Step-by-step debt claim cases: filing through judgment

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Step-by-Step Debt Claim Cases: Filing Through

Judgment

Hon. Amy TarnoJustice of the Peace, Pct. 2

Kaufman County

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What we will cover

• Step 1: How Do You Know if it’s a Debt Claim Case?

• Step 2: Filing the Petition

• Step 3: Default Judgment• Step 3A: Proof of Damages• Step 3B: Hearing• Step 3C: What if Defendant Appears?

• Step 4: Remote Mediation?

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What we will cover

• Step 5: Trial

• Step 6: Calculation of Interest• Step 6A: Pre-Judgment Interest • Step 6B: Post-Judgment Interest• Step 6C: After Trial • Step 6D: After Default Judgment• Step 6E: After Agreed Judgment

• Step 7: Judgment

Step 1: How Do you know if it’s a debt claim case?

▪A debt claim case is a suit to recover a debt by an assignee of a claim, a debt collector or collection agency, a financial institution, or a person or entity primarily engaged in the business of lending money at interest.

-- Rule 500.3(b)

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What is a debt claim case?

▪ Debt Claim Cases are for no more than $20K, including attorney’s fees and contractual interest, but excluding court costs.

What is a debt claim case?

▪ What makes it a debt claim case is that: • it is a suit to recover a debt, and • it is brought by an assignee, a debt

collector or collection agency, a financial institution, or a person or entity primarily engaged in the business of lending money at interest.

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What if Someone Else

sues to recover a debt?

▪ If a person brings a suit to recover a debt, but the person filing the suit is not: ▪an assignee of a claim, ▪a debt collector or collection agency, ▪a financial institution, or ▪a person or entity primarily engaged in

the business of lending money at interest,

▪ then the case is treated as a small claims case rather than a debt claim case.

Poll

• Jeff loans Bronson $1,000 which Bronson promises to repay as soon as he gets back from Las Vegas. But what happens in Vegas stays in Vegas and so does Jeff’s money. Jeff sues in justice court to get it back.

• Jeff’s suit is:

• A debt claim case since Bronson owes a debt.

• A small claims case since Jeff is not a loan shark (or person in the business of lending money at interest etc.).

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Step 2: Filing the petition

A petition in any case in justice court must contain the following information:

• The name of the plaintiff;

• The address, telephone number and fax number, if any, of the plaintiff, and the name, address, telephone number, and fax number, if any, of the plaintiff’s attorney, if the plaintiff has an attorney;

• The name, address and telephone number, if known, of the defendant;

• The amount of money, if any, the plaintiff is asking for;

Step 2: Filing the petition

• A description of any other relief the plaintiff is requesting;

• The basis for the plaintiff’s claim against the defendant

• In other words, an explanation of why the plaintiff believes they are entitled to win their case; and

• If the plaintiff consents to email service of the answer and any other motions or pleadings, a statement consenting to email service and their email contact information.

-- Rule 502.2(a)

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Step 2: Filing the Petition

But a petition in a debt claim case must contain certain information IN ADDITION to the information (listed above) that must be included in a petition in a small claims case.


▪The reason for requiring this additional information is to identify the debt and give the defendant enough information to know that the debt was incurred by them!

▪For example, the plaintiff is suing for a debt on a credit card that the defendant once used but no longer has!

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▪Often in a debt claim case the plaintiff is not the bank or other business that issued the credit card or extended credit to the defendant.▪The debt has been assigned to a debt collector or other business

that the defendant never heard of and doesn’t recognize.

▪So it is important to give the defendant the information they need to know whether or not this is a debt they actually incurred!

Step 2: Filing the petition --Additional information

Therefore, in a claim based on a credit card, revolving credit, or open account, the petition must state:

• The account name or credit card name;

• The account number (which may be masked);

• The date of issue or origination of the account, if known;

• The date of charge-off or breach of the account, if known;

• The amount owed as of a date certain; and

• Whether the plaintiff seeks ongoing interest.

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Step 2: Filing the petition –Additional information

If a plaintiff seeks ongoing interest, the petition must state:

• The effective interest rate claimed;

• Whether the interest rate is based upon contract or statute; and

• The dollar amount of interest claimed as of a certain date.

Step 2: Filing the Petition –Additional Information

If the debt that is the subject of the claim has been assigned or transferred, the petition must state:

• That the debt claim has been transferred or assigned;

• The date of the transfer or assignment;

• The name of any prior holders of the debt; and

• The name or a description of the original creditor.

-- Rule 508.2(a)

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Breakout Discussion

▪ What do you typically see in debt claim petitions?▪ Do they usually request interest?

▪ If not, why is that?▪ What if they don’t list the names of the original holder of the debt or any other prior holders?▪ What difference does that make?▪ What should you do differently?▪ If you were a defendant what would you want

to see to make sure this is real?

