1: Introduction;
Nonjudicial collection
© Charles Tabb 2010
Give me the money
Our topic
• Money – or more accurately, the lack thereof
• And what happens then in the world of debtors
and creditors
Creditor worries?
• What do CREDITORS have to worry about?
• How will they get paid the money they are
owed??
1st issue: Creditor vs Debtor
How can this Creditor
• collect from this Debtor?
A 2-party issue only
• Like an arm-wrestling match: Cr v Dr
• No one else involved
Problems?
• No money – cupboards are bare
• If the Debtor is broke,
they’re broke, and you
aren’t going to collect
You can’t eat a decent meal out of this cupboard
Sneaky debtor
• Or the debtor might have money, but they
won’t give it up without a fight
2nd issue: Priority fights
• Not just Cr v Dr
• Creditor has to compete with other claimants
for Debtor’s insufficient assets – other
creditors, purchasers
• Someone may get
left out!
What do Debtors worry about?
• Do they have enough money to
pay their debts?
• Will they have any $ left?
Debtor worries
• Will they be able to get credit in the future?
2 types of Debtors
Humans
Not humans
• Corporations
• Partnerships
What are the differences?
• What makes a human debtor different from a
non-human debtor?
Human vs non-human DR
• And how does the law take those differences
into account?
* exemptions
* protect “human capital”
-> garnishment limited
-> bankruptcy discharge
Problem 1.1 – Planning ex ante
• Your client (Creditor Inc.) is a supplier of
soccer jerseys. Debtor Co., a corporation that
operates a chain of retail soccer stores, wants
to buy jerseys on credit from Creditor. While
Creditor would love to make these sales, as
well as more in the years to come, Creditor
worries about whether it will get paid.
* What will you advise?
Answering 1.1
In order to give good advice to Creditor, who
is thinking of opening a credit relationship:
– What additional information do you want?
– How will you obtain that info?
– How might you structure the transaction?
Problem 1.1 (cont.)
• How would your analysis differ if Creditor
were considering selling on credit to a natural
person, rather than to a corporation?
Problem 1.2 – defaulting DR
• Creditor Inc. has been selling soccer jerseys on
credit to Debtor Co. for nine months, with
payment due on account 30 days after
invoicing. Debtor Co. has been paying
invoices two to four weeks late every month,
and currently owes Creditor $10,000, and is 30
days late. Creditor is concerned, and wants to
collect some or all of the debt.
– What will you advise?
Answering 1.2
–What additional information do you
want, and how will you obtain it?
Problem 1.2, cont.
• How would your analysis differ if Debtor were
a natural person, rather than a corporation?
Nonjudicial collection
• To what extent can a creditor “persuade” a
debtor to pay up “voluntarily”?
Caddyshack
• Illustrated by “collection” scene at
end of Caddyshack
(possibly greatest movie ever)
Tort law as collection limit?
• What are the legitimate competing interests
of the creditor and the debtor?
Possible collection torts
• What are some possible torts that a debtor
might be able to assert against a collecting
creditor?
Fair Debt Collection Practices Act: Scope
Problem 1.3
• Does the FDCPA apply in the following situations?
Do you need any additional information?
a. Creditor makes numerous
harassing phone calls and
sends threatening letters to
Debtor, a natural person, to
collect $2,000 owed
to Creditor for a computer.
Answer to problem 1.3(a)
• Not within scope of Act
• definition of “debt collector” subject to the
Act in §803(6) only includes those who
regularly collect debts owed to someone else
• that definition excludes from a “debt
collector” subject to the Act a creditor trying
to collect its own debt from the debtor.
Exception re problem 1.3(a)
• Limitation of the Act’s scope to exclude creditors
collecting their own debts has one qualification –
the creditor can’t use a false name.
• The creditor would be considered a "debt
collector" if it is using a fictitious name
• Definition: “the term includes any creditor who,
in the process of collecting his own debts, uses
any name other than his own which would
indicate that a third person is collecting or
attempting to collect such debts."
Problem 1.3(b)
• Credit Bureau, Inc., a collection agency, makes
numerous harassing phone calls and sends
threatening letters to Debtor, a natural
person, to collect $2,000 owed to Creditor for
a computer.
Answer to problem 1.3(b)
• 1st – now clearly we have a “debt collector” –
Credit Bureau Inc is a collection agency,
collecting debts due another
• Remaining issue: is this for a “debt” as
defined in § 803(5)?
“debt”
• 1st – the debtor must be a “consumer” –
which is defined as “natural person” in
803(3), i.e., a human being.
• Here, Debtor qualifies
“debt” – type of debt
• 2nd – the debt must be a consumer debt, i.e.,
for “personal, family, or household purposes”
• Here, the answer depends on the intended
use of the computer -- for personal use or for
business? We need more facts
Problem 1.3(c)
• Alice Attorney sends a threatening demand
letter to Debtor, a natural person, and then
files suit to collect $2,000 owed to Creditor,
Alice’s client, for a computer.
