Scott D. Bullock

Many clients who call me for consultations are understandably confused by the caption on the Complaint,  (especially the plaintiff's name) since the name of the original creditor (i.e, Chase Visa, Macy's, etc) rarely appears in the Complaint.

Instead, the caption’s plaintiff is usually “Midland Funding LLC”  or “New Century Financial,” or “Palisades Collection LLC” or “Cavalry III” or “Jackson Capital,” etc.

These above-named “mystery companies” have purchased the bad debt from the original creditor, usually a credit card company or bank.  Often they have paid only pennies on the dollar to the original creditor for this debt, thus the collector’s profit margins are enormous.

As I’ve discussed in previous blog posts, there is a thriving market for “bad debt” in NJ. The NJ Special Civil Part (which is a subsection of NJ Superior Court’s Law Division) has court rules and procedures that create a favorable, advantageous environment for debt collection attorneys. For one thing, if you fail to Answer the complaint in writing, the court will automatically rule you in default after 35 days, with no court appearance needed from the collection firm’s attorney. Once a default judgment is entered, the collection firm has several options to collect from you. They may compel you via an Information Subpoena to disclose your checking/savings account information. They can also obtain a judgement lien against your real estate, or garnish up to 10% of your gross wages until the judgment is satisfied.

The good news is that it is often hard for an assignee such as New Century Financial, Midland Funding LLC, etc. to prove that the original debt (i.e, the money you owed to Visa, Bank of America, etc) is a valid debt, and that they are suing you for the valid & actual amount of your original debt, and that any additional fees/interest are permitted by NJ law or by the original contract with the bank or credit card company.

My office AGGRESSIVELY defends you in these cases. When representing a client in a debt defense matter, we challenge the debt in the Answer to the complaint and assert all affirmative defenses available under law. 

What happened here is that Visa/Bank of America “charged off” your account a few months after you stopped making payments, meaning they wrote off your card balance as a bad debt. To recoup some of their losses, your delinquent account was bundled with hundreds (or thousands) of other delinquent accounts and sold to a third-party debt collection firm such as Midland Funding LLC or New Century Financial or Cavalry III, etc. The collection company likely paid anywhere from 5 to 15 cents on the dollar to the original creditor for the account.

Although buying bad debt and charged-off accounts is perfectly legal in NJ, the company buying the bad debt is still obligated to prove that:

1. The original debt (including interest and finance charges) is valid;

2. That they have a valid assignment of said debt from the original creditor, which the lawyers often call “being a holder in due course.”

The good news is that this is “easier said than done” if you’re the collection agency. Here’s why:

When bad debt is purchased on the market by a collection company, they usually don’t receive a copy of your “file” (i.e, the cardholder agreement, old billing/account statements, etc) from the original creditor. Usually all the collection company receives at purchase is your name, last known address, and original account number(s). Understand also that the debt is not usually purchased directly from the original creditor, but often passes thru a middleman or clearinghouse that specializes in selling bad/junk debt to collections firms.

The beauty of this situation is that it is very difficult (and often in reality impossible) for the collection lawyer to obtain the proof and evidence needed to validate that debt in Court. As discussed above, the answers to Interrogatories must be ANSWERED UNDER OATH WITHIN 30 DAYS by a representative of the ORIGINAL creditor (i.e, a record custodian) who can testify to the debt’s validity, the original creditor’s record-keeping procedures, etc.

Of course, since the original creditor has already charged-off and sold the debt for pennies on the dollar, they no longer have a “horse in the race” so to speak. And often the original documents such as cardholder agreements, billing statements, etc get lost or misplaced, esp. if its an older account. Or if these items do still exist, the collection agency may have to pay an additional fee to the original creditor to search for these documents and have a record custodian testify as to their validity.

Usually, however, that does not happen. The “collection mill” law firms count on the easy money they receive from default judgments- those folks who fail to Answer their complaints. They also count on the debtor trying to “do it themselves” and filing inadequate papers or otherwise not defending the case zealously.

My goal is to “turn the tables” and make the collection process and litigation process VERY difficult for them. Your best asset in a collections lawsuit is an experienced NJ Special Civil Part debt defense lawyer who understands the court rules, knows which defenses to raise, which interrogatory questions to ask, and which motions to file. This past month alone we have had 2 Special Civil Part debt collection cases dismissed outright before trial, saving our clients $7100 and $6000 dollars respectively.