LEGAL COLLECTIONS Truths & myths about how collection lawsuits &

bankruptcies really work in Kansas & Missouri

A presentation for HFMA

1pm Thurs 1/28/16

Brio on the Plaza

By: Scott Walterbach, Attorney at Law

Bessine Walterbach, LLP www.bw-llp.com scott@bw-llp.com

Always start with a quote:

“I’m always doing that which I cannot do,

so that I may learn how to do it.”

- Pablo Picasso

Who is this guy anyway? He doesn’t look

old enough to be an attorney.

Lived in KC since 1987, 4th of 8 kids, now married

with 2 boys & living in the northland

Graduated from Indiana University School of

Law – Indianapolis in 2007

Practicing in creditors’ rights & collections since

February 2010

DISCLAIMER TIME: I’M “AN”

ATTORNEY, NOT “YOUR”

ATTORNEY [don’t change anything you do based on what you hear today; at

most, go back & speak to your attorney about whether you

might change what you’re doing with relation to any specific

matter.]

This presentation is intended to provide general information about the subject matter covered & is designed to help the audience stay current and maintain competence in their industry. I do not render any legal advice here. Though I am an attorney, for purposes of this presentation I’m not your attorney. Before taking any action in reliance on the information provided, especially a change in how you

operate or respond to a situation, you should speak with your attorney. Unless you conduct original research & work with an attorney to develop an opinion with regard to

a specific legal matter or set of facts, you bear the risk of negative consequences & results based on the action taken. This is not legal advice & you may not rely upon it.

If I do represent you on specific cases, I have/will render opinions to you on those cases. However I am not your attorney for all matters, just those matters you have sent to me. Your in-house counsel is your attorney for general matters. This is not legal advice, & is general information only & you may not rely on this as legal advice.

Please interrupt at any time with

questions.

Raise your hand or shout it out, you

won’t offend me.

Progression of a receivable to legal

In-house billing cycle proves unsuccessful

Hire a third-party collection agency to assist in contacting

the debtor(s)

Allow the debt to mature but without waiting too long

Review for potential suit Where are they?

Ability to pay (assets, bank, place of employment)

Does it make sense to spend money on the legal process?

Agency knows good attorneys to use & has negotiated high-

volume rates with that attorney or those attorneys

Agency knows what info the attorney needs to proceed

Collection attorneys are highly regulated

FDCPA - private or public (state A.G.) enforcement

CFPB / FTC - federal government enforcement of Dodd

Frank

& Consumer Financial Protection Act

FCRA - if you furnish data to the CRAs HIPAA - if you

collect on medical debt

UDAAP – usually based upon FDCPA

Rules of Ethics, Procedure, Evidence – specific to each state

Client audits

CLE requirements – specific to each state

Nuts & bolts of a basic collection case

Information is given to the attorney for review

We look at things like ability to pay, location information for

defendants, venue, amount of the debt, legal interest, proper

party names, statutes of limitation, evidence, & any known legal

issues

If everything is in order, petition is drafted naming creditor as

plaintiff & debtor(s) as defendant & most proceed through a

“summary” track

Missouri – associate court

Kansas – limited actions

Will be filed (usually electronically nowadays) along with

things like cover sheets, summons requests, filing fees,

service fees, etc.; whatever is necessary according to the

county in which we are filing

Once filed, clerk processes the information & produces a

summons for each defendant

Sheriff or a special process server undertakes service of the

papers, according to our request (& cost, efficiency, law,

etc.)

