As an Iowa bankruptcy attorney I am often met with surprising situations that clients face apart from the bankruptcy. This week a client for whom I am preparing a bankruptcy petition (which is taking time in order to optimize his asset protection) received a lawsuit. It was on a credit card which he originally had with Providian many years ago. Providian was bought out by Washington Mutual (WaMu)–which now is actually owned by JP Morgan Chase.
The lawsuit was filed by WaMu (rather than Chase) for over $11,000 on the card. No doubt he defaulted some years ago, but he was surprised he was being sued for so much money. The unfortunate fact is that now there are ever changing credit card contracts. The companies can and unilaterally do change the terms–and not to the benefit of the customer. These kinds of changes in my law school days during the late 70’s were considered illusory contracts–and the bottom line was they were unenforceable. Due to major changes in the law in favor of credit card companies (banks pay a lot to lobbyists) the one time illusion is now a reality.
So basically every term, including late fees, increased interest rates, penalties and collection fees, was allowed to be altered at the whim of the company. These modifications of course do cause a skyrocketing of what was originally borrowed on the card. So in this case we have a bill for $11,000 when he probably borrowed only a fraction of that amount (he feels about 50% of it). This is not unusual. I had one bankruptcy client owing $5,000 on a card that had a $500 limit. This is why the big credit card banks reap huge profits (with large bonuses to their top management) and one reason why the number of consumer bankruptcies is escalating!
A curious point came up in this case when the client received interrogatories (written questions)–which are part of the discovery process. In discovery a party, like the bank, is trying to get information from the other side. As part of this process there are many inquiries trying to set the facts of the case before a trial. If done well discovery can avoid a trial altogether when there is no factual issue to be proven or argued. In other words, it has all been done in advance and the judge only has to apply the law to enter a judgment.
While going through his documents, my bankruptcy client found an old letter. It is from a debt purchasing company. Several years ago this company purchased the debt from WaMu. This company is not suing my client, remember WaMu is! WaMu is suing on a debt they sold and were paid for (usually part of a portfolio with lots of charged-off debts). Sure, they were only given pennies on the dollar, yet this is an attempt at double dipping (they were partially paid and wrote off the debt with tax benefits) and are trying to get more money out of a debt they no longer own.
This is scary for many reasons. First, my client could have defaulted in this current suit, which many people do. That is, they don’t respond to the suit and a judgment is entered against them. Once the default judgment appeal time has passed it is a done deal–it is a collectible judgment. So the bank would then try to get the money from them on a debt they did not even own.
There are probably many, many of these accounts and the bank will collect a lot of them over the coming years as people panic and just settle to pay part of the debt. This is what makes debt collection profitable. Also, the judgment itself may be sold again to a debt collector. This is like a mutant cell–dividing and having multiple lives.
My client was fortunate to find the sale document and will use this as a defense. But think about it: he also could still get sued by the first purchaser of the debt. If he loses the current lawsuit he would have a judgment to pay; and if the purchaser sues him in light of the complexity of these situations a default could get entered or he could even lose a contested fight (not to mention attorney fees) on the second lawsuit. The nightmare result is two judgments (and probably for highly escalated amounts) for the same debt. Liens would be placed against his property, there could be wage garnishments, bank account levies and so forth in collection efforts. Not a pretty picture.
Fortunately bankruptcy law puts a stop to all of these shenanigans. The debt will be liquidated and the bankruptcy filer will get a fresh start in bankruptcy.
Iowa Bankruptcy Attorney Robert Liptak
Fairfield, Southeast Iowa