA a little bit, one of the things …
The FDCPA only applies to debt collectors. It does not apply to original creditors. I should've said that at the beginning. Because that's one thing that's, to me, it's I don't understand that about the law. Basically, if you owe money to Wells Fargo, Wells Fargo can call you and be as nasty as they want, but the debt collector is governed by this Fair Debt Collection law.
But one of the provisions in the provisions in the Fair Debt Collection law is that you can require them to verify the debt by sending, it has to be in writing, send them something in writing saying, "Hey, I need to know what this is. I need documentation before I can pay this." And if you send that letter to them, the Fair Debt Collection law stops them from any type of collections for the next 30 days and even longer than that…
...if it takes them longer to verify the debt, they can't do any further collections against you. They can't sue you. They can't do anything like that until they actually provide you with that documentation.
And then if they don't, if they just ignore it, that's when you have the opportunity then to pursue them. Because a lot of FDCPA cases are that because the creditor just doesn't follow up with it.
It gets a little tougher with the original creditors.
I mean, really again, with all these things it's communication and reaching out and reaching out and continuing to reach out. Like with my situation, I don't know this company, I've got to find out why it is, was it something where we went to the doctor and they farmed it out to some independent third-party contractor or something that did something that I was unaware that happened? I've got to find that out. But the main thing is just communication.
And one thing I tell people all the time is you need to document it. If it's something that's disputed and you're thinking that, "Hey, I have no idea what this is. I'm going to get to the bottom of it," I would document it.
Try and do as much as you can, like an email or even keep a log of when you called them. That way if you end up having to take any type of legal action to get it stopped, or even if you're disputing it through the credit reporting agencies, like TransUnion, and Equifax, Experian, you have a log of what you've been doing here to show that you've made your good faith efforts to try to resolve this.
Try and do as much as you can, like an email or even keep a log of when you called them. That way if you end up having to take any type of legal action to get it stopped...show that you've made your good faith efforts to try to resolve this.
So communication is going to be the key to that. And if it's a debt collector, you're going to be backed up by a federal statute that requires them to provide you documentation within 30 days.
What Does “Consumer Warrior” Stand For?
Mike: You have a YouTube channel called Consumer Warrior. What is this all about?
John: The Consumer Warrior brand that I started on my YouTube channel, it actually started, it started with my law practice. I mean, I used to do almost all bankruptcy work for people, but I noticed that I had people coming in who were being sued by a creditor and so they wanted to file for bankruptcy. And I saw it enough where there was a situation where they didn't need to file bankruptcy but for this one lawsuit.
There's maybe some minimal debts, but they had a lawsuit where they're being sued by one of their creditors and almost always, it was by the same companies over and over, companies like Midland Funding, Portfolio, Recovery Associates, Unifund, Cavalry SPV.
And I started doing a little bit of research on them and they're these large debt buying entities. And what these companies do is they go to Bank of America, or Chase, or Wells Fargo, or somebody where you had the credit card, and what happens is once you go six months without paying on a credit card, those banks will charge the debt off.
So they're saying, "Hey, we're going to count this as a loss." And then what they'll do is they will package those accounts up into these large portfolios of charged-off debt and they sell it on the market to these companies that purchase debt and they do it for pennies on the dollar. Some of them are less than a penny on the dollar
There was an FTC report that they did on Midland Funding, who's one of the largest debt buyers in the United States, and on average, they were paying four cents on the dollar for these accounts. And so they go and they purchase this portfolio of accounts. Their business model is they then file a lawsuit in just huge volume.
The larger debt buyers file about a half a million lawsuits a year throughout the United States. And then their goal is to get a judgment and then start to garnish people's wages, levy their bank accounts, get money from them.
So what I started noticing when these lawsuits came in and I started researching them a bit, I thought, well, maybe let's fight a few of these lawsuits and see if we can just either settle it or get it thrown out or do something so that people can avoid bankruptcy, avoid the whole 10 years on the credit thing and just resolve it by dealing with that one specific issue.
And as I started digging and learning more and more about debt buyer suits, I realized that there are huge problems with these lawsuits, that these debt buyers are paying pennies on the dollar for the account. They don't get a whole lot in return.
Some of them get a spreadsheet that just has some names, addresses, and phone numbers, and they're filing lawsuits on this. And the reason why that works is because the statistics nationwide are 95% of consumers do not respond to the lawsuit.
And there's a host of reasons, but most people just don't know what to do, or they don't think it's real. They don't recognize the debt buyer. They're thinking to themselves, "I never loaned any money from Midland Funding. This can't be real. Why would they be sauteing me?" And they end up with the default judgment. They end up getting their wages garnished, their bank accounts cleaned out.
And so I started really just trying to ... The Consumer Warrior brand, this is my long-winded way of telling you how the Consumer Warrior came about, is that I found that a lot of people if they just had a little bit of information about what these creditors are doing, why they were suing them, and what were some things that they could do to either try to settle the debt, or to resolve it or even contested, that it made a huge difference, that people didn't have to file for bankruptcy and they may even be able just to get rid of it completely. Not only that but these cases really just clog up our court systems.
In Arizona where I work, other than criminal cases, these are the second-highest number of cases that are just filling the courts' dockets, and most of the people are unrepresented. Well over, I think it was…
...98, 99% of the people who are being sued by a debt buyer, don't have a legal counsel. And so if people don't really understand how to navigate the court system, it's hard on the consumer, but it's also hard on the court...
...because they've got to kind of figure out how to process this. And so the whole idea behind it was, hey, let's just give some general kind of information on how these cases play out, maybe some different resources that can help people to put together, even just basic legal documents to file on the court on their own. So it was something separate from my law practice.
Obviously, I could only practice law in Arizona. I can't even give legal advice outside of Arizona. But I thought there's just some basic informational things that a lot of people don't understand like, hey, if you file an answer to this, you're probably going to get a lot better result than if you just ignore it.
And so I started doing that with YouTube, so that's kind of how the whole Consumer Warrior thing has kind of snowballed to where it is today. Again, the main thing is action. You got to take action to deal with these things. And the more you're putting your head in the sand, the way worse it's going to get. But if you take action and get a little bit of information, as far as to put you in the right direction, you'll do a lot better.
Mike: Yeah. Thank you very much. It was a pleasure.
John: Yeah, no problem. I'd be happy to do it. And thanks for having me. It's been great.
Debt problems bring lots of stress but there are ways to handle them properly. If you’re facing debts, lawsuits, or debt collectors, seek legal advice. Like John Skiba says, having a plan “could alleviate so much stress… that you're going to be able to deal with this and eventually resolve your debt problem.”
We hope our debt expert tips in this article have helped you become more confident and educated in debt questions. If you have questions, please leave them below. For more expert insights, please follow PissedConsumer YouTube channel.
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