Nuts & bolts, continued

If server can’t locate them for service, case will eventually be

dismissed

Once served, there is a court date set (usually in the 15 – 45 days

after service)

Prior to the court date, many cases are paid or otherwise resolved

Many people represent themselves, but some hire attorneys

to help them

If it proceeds to court, defendants must admit or deny the

allegations in the petition

Sometimes they file a written answer, especially to preserve

affirmative defenses

Discovery (interrogatories, production, admissions,

depositions)

Nuts & bolts, continued

Cases can be resolved by settlement agreement / dismissal,

by consent to judgment, by default judgment, or by trial

judgment

Parties appear at regular docket calls to inform the court of

the progress of the case & readiness for trial (every 30 – 60

days)

Cases proceed through discovery, usually with little court

intervention; rules of civil procedure apply

Eventually a trial date would be set, where Plaintiff

presents their evidence regarding the allegations in the

petition

We are trying to change one part of MO’s business records

hearsay exception to mirror the federal rule, as 48 other states

have

Can be appealed by the aggrieved party

Nuts & bolts, continued – Post Judgment

Must wait 14 days after judgment

Post-judgment motions can be filed

After that time, legal efforts can be taken to collect on the

judgment if voluntary payments are not arranged & made as

promised

Garnishment of wages (MO in process of changing much of their

garnishment laws, adding a “continuous” wage garnishment)

Garnishment of bank accounts

Attachment & sale of assets

Levy

Liens on real estate

Judgments are enforceable for a limited time

10 years in MO; 5 – 7 years in KS

TRUTH OR MYTH?

[legal collections]

A collection agency can help you use an

attorney wisely & cost-effectively.

Truth.

Collection agencies know the legal collections industry.

What is necessary to file

What is necessary to collect

What attorneys are effective in processing cases

A trusted collection agent or collection attorney can

handle your cases within certain parameters, with only

exceptional circumstances brought to your attention

A lawsuit costs money at the time it is

filed.

Truth.

Clerk will not accept & file your case until the filing fee is

paid.

Varies by county, but generally $30 - $100 in the KC region.

Creditor (plaintiff) pays the costs. However, prevailing

party is awarded costs, so the debtor becomes responsible

for costs if Plaintiff prevails.

Payments typically are applied to costs first, to reimburse.

Lawsuits are only cost-effective for

larger balances.

Myth (depending on your definition of “larger”).

We file cases on balances as low as $100.

There is no rule or law against it, but for most law firms the

economics don’t make sense. We have a unique system that

accommodates these claims.

Lower balances tend to have higher recovery rates; higher

balances tend to result in bankruptcy or take much longer

to collect.

To collect on a debt through the courts, you

must file the lawsuit where the debtor lives.

Myth.

Though this is often true & is the most typical place to file

a lawsuit, there are many exceptions.

The FDCPA, a federal law governing collection agencies &

collection attorneys, limits venue to (a) where the debtor

currently resides or (b) the county in which the debtor

signed a writing giving rise to the claim.

State law may be either more or less restrictive; one of the

things we do before filing is a full venue analysis.

A lawsuit takes a lot of time by a

supervisor or staff person working with

the attorney.

Myth.

While some lawsuits take a considerable effort, most

runof-the-mill collection lawsuits take little or no time

away from your daily work.

In rare cases, you may have to answer discovery &/or

appear for a trial, but a good attorney can minimize

disruption to your normal work flow.

In both MO & KS, you can dismiss a case once anytime prior

to trial, for any reason or no reason, as a matter of right.

Once an account is placed for legal, the

attorney takes over & resolves the debt

as necessary.

Myth.

The attorney is your representative in the legal process;

whether to resolve the claim, when & how is always up to you.

In fact, the file & everything in it is YOUR property, cover to cover, we

simply maintain it for you as your agent.

The attorney advises, client decides. If the attorney is

experienced & trusted, most clients defer to their expertise but

they don’t have to.

Attorney often is best situated to understand procedural status,

legal defenses, etc. & protect the client’s interests.

Before I talk to anyone about their debt,

I’m required to inform them I am a debt

collector.

Truth.

FDCPA requires certain disclosures, including attorneys.

You may have heard what we call the “mini-Miranda”: this

is an attempt to collect a debt and any information

obtained will be used for that purpose.

If the defendant doesn’t appear for their

court date or file an answer, a judgment

can be entered.

Truth.

