Keep Debt Collection Lawsuits Out of Small Claims Court

Debt collection lawsuits can be filed against abusive debt collectors in small claims court in many cases but I recommend against it. You will almost certainly get a lower damages award or settlement by handling your case alone and by filing in small claims court. Instead, hire an attorney who will properly advocate your debt collection lawsuit in federal court where it belongs.

Now I don’t want to discourage you from taking your debt collection lawsuit to small claims court. I really don’t. Indeed I have previously discussed the issue in other consumer blog posts and even explained to you how to do it. The reason for that is simple; many people want to pursue their consumer complaints on their own. They don’t want to hire an attorney and often falsely believe they have to pay for an attorney in debt collection lawsuit cases. The problem is that there are just too many reasons why you should not sue a debt collector in small claims court. My simple advice is to keep debt collection lawsuits out of small claims court. Other authors agree that there are pitfalls in taking debt collection cases to small claims court.

Attorneys’ Fees in Debt Collection Lawsuits

You can get a free lawyer when you sue a debt collection company. That sounds incredible but its true. When you successfully sue a debt collector you are entitled to an award of your attorney’s fees and court costs so good credit attorneys take FDCPA abuse cases on a contingency basis. That means your attorney pays all your courts costs up front for you and takes no fees at all if you lose. If you settle the case or win at trial the attorney will then take a percentage or hourly rate out of your award or settlement for his fees. Essentially, that means the debt collector pays your attorney’s fees and you pay nothing out of your own pocket.

In contrast, when you sue a debt collector in small claims court you generally represent yourself. Obviously, in that case there won’t be any attorney’s fees to award you. Even if you are an attorney you cannot generally get an award of attorney’s fees for work you performed in your own case. In many states you can hire an attorney to represent you in small claims court and in those cases you can get an award of attorney’s fees. Sadly, however, the attorney’s fees will be capped at the statutory maximum; a decidedly bad idea.

Capping attorney’s fees would very harmful to your case because it limits your potential award and your ability to negotiate a higher settlement. It also creates an incentive for the debt collection attorneys to make the case as difficult and time consuming as possible because they know their liability will be limited to the statutory maximum amount no matter how much it actually costs you. Indeed, for this and many other reasons, no credible credit litigation attorney would ever file an FDCPA abuse case in small claims court.

Damages in Debt Collection Lawsuits

Another reason to never sue a collection agency in small claims court is that damages are too low. Considering that the statutory limit in Utah small claims courts is $10,000 that sounds wrong, but hear me out. When you sue a debt collection agency you sue under the Fair Debt Collection Practices Act (FDCPA). It is a federal law meant to allow consumers to hold abusive and deceptive debt collectors accountable for their illegal actions. Under the FDCPA the maximum statutory damages award allowed is only $1,000. That’s it. Unless you have some verifiable actual damages you won’t get more than $1,000.

In many cases, however, consumers have actual damages in addition to statutory damages and those actual damages can easily exceed the limits allowed in small claims courts. It is not uncommon for actual damage awards to be well-above the $10,000.00 mark and many even exceed $100,000.00. The reason actual damage awards can climb fairly high in FDCPA abuse cases is because actual damages often include financial injury that resulted from unfair, abusive, or harassing collection conduct such as wage garnishments, lost wages, or lost credit opportunities and can also include damages for physical and emotional distress arising as a result of the abusive collection.

In small claims court it may be more difficult to prove your actual damages and they will be limited to the maximum statutory cap no matter how much you actually suffered. To maximize your damages and assure that you are seeking damages that are appropriate to your situation you will need an experienced attorney. That is good. An experienced consumer rights litigation attorney can find additional damages where the average consumer, suing in small claims court alone, cannot. For example, actual damages such as anger, headaches, chest pain, panic attacks, feelings of helplessness, and other similar physical and emotional distress caused as a result of the unfair debt collection can be awarded. Lawyers are trained to find areas where consumers have actual damages but do not know they are attributable to the unfair debt collection.

The same is true for punitive damages. Attorneys can often assert additional causes of action in your consumer complaint that raise the possibility of an award of punitive damages against the debt collection agency. Punitive damages are meant to punish the collection agency but are not available in all cases. You will need an attorney to know if they are available in your case. Punitive damages in FDCPA abuse cases can be extremely high in some cases too. In 2015 for example, one jury hit Portfolio Recovery with an $83 million award for harming a consumer. Another court in New Mexico hit The Law Offices of Farrell & Sandlin and Target National Bank with a verdict of $1.26 million for their abuse of a consumer. Obviously those amounts are not typical by any means, but damages in FDCPA lawsuits are frequently higher than the small claims court maximum award amounts.

Settlements in Debt Collection Lawsuits

Most FDCPA cases handled by attorneys settle for more than the statutory maximum amount available in Utah small claims courts. The reason is that experienced attorneys who know the tricks, traps, and value of FDCPA cases. It is highly unlikely that you could get as much on your own as you could hiring an experienced credit attorney.

Discovery in Small Claims Court Debt Collection Lawsuits

Discovery is the process of obtaining information from the opposing side of the case prior to trial so you know what they will rely on to prove their case. In Utah small claims courts some limited exchange of discovery is encouraged but is not mandatory. In other words, it won’t happen in most cases. That can be devastating to your case because most debt collectors will argue that even though they violated the FDCPA and harmed you in their conduct, it doesn’t matter because they only did so as a result of a bona fide error.

The bona fide error defense is commonly used by debt collectors but usually fails when consumers hired experienced attorneys who can conduct discovery properly. Discovery in debt collection lawsuits is a complicated process and it takes time but is almost always better than going to small claims court without knowing anything the debt collector will present to prove their case. The bona fide error defense is, like the debt collectors themselves, a snake in the grass hiding and waiting to attack when the consumer is at his weakest moment.

Time Required to Litigate Small Claim Debt Collection Lawsuits

I don’t mean to discourage you with this discussion. If you plan to sue a debt collector and you want to handle it on your own then by all means consider filing in small claims court. Your case will almost certainly be resolved faster in small claims court even if your award or settlement is lower. Small claims cases usually take only four to six months to resolve but many federal FDCPA cases take longer. It is not unusual for an FDCPA case to take two years or more to fully litigate. The reason is defense attorneys. They are often very stubborn and want to push you to see how far you are willing to take your case regardless of how much more it costs their client to delay. They are usually paid hourly after all.

The good news is that the longer your FDCPA litigation takes the more it should be worth if you have an attorney. Your case value probably won’t increase if you are unrepresented though. The reason for the increase in represented cases is that attorney’s fees increase as time goes by. Trust me, your attorney is working hard in the background even if it feels like nothing is happening.

Conclusion

You really ought to sue in federal court for most FDCPA lawsuits. You will need an attorney in federal court and you will get higher awards for damages as a result. Your attorney will also take the brunt of the stress of litigation. Lawsuits are stressful and virtually guaranteed to result in a few sleepless nights. Let your attorney lay awake planning and strategizing the case. He will and you shouldn’t.

There are also procedural reasons to file your debt collection lawsuit in federal court but that discussion is best held for another day. For now, trust me. Hire a consumer protection attorney with experience in FDCPA litigation and be patient if you want to get a reasonable settlement or award.



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