• “Debt Collector”? 
Answer to Problem 1.3(c)
• The analysis is exactly the same as for 1.3(b)
with regard to whether the obligation is a
“debt”
• Only issue then is whether Alice Attorney is a
“debt collector”?
Attorney as “debt collector”
• In Heintz v. Jenkins, 514 U.S. 291 (1995) –
Supreme Court held that an attorney CAN be a
debt collector
• i.e., there is not a blanket exclusion
Attorney as “debt collector”
• But that of course doesn’t mean that Alice
Attorney, on these facts, necessarily IS a “debt
collector”
• Just that she isn’t automatically excluded just
because she is an attorney
“debt collector”
• Issue is whether Alice Attorney “regularly”
attempts to collect debts owed to another
• Fact-intensive inquiry into nature of Alice’s
practice. See Garrett v. Derbes, 110 F.3d 317
(5th Cir.1997)
Problem 1.3(d)
• Credit Bureau, Inc., a collection agency, makes
numerous harassing phone calls and sends
threatening letters to Debtor, Inc., a familyowned small company, to collect $2,000 owed
to Creditor for a computer
Answer to Problem 1.3(d)
• Not covered because this is not a “debt”
within meaning of § 803(5)– why not?
• Because Debtor, Inc. is not a “consumer”
within meaning of § 803(3)  is not a
“natural person”, i.e., human being
• Corporate debtors (even if a small familyowned business) aren’t protected by FDCPA
Problem 1.4(a)
• In the following situations, do the debt
collector’s actions violate the FDCPA? See 15
U.S.C. §§ 1692b-j
a. Debt Collector continues to call Debtor at
work, even after Debtor tells Debt Collector
that she cannot take personal calls at work.
Answer to Problem 1.4(a)
• Yes, violates § 805(a)(3) [15 USC § 1692c(a)(3)]
• prohibits a debt collector from contacting a
consumer “at the consumer's place of
employment if the debt collector knows or has
reason to know that the consumer's employer
prohibits the consumer from receiving such
communication.”
1.4(a), cont.
• Here, Debtor already TOLD Debt Collector that
she couldn’t take personal calls at work
• This appears to be one of the favorite tactics
of unscrupulous debt collectors
Problem 1.4(b)
• Shortly after Debtor (named Amanda) tells Debt
Collector not to call her at work, Debt Collector calls
again and leaves a message with Debtor’s coworker,
Jimmie, asking Jimmie to “tell Amanda to stop being
such a [expletive] bitch.”
Answer to Problem 1.4(b)
• Yes, violates § 806(2) [15 USC § 1692d(2)].
• The facts are taken from Horkey v. J.V.D.B. &
Assocs., Inc., 333 F.3d 769 (7th Cir. 2003).
1.4(b), cont.
• The section provides that “the use of obscene
or profane language or language the natural
consequence of which is to abuse the hearer
or reader” is a violation of this section.
• Obviously, calling someone (even if not the
hearer), “a [expletive] bitch” is prohibited
language
More on 1.4(b)
• Also a violation of § 805(b) [1692c(b)]
• the debt collector communicated with a 3rd
person about the debtor’s debt, without the
debtor’s prior consent
1.4(b) continued
• And, finally, also violates 805(a)(3)
[1692c(a)(3)]
• continued to communicate with her at work
even after knew she couldn’t take personal
calls there
The court’s reasoning
• The court did not buy Debt collector’s defense
that the call was not in connection with the
collection of a debt.
Horkey case
• The court observed:
“In that context, when he told Horkey (via
Scholes) to “stop being such a [expletive]
bitch,” Romero was not offering general
advice about how Horkey could improve her
disposition. He was telling her, crudely but
specifically, to be more receptive to his
entreaties regarding the debt.”
Other defense?
• What about the fact that the debt collector
didn’t speak with the Debtor?
Reject “intermediary” defense
• Court observed that debt collector did intend
to communicate with the debtor
• specifically wanted the 3rd person to relay the
message to the debtor
Problem 1.4(c)
• Debt Collector calls Debtor at home at
midnight.
Answer to problem 1.4(c)
• Yes, this violates § 805(a)(1) [1692c(a)(1)] -Debt collectors may not contact a debtor at an
inconvenient time
1.4(c), cont.
• the statute states a presumption that any time
before 8 am or after 9 pm is inconvenient.
• No facts to rebut the presumption, i.e., that
debt collector had knowledge of
circumstances to the contrary.
Problem 1.4(d)
• Debt Collector calls Debtor six times in 24 minutes.
Debt Collector is very polite each time.
