July 20, 2018

Do You Want to Give Money You Don’t Owe to a Credit Card Company?

This is not a trick question.

I received this letter today from American Express regarding the balance owed by one of my Chapter 13 bankruptcy clients whose case was dismissed.  The letter acknowledges that because of the age of the debt, Amex cannot sue my former client, nor can they report the unpaid balance to the credit bureaus.  Yet they are giving him the opportunity to “settle” this debt for 45% of the balance.

Can you think of any reason why anyone would pay Amex anything on this stale account?  I can’t.  But I wonder how many people agree to make payments and possible waive the statute of limitations bar to collections.  If you get a letter with a notice that the debt is stale, don’t even think about making a payment.

Social Security Benefit Checks are Exempt from Garnishment, but….

My husband has been given benefits but we are being advise a judgement will be placed for medical procedures that insurance should have covered but didn’t. The facilty was subcontracted out by the doctor and was never given our insurance information to file on. Upon calling that insurance company, they have said that the claims is now too old for them to pay on. Can the attorney take my husbands social security benefits for the judgement.

Jonathan Ginsberg responds:  Social Security benefits cannot be garnished by this type of civil judgment creditor.  However, if you are using direct deposit and the Social Security funds are going into an account where you keep other money, your bank may inadvertantly honor a fi fa on the judgment.

I would consider sending a letter to the lawyer who is representing the judgment creditor to advise him that your husband’s sole source of income is Social Security and therefore exempt from garnishment.
Be aware, however, that other assets – his house, other bank accounts, other assets – can still be at risk.

Another point to consider – does this creditor have a legal right to sue?   Claims for breach of contract are subject to statutes of limitations.  If this debt is ten years old, for example, it may be “stale” and no longer actionable.  Recently, I have heard about a number of lawsuits filed on stale debt – if the defendant does not raise this issue, you could be stuck with judgments even when the underlying claim is bogus.  There is a remedy to challenge this type of judgment called a “collateral attack on the judgment” but collateral attacks are expensive and time consuming.

If you receive a lawsuit on a debt that seems unusually old, it would probably be worth the time to run the case by a lawyer.  My colleague Bill McLeod of Boston, regularly writes about Fair Debt Collection Practice horror stories.  If you are under any illusion that collection agencies are trustworthy entities, some of the examples Bill cites of egregious actions by bill collectors will open your eyes.

If you have other assets at risk, and the judgment is large enough, a bankruptcy might be something to consider.  As a rule, you are better off filing bankruptcy before a judgment is issued, but there is a procedure in bankruptcy practice called “avoiding the lien” where a judgment lien can be stripped and made into an unsecured debt.

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