Step 3: DEFAULT JUDGMENT

A default judgment is an order granting a judgment to the plaintiff when the defendant fails to file an answer or otherwise respond to the petition after being properly served with the citation.

-- Rule 503.1

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Step 3: DEFAULT Judgment –NO ANSWER FILED

Requirements for a Default Judgment When No Answer Has Been Filed:

• The petition contains all the required information;

• The defendant has failed to file an answer by the due date in Rule 502.5 (14 days after service of the citation);

• Service of the citation was proper under Rule 501.2;

Step 3: DEFAULT Judgment –NO ANSWER FILED

• The plaintiff has proven the amount of damages owed by the defendant to the plaintiff;

• The plaintiff has filed the required military service affidavit and the court is not barred from granting a default judgment under the Servicemembers Civil Relief Act; and

• The plaintiff has provided the last known address of the defendant.

-- Rule 503.1

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Step 3: DEFAULT Judgment –POST-ANSWER Default

▪ If a defendant who has answered fails to appear for trial, then the court may proceed to hear the case just as they would at a normal trial and render judgment according to the evidence submitted.

▪ The defendant is presumed to be liable but the plaintiff still has to prove the amount of damages.

-- Rule 503.1(c)

Step 3A: PROOF OF DAMAGES

• Evidence of plaintiff's damages must either be attached to the petition and served on the defendant or submitted to the court after defendant's failure to answer by the answer date

• Evidence may be offered in a sworn statement or in live testimony and may include documentary evidence.

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• The amount of damages is established by evidence:

• (A) that the account or loan was issued to the defendant and the defendant is obligated to pay it;

• (B) that the account was closed or the defendant breached the terms of the account or loan agreement;


• (C) of the amount due on the account or loan as of a date certain after all payment credits and offsets have been applied; and

• (D) that the plaintiff owns the account or loan and, if applicable, how the plaintiff acquired the account or loan.

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Documentary evidence may be considered if it is attached to a sworn statement (usually an affidavit) made by the plaintiff or its representative, a prior holder of the debt or its representative, or the original creditor or its representative, that states the following:


• (A) the documents were kept in the regular course of business;

• (B) it was the regular course of business for an employee or representative with knowledge of the act recorded to make the record or to transmit information to be included in the record;

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• (C) the documents were created at or near the time or reasonably soon thereafter; and

• (D) the documents attached are the original or exact duplicates of the original.


A judge is not required to accept a sworn statement if the source of information or the method or circumstances of preparation indicate lack of trustworthiness.

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But a judge may not reject a sworn statement only because it is not made by the original creditor or because the documents attested to were created by a third party and subsequently incorporated into and relied upon by the business of the plaintiff.

Step 3B: HEARING

The judge may enter a default judgment without a hearing if the plaintiff submits sufficient written evidence of its damages and should do so to avoid undue expense and delay.

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Step 3B: HEARING

Otherwise, the plaintiff may request a default judgment hearing at which the plaintiff must appear, in person or by telephonic or electronic means, and prove its damages.

Is Zoom okay?

Step 3B: HEARING

• If the plaintiff proves its damages, the judge must render judgment for the plaintiff in the amount proven.

• If the plaintiff is unable to prove its damages, the judge must render judgment in favor of the defendant.

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Step 3C: APPEARANCE BY DEFENDANT

If the defendant files an answer or otherwise appears in a case before a default judgment is signed by the judge, the judge must not render a default judgment and must set the case for trial.

Debt Claim Default Judgment Flowchart (Handout 1)

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Scenarios (Breakout Discussion)

• Use the Debt Claim Default Judgment Flowchart (Handout 1) to help you rule in the following scenarios:• A. Defendant fails to file an answer. You look at the return of

service for the citation and are concerned about whether the private process server actually served the citation by personal delivery to the defendant as stated. How would you proceed?


• B. Defendant fails to file an answer. You review the affidavit and documents attached to the petition and notice that even though the plaintiff identifies the original creditor there is no information about how the plaintiff acquired the debt. Can you grant a default judgment? If not, what happens next?

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• C. Plaintiff fails to submit sufficient proof of damages to allow you to grant a default judgment without a hearing. Plaintiff then requests a hearing. Do you need to notify the defendant (who did not file an answer) of the hearing?


•D. After you notify the defendant of a hearing on plaintiff’s request for a default judgment, the defendant shows up in court. How should you proceed?

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Step 4: Remote Mediation?

• If both parties appear the court may consider ordering mediation, including remote mediation.

• The mediator tries to get the parties to agree on a settlement but if they do not agree then the case goes forward.

• This can be conducted remotely via Zoom.

Step 4: Remote Mediation?

• In Lubbock County more than 85% of debt claim cases where an answer is filed are settled through mediation!• Agriculture Commissioner Sid Miller is expanding the availability of

this mediation program to all counties with a population of 80,000 or less!

• For more information contact: Texas Dispute Resolution System at www.co.lubbock.tx.us

• See Handout 2: Standing Order sending case to mediation.