Answer to Problem 1.4(d)
• Yes, this violates § 806(5) [1692d(5)] –
 “Causing a telephone to ring or engaging any
person in telephone conversation repeatedly or
continuously with intent to annoy, abuse, or
harass any person at the called number.”
• Facts are taken from Kuhn v. Account Control
Tech., Inc., 865 F.Supp. 1443, 1452 (D.Nev.1994).
• This is true even if the content of the calls
themselves is not abusive.
Problem 1.4(e)
• Debt Collector calls Debtor at home shortly
after work and states that Debtor is in default
on a debt, and further states that if
satisfactory arrangements for payment are not
made within five days, Debt Collector will turn
the file over to an attorney with a
recommendation that the attorney file suit
against Debtor to collect the debt
Answer to Problem 1.4(e)
• Violation under § 809(a) [1692g(a)]
• DC must send a sufficient written “validation
notice” within 5 days of initial communication
• Here, the phone call apparently was the
“initial communication” – and no suggestion
that a validation letter was forthcoming
Validation notice
• The written notice must (among other things)
give Debtor 30 days to dispute the debt and
obtain verification
More on Problem 1.4(e)
• Furthermore, can’t even cure phone call’s
deficiencies by sending validation notice
within 5 days. Why not?
Curing bad notice?
• Under 807(5) [1692e(5)], DC cannot threaten
to do what it does not have the legal right to
do.
• Here, could not turn file over in 5 days with
recommendation for suit – have to give 30-day
validation notice
Alternative facts – okay
• However, under alternative facts, with phone
call followed by validation notice, Debt
Collector has satisfied 809(a)
Another § 807(5) problem
• Debt collector also may violate 807(5) by
threatening to do what it does not INTEND to
do – even if legal
• Question of fact for a jury what the DC
intended
Final comment on 1.4(e)
• If, however, DC made the same sort of
“threat” to collect in a sufficient validation
notice providing the requisite 30-day dispute
period, it would not violate the Act.
• Courts make clear that the mere fact a debtor
is exposed to inconvenience or possible
embarrassment does not constitute a
violation of the Act.
• Creditors have a right to try to get paid.
Bona Fide error defense
• Note that a debt collector is protected from
liability if:
– The violation was not intentional AND
– Happened because of a “bona fide error,”
notwithstanding maintenance of procedures
reasonably adapted to prevent such an error
“Repo Man”
• Under Article 9, a secured party has a right
after the debtor’s default to “take possession
of the collateral.” U.C.C. § 9-609(a)(1).
Secured Cr: Right to Repo
• the secured party may repossess “without
judicial process, if it proceeds without breach
of the peace.”
• U.C.C. § 9-609(b)(2).
Problem 1.5(a)
• In the following situations, did the “repo man”
“breach the peace”?
• Debtor left her home unlocked and ran an
errand. Repo Man, who had come to
repossess a piano, saw the piano through the
front window. He knocked at the door, and,
hearing no answer, turned the knob and,
finding it unlocked, went in and removed the
piano. No one was at home.
Answer to problem 1.5(a)
• Breach of the peace.
Even though no one was home,
and no objection was made,
and the door was unlocked,
 uninvited entry into the debtor’s home is
always forbidden.
• Problem based on Girard v. Anderson, 219 Iowa 142, 257
N.W. 400 (1934).
Problem 1.5(b)
• Same facts as in Problem 1.5.a, except Debtor
was home, and when Repo Man knocked,
Debtor answered the door, and Repo Man told
her, “I am a deputy sheriff and have come to
repossess your piano.” Debtor then stepped
aside and let Repo Man take the piano.
Answer to Problem 1.5(b)
• breach of the peace.
• Repo Man’s deception
in posing as a law officer
vitiates the Debtor’s consent.
Problem 1.5(c)
• Debtor’s car was parked
in an open carport, which
was connected to the house.
• At 3 a.m., with Debtor and her whole family
asleep inside, Repo Man backed a tow truck up to
the car and towed it away.
Answer to problem 1.5(c)
• No, this is not a breach of the peace.
– The car was taken from an unrestricted area
• Should an open carport be deemed “restricted”?
• What about an open garage?
– and no objection was made.
• Should debtor have opportunity to object?
Problem 1.5(d)
• Same facts as in Problem 1.5.c., except as
Repo Man was starting to back out of the
driveway, Debtor’s 16-year old son threw
open a window and yelled out,
“hey, jerk, what in the <expletive>
do you think you’re doing?
Leave our car alone.”
Answer to problem 1.5(d)
• breach of the peace.
• Objection by the Debtor’s son suffices
– As one student said: “the purpose of the policy
is to prevent an outbreak of violence, and
taking an automobile from someone’s
property as a family member objects could
cause a confrontation.”