This is called a default judgment, & is typically entered in

the amount(s) prayed for in the petition.

Other prerequisites sometimes must be met, such as

verification or testimony regarding the amount of

damages.

Missouri tends to have more stringent requirements than Kansas,

but it depends on the county.

If the parties do not resolve the case, it

would be presented to a jury to make a

decision.

Myth.

Unless a party makes a jury demand, the case would be

heard & decided by the assigned judge.

The overwhelming majority of cases are not tried & get

resolved. Those that are tried are typically tried to the

bench because the amount in controversy is not sufficient

to warrant the extra time & expense of empaneling a jury.

Once a judgment is entered, the debtor

must pay or make arrangements to pay

within a reasonable time.

Myth.

Many judgment debtors lack the means or willingness to pay the

debt, even after a judge legally determines it is owed.

You’ve probably heard of the term “judgment proof”; many

judgments never get paid & lapse

At all stages of litigation the attorney along with the client

should be weighing not only the likelihood of prevailing on the

merits, but the collectability of any judgment, especially in the

context of settlement negotiations.

The real expertise of a collection attorney is in collection of

judgments, not just obtaining the judgment. Some are paid

voluntarily (credit, moral obligation, desire to avoid further

legal action), some are paid involuntarily (liens, garnishments,

levies, foreclosures, etc.).

A real property lien is a way to collect

on a judgment immediately.

Myth. It is effective in some cases, but usually not right away.

We place a lien in county records by having the judgment

transcribed, & is effective against the property whether you know

what property the debtor(s) has/have an interest in or not.

A real property lien can be foreclosed. However, all senior

lienholders would get paid the proceeds of the sale first, every

penny, in order (mortgages are usually first lienholders).

In practice, what happens is that rather than foreclosing on the

lien, it remains attached to the property until it is either sold or

refinanced, at which time a title insurance company will insist

that it be paid by the homeowner, either up front or out of the

proceeds of the sale. We like those calls.

The best collectors & collection attorneys

are stubborn, rude & disconnected from

normal human emotions.

Myth! We are people, believe it or not.

I find most people want to pay their just debts, but there

are of course exceptions. Likewise I find, nearly without

exception, people want to be heard & treated with respect.

The best collectors & attorneys listen & have a capacity for

empathy. They are also knowledgeable about the process, savvy

& creative. There are many opportunities to work with people, if

you know what to look for.

We believe this is what our clients would want. We believe we

are an extension of our clients. How we treat every single person

is important every single day. How we do anything is how we do

everything.

A good recovery rate for legal

collections is about 80%.

Myth!

Our statistics tend to show that a good recovery rate is in

the 35 – 40% range, of total principal balance placed for

collection.

Why?

People move, residence & jobs, & they’re hard to track.

Some people are judgment proof (living on public assistance,

social security, disability, file bankruptcy, etc.)

Remember, legal collections is the place of last resort; we don’t

get the ones that pay easily, we have to work at it.

TRUTH OR MYTH?

[bankruptcy]

Bankruptcy is governed exclusively by

federal law.

Truth, mostly.

The Bankruptcy Code is a federal law, just like the tax code.

However, it does incorporate state-level debtor exemptions so

the state you live in & where you file might still matter.

Why federal? Important to have a more uniform approach

throughout the country.

If the defendant files bankruptcy,

there’s nothing you can do.

Myth, partially.

Bankruptcy estate established on date of filing, automatic stay

means all collection efforts must cease (generally).

You can’t do anything to prevent someone from filing, but you

can file a claim telling the bankruptcy trustee what you are

owed.

Bankruptcies filed by consumers are either Chapter 7

(liquidation) or Chapter 13 (reorganization). If you don’t file a

claim, you won’t get paid.

Personal bankruptcies are becoming

more common.

Myth.

The American Bankruptcy Institute reports year-over-year filings have

declined for 50 consecutive months. For example, January 2014 had 65,347;

January 2015 had 56,588, representing a 13% decline.