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http://www.co.lubbock.tx.us/

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Step 5: Trial

• If the case does not settle through the parties’ own efforts or mediation, and if both parties appear on the trial date, then the case should proceed to trial.

• What do you do if the defendant appears for trial but the plaintiff does not?

• Remember: the plaintiff has the burden of proof at trial.

Step 5: Trial

• In a civil case the burden is “by a preponderance of the evidence.”

• This means that the plaintiff must establish each element of their case by just a little more than 50%.

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Step 5: Trial

• If you (or the jury) consider all the evidence and conclude that on any given element of the plaintiff’s case (e.g. proof of assignment of the debt) it is 50/50 whether that is true or not, then the plaintiff has not met their burden.

• See Chapter 6 of the Civil Deskbook and the Trial Notebook.

Step 5: Trial

▪What about defenses?

▪For example: Statute of Limitations▪How long is it in a debt claim case?▪When does it start running?

▪What if the defendant doesn’t raise it?

▪Can you bring it up in order to “develop the case?”

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Step 6A: Calculation of Pre-Judgment INTEREST

• In a contract case the pre-judgment interest rate is determined by the terms of the contract and requires proof of the interest rate and the amount of interest due.• Why do plaintiffs in debt claim cases often not seek pre-

judgment interest?

Step 6B: Calculation of Post-Judgment INTEREST

• Post-judgment interest in a contract case is the lesser of:

• The rate specified in the contract, or

• 18 percent a year.

• A plaintiff who wins a contract case is entitled to an award of post-judgment interest unless they waive it.

-- Sections 304.001 and 304.002, Finance Code

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Step 6B: Calculation of

post-judgment INterest

▪ If the plaintiff prevails in a debt claim case, then in order to calculate the post-judgment interest rate the court should first determine whether the contract on which the suit was brought “provides for interest or [a] time price differential?”

-- Section 304.002, Finance Code

Step 6B: Calculation of

Post-judgment Interest

▪ In most debt claim cases the answer to this question will be yes.

▪ Many debt claim cases are based on contracts (like for a credit card) that provide for high interest rates!

▪ But if you have a debt claim case on a contract that does not provide for interest, then the post-judgment interest rate will be the statutory rate (currently 5%).

▪ For example, a suit to recover unpaid medical bills which is a suit on a contract but one that does not provide for interest or a time price differential.

-- Section 304.003,Finance Code

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Step 6b: Calculation of

POST-JUDGMENT INTEREST

▪ If the contract on which the debt claim case was brought does provide for interest or a time price differential, then:

▪ if it is more than 18%, the post-judgment interest rate is 18%;

▪ if it is less than 18%, the post-judgment interest rate is the rate specified in the contract.

-- Section 304.002, Finance Code

Step 6c: calculation of Post-JUDGMENT Interest rate AFTER TRIAL

▪ If a debt claim case is decided at trial, then the court should award as post-judgment interest either the contract interest rate or 18%, whichever is less.

▪ But what if the plaintiff never offered any evidence of the contract interest rate?

▪ The court may ask the parties to submit evidence on that issue or stipulate to the interest rate provided in the contract.

▪ The plaintiff could also waive post-judgment interest in which case the court enters zero as the post-judgment interest rate.

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Step 6D: calculation of post-judgment interest rate after a DEFAULT JUDGMENT

▪ In many debt claim cases the plaintiff submits a proposed order granting a default judgment.

▪ These proposed orders typically either:

▪ Specify zero as the post-judgment interest rate; or

▪ Leave the post-judgment interest rate blank.


▪ If the plaintiff specifies zero as the post-judgment interest rate, the court should accept this as a waiver of post-judgment interest and specify zero as the post-judgment interest rate in the judgment.

-- See Civil Deskbook at pages 95 – 96.

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▪ If the plaintiff leaves the post-judgment interest rate blank in their proposed order, the court should send the Order Concerning Post-Judgment Interest Rate (Handout 3 and next slide) to the plaintiff.

Step 6D: Order to Send to Plaintiff who does not specify post-judgment

interest rate in proposed default judgment

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▪ If the plaintiff does not respond to the Order within 10 days, the court should deem that to be a waiver of post-judgment interest and enter zero in the judgment.

▪ If the plaintiff responds by returning Form A (see next slide), and provides proof of the contract interest rate, the court should enter the contract rate or 18%, whichever is less.

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Step 6d: Form for plaintiff to return requesting post-

judgment interest

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Step 6E: Calculation of post-judgment interest rate after agreed judgment

▪ The procedure is similar if the parties submit a proposed agreed judgment.

▪ Typically, when the parties submit a proposed agreed judgment in a debt claim case, they either: ▪ Specify zero as the post-judgment interest rate; or▪ Leave the post-judgment interest rate blank.


▪ If the parties specify zero as the post-judgment interest rate, the court should accept this as a waiver of post-judgment interest and specify zero as the post-judgment interest rate in the judgