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Common Defenses to Creditor Lawsuits

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This guide provides general information for Californians who are facing debt collection lawsuits in the Superior Courts of California. It does not apply to courts outside the state of California. It is not a substitute for obtaining legal advice in your individual case.

What is a defense? Generally, a defense is a reason why the plaintiff should not win its case. In a debt collection lawsuit, a defense is a reason why (1) the plaintiff failed to prove its case or (2) you do not owe the money. If one of your defenses is successful, the plaintiff will lose and you will win.

What is NOT a defense?

  • The reason that you fell behind on your bills.
  • The reason that you cannot pay the debt today.
  • The fact that the creditor or debt collector refused to make reasonable payment arrangements in the past.
  • A statement that you want to settle the case or make a payment agreement.

Do most defendants have defenses to creditor lawsuits? Yes. One or more of the common defenses discussed below probably applies to your case. Each of the defenses discussed below -- if it applies to your case -- is a reason why the plaintiff should lose and you should win. If you have questions about whether a particular defense might apply to your case, contact one of our attorneys to obtain individualized advice about your case.

What is the best way to present my defenses to the court? To alert the court to your defenses, you should list them briefly in your Answer. You can download an Answer form online here, get one at the Self Service Center (Santa Clara County), or contact one of our attorneys for assistance preparing your Answer.

Defense 1: Identity Theft or Mistaken Identity These defenses apply when you believe that the debt for which you are being sued is not your debt. Identity theft occurs when somebody steals your name and personal information and opens up credit accounts in your name. Mistaken identity occurs when you have been confused with somebody else who has a similar name or other identifying information. Remember that the burden of proof is on the plaintiff to establish that you made or authorized each and every charge. You do not have to prove that the debt is not yours. NEVER agree to a settlement if you are a victim of identity theft or mistaken identity. This is a very strong defense. If you believe that you may be a victim of identity theft or mistaken identity, contact one of our attorneys to review your case without cost or obligation.

Defense 2: Statute of Limitations A statute of limitations is a time limit that a creditor has to file a lawsuit against you. It runs from approximately the last time you made a payment. In California, the statute of limitations on a credit card debt is four years (California Code of Civil Procedure § 337), and the statute of limitations on an auto loan or store card (like a Sears or Macy's card) is four years (California Commercial Code § 2725). If it has been more than four years since you paid your credit card debt or car payment, the statute of limitations on that debt has expired. The statute of limitations is an absolute defense -- the court must dismiss a case if the debt is past the statute of limitations. However, you will have the burden of proof for the defense. Any payment, no matter how small, can reset the statute of limitations. To be safe, NEVER make a payment if you want to assert the statute of limitations as a defense. If you believe that the you were sued on a debt after the statute of limitations expired, contact one of our attorneys to review your case without cost or obligation.

Defense 3: You Were Only an Authorized User This defense may apply if you are being sued for a credit card that you shared with someone else. The defense hinges on the difference between a cosigner and an authorized user. If another person gave you permission to use his or her card, and you never agreed to be responsible for paying for that card, you were an authorized user. As an authorized user, you cannot be held responsible for that credit card debt. However, if you signed a credit card agreement in which you agreed to be jointly responsible with someone else for a credit card, you are a cosigner, and this defense does not apply to you. As a cosigner, you can be held responsible for the debt, even if none of the charges were yours.

Defense 4: No Cosigner Notice This defense may apply if you are being sued for an auto loan or other consumer loan that you cosigned for someone else. The defense only applies if you cosigned a loan for someone else, who is not your spouse, and you did not receive any of the money, property, or services which were the subject of, or purchased with, the loan proceeds. The defense may apply no matter how you are designated on the loan documents (i.e. buyer, co-buyer, borrower, co-borrower, etc.). The key fact for this defense, on which you will have the burden of proof, is that you did not directly benefit from the loan proceeds. This is a very strong defense. If you are being sued on debt that you cosigned for someone other than your spouse and you believe that you were not provided a cosigner notice, contact one of our attorneys to review your case without cost or obligation.

Defense 5: Payment If you have paid all or a part of the debt, and you believe you have not been credited for the payment, you can raise the defense of payment. You will have the burden of proof that you paid all or part of the debt.

Defense 6: Dispute the Amount of the Debt If you believe that the amount of the debt is incorrect, you have the right to dispute it. Remember that the plaintiff has the burden to prove that you owe the amount for which you have been sued. The plaintiff must prove that the principal, interest, collection costs, and attorneys fees are all correct, agreed to in your contract, and lawfully charged. You always have the right to insist that the plaintiff come up with your original contract, account statements, and in some cases even purchase receipts, to prove the amount of the debt.

Defense 7: No Business Relationship with the Plaintiff (Lack of Assignment)This is a defense that applies when the plaintiff is a debt buyer, not your original creditor. Because you never signed a contract directly with the debt buyer, you have the right to challenge the debt buyer's right to sue you (also known as "standing"). The plaintiff will not be able to prevail unless it can prove to the court that it owns your debt. To do this, the debt buyer will have to produce a contract of sale (also known as an "assignment") that mentions your debt specifically. If the debt buyer bought your debt from another debt buyer, it has to provide a chain of assignments going all the way back to the original creditor. If the debt buyer cannot or will not provide these documents, the court must dismiss the case.

Defense 8: Bankruptcy If you previously declared bankruptcy, and the debt for which you are being sued was discharged as part of that bankruptcy proceeding, the debt is no longer legally collectible from you. Bankruptcy is an absolute defense to a debt collection lawsuit.

