How New York Collection Lawsuits Will Get Harder For Debt Buyers

New York State Court Of Appeals Chief Judge Jonathan Lippman is fed up with all the flawed debt collection lawsuits filed in New York. So in a remarkable and unexpected win for consumers, he’s taken steps to make the process fairer.

As of June 15, 2014, new court rules and protocols will go into effect making it harder for debt collection companies to win default judgments.

Judge Lippman, during a speech in Albany, said that more than 130,000 debt collection lawsuits filed each year in the state were riddled with problems that compromised the consumer’s rights. Many people are never served with papers, and learn about a judgment only when their bank accounts are frozen or their wages are garnished.

In addition, the judge found that many debt collection lawsuits filed in New York are based on inadequate documentation as a result of the multiple times that the debt has been sold before the lawsuit filed.

This is something I’ve found for years, with people coming to me to file for bankruptcy because it’s the only way they could get their bank accounts released. Though they could make a motion to the civil court to set aside the judgment, many of my clients over the years have said that doing so would take too much time and money.

Between a rock and a hard place, they ended up in bankruptcy court.

Debt buyers purchase hundreds if not thousands of delinquent credit card debts for pennies on the dollar. They then file lawsuits to collect on those debts, usually without any documentation to prove that the consumer is actually the responsible party.

Under the new rules, effective as of June 15, 2014, creditors will be required to submit documents detailing the chain of ownership of the debt, as well as affidavits from people having personal knowledge of that history.

In other words, robo-signing is dead.

Creditors will need to swear that the statute of limitations to collect on the debt has not expired.

Sewer service will become a thing of the past as creditors will now have to give the court a stamped envelope bearing the debtor’s address. The court will send out a notice of the lawsuit before a default judgment is entered.

Will this end the abusive practices of debt buyers and creditors who use the New York court system to strong arm consumers? Probably not entirely; after all, creditors and debt collectors are adept at finessing their procedures to maximize their profit.

It is, however, a step in the right direction.

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About the Author:

I've been a consumer protection lawyer since 1995, working to help people end their bill problems. I'm a faculty member at the Student Loan Law Workshop, a nationally recognized speaker, and a long-time member of both the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.