Why?

Perceived high cost to file (much more than it used to be)

Sustained low interest rates on debt (if rates go up, they expect more

filings)

Restructuring of bankruptcy laws under BAPCPA of 2005 (Bankruptcy Abuse Prevention & Consumer Protection Act) made filing more difficult, time-consuming, etc.

According to a recent study from the American Bankruptcy Institute, filings

declined 10% in 2015 (as compared to 2014), reaching their lowest levels

since 2006. Total commercial filings fell 14% for the same period.

According to American Bankruptcy Institute, total non-business bankruptcy

filings in 2014 were 875,648; in 2015 total was 789,222.

Most people file bankruptcy because

they have medical bills & no insurance.

Myth.

According to a recent Harvard study, 62% of personal

(nonbusiness) bankruptcy filers cite medical bills as their

primary reason for filing; however, 78% of those had health

insurance.

Other reasons for filing bankruptcy, in order, were:

Loss of a job

Unwise use of credit (usually credit cards)

Divorce

Bankruptcy cases last several weeks.

Myth.

According to a 2014 BAPCPA study, of all Chapter 7

(liquidation) cases closed in 2014, they last a median of 107

(Western) & 112 days (Eastern) in Missouri; median of 140

days in Kansas. That’s about 3 – 4 months.

According to the same study, of all Chapter 13

(reorganization) cases closed in 2014, they last a median of

1,435 (Western) & 1,172 (Eastern) days in Missouri; median

of 1,543 in Kansas. For comparison, 3 years = 1,095 days,

and 4 years = 1,460 days.

Chapter 13 bankruptcies are thought to proceed successfully to

discharge in about 1/3 of cases.

MO’s 7-13 split = 68/32; KS’s 7-13 split = 57/43

Bankruptcies are most common in the

most populous areas of the east coast.

Myth.

The American Bankruptcy Institute tracks

bankruptcy filing rates. In all the US, in

2014 it was about 2.93 per 1,000

citizens.

What states had the highest filing

rates in 2014?

1. Tennessee 6.10

2. Alabama 5.28

3. Georgia 5.24

4. Utah 4.85

5. Illinois 4.66

Missouri was #16, 3.42

Kansas was #29, 2.61

In 2015, national filing rate was

2.63 per 1,000 citizens.

What states had the highest

filing rates in 2015?

1. Tennessee 5.73

2. Alabama 5.36

3. Georgia 5.02

4. Illinois 4.34

5. Utah 4.28

Missouri was #15, 3.14

Kansas was #26, 2.38

TRUTH OR MYTH?

[worker’s compensation]

If the services rendered were related to a

worker’s compensation claim, there’s nothing

you can do.

Myth, partially.

There is a “stay” similar to bankruptcy in both MO & KS.

Health care providers can file claims letting the parties

(employer, insurer, patient) know what is owed.

In MO, 2 types:

Application for Additional Reimbursement of Medical

Fees

Dispute with insurer over amount of payment

Application for Direct Payment

“Lien” while parties dispute whether the incident giving

rise to treatment is a compensable work-related injury

TRUTH OR MYTH?

[probate]

If the debtor dies, there’s nothing you

can do.

Myth, partially.

Some people die without any property & no estate is opened.

In that case there is, practically speaking, nothing to be

done.

If the decedent has assets, an estate will be opened (or can

be forced open by a creditor) so the assets can be accounted

for & distributed according to law. Distribution will be

affected by (a) the will if there is one, or (b) intestacy laws.

You can file a claim in the decedent’s estate, which notifies

the administrator & court of what you claim is owed.

No cost to file claim

In MO, priority claim if services were provided for last illness.

THE END Legal Collections & Bankruptcies: Truths & Myths

A presentation for HFMA

1pm Thurs 1/28/16 Brio on the Plaza

By: Scott Walterbach, Attorney at Law

Bessine Walterbach, LLP

www.bw-llp.com

scott@bw-llp.com