Defense 9: Foreign Language Contract RuleThis is a special defense that applies if you negotiated the agreement sued on in one of the following languages: Spanish, Chinese, Tagalog, Vietnamese, or Korean. In California, any business that negotiates with consumers either orally or in writing on one of these non-English languages, must provide the consumer a fully completed copy of the contract in that language. Therefore, if you negotiated the purchase of a vehicle with the auto dealer in Spanish, the auto dealer was required to provide you a fully completed copy of the contract in Spanish. Failure to provide a foreign language contract makes the agreement unenforceable. This is a strong defense, but you will have the burden of proof to show that the transaction was negotiated in one of the covered non-English languages. If you are being sued for transaction that was negotiated in Spanish, Chinese, Tagalog, Vietnamese, or Korean, and you were not provided a fully completed copy of the agreement in that language, contact one of our attorneys to review your case without cost or obligation..

Defense 10: Inaccurate Credit Disclosures This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless the auto dealer where you purchased the vehicle accurately made all the required credit disclosures. Because auto dealers rarely, if ever, accurately make all of the required credit disclosures, this is a very strong defense that should be investigated in every auto deficiency case. If you are being sued for an auto loan deficiency and the auto dealer where you purchased the vehicle arranged the financing for you, contact one of our attorneys to review your case without cost or obligation.

Defense 11: One Document Rule This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless the entire agreement between you and the auto dealer where you purchased the vehicle was contained in one document. In California, this document is usually yellow and nearly three pages in length (printed on both sides). The entire agreement between you and the auto dealer regarding the total cost and payment terms must be contained in this single document. This means that there can be no side agreements, either orally or in writing.

Despite this one document rule, auto dealers often make side agreements regarding the total cost and payment terms when selling vehicles to consumers. One common side agreement concerns the amount and timing of the down-payment. It is quite common for auto dealers to allow the down-payment to be made in installments over a short period of time, ranging from a few days to a month or more. In some cases, the long yellow sales contract states that a large cash down-payment was made on the date of the sale, when in fact there was a side agreement (not contained in the contract) which allowed the down-payment to be made in one or more payments. Auto dealers may also offer to "hold" post-dated checks for the remaining down-payment. Some auto dealers have even used a separate "check hold agreement" for these side agreements. Another less often used method for "assisting" the buyer purchase a vehicle is accomplished by increasing the sales price for the vehicle by the same amount of the requested down-payment, then the auto dealers makes the down-payment for the buyer. When this method is used, the sales contract is made to look like a down-payment was made, when in fact, it was not.

Both of these vehicle sales methods illustrate side agreements which violate the one document rule. While this defense is often difficult to prove, and you will have the burden of proof, this is a very strong defense if it can be proven. If you are being sued for an auto loan and you had one of these side agreements with the auto dealer who arranged the vehicle loan for you, contact one of our attorneys to review your case without cost or obligation.

Defense 12: Defective Notice of Intent This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless you were sent a notice of the lender's intent to sell the vehicle. The Notice of Intent must contain several required disclosures – more than a dozen in all. Among the required disclosures, the lender must disclose your right to reinstate the agreement upon the payment of the loan delinquency and repossession costs. In order to satisfy this required disclosure, the lender must separately disclose all additional amounts that may become due under the loan agreement during the 15 day reinstatement period. Many lenders fail to make these additional disclosures. In order to prove this defense you will need a copy of the Notice of Intent that was sent to you shortly after your vehicle was repossessed. This is a strong defense that should be investigated in every auto deficiency case. If you are being sued for an auto loan deficiency and you have a copy of the contract and Notice of Intent from the lender, contact one of our attorneys to review your case without cost or obligation.

Defense 13: Collateral Was Not Sold at a Commercially Reasonable Price This is a special defense that applies in auto loan cases. When you default on an auto loan, the bank will usually repossess the car and sell it -- often for far less than the value of the car. When the proceeds of the sale do not cover the entire auto loan, the bank may sue you for the remainder (called the "deficiency"). However, the lender cannot pursue you for a deficiency unless it obtains a fair price for the car (a fair price is known as a "commercially reasonable price"). The burden of proof is on the bank to establish that it sold the car at a commercially reasonable price.

Defense 14: Improper Service (No Personal Jurisdiction) The defense of improper service applies if (1) you never received the Summons and Complaint at all; or (2) you received the Summons and Complaint too late to file an Answer.

Under California law, a process server must try to make personal service before they use substitute service. Personal service occurs when the process server delivers the Summons and Complaint to you in person. Substitute service occurs when the process server leaves one copy of the Summons at your home (or place of business) with a roommate, relative, or other responsible party (known as a "person of suitable age and discretion") AND mails a second copy of the Summons to you at your last known address (or place of business).

If a process server makes three unsuccessful attempts at personal service, he or she is allowed to use substitute conspicuous service. California law does not authorize service of the Summons by slipping one copy of the Summons under your door or attaching it to the door.

Here are some common examples of improper service:

  • Leaving the Summons with your neighbor, who lives in a different apartment.
  • Sending the Summons to an old address where you no longer live.
  • Throwing the Summons on the floor in the lobby of your apartment building.
  • Throwing the Summons in your yard.
  • Attaching the Summons to your front door.
  • Sending the Summons to you by mail only.

You cannot get a case dismissed for improper service, but it is grounds for vacating a default if you were unable to file an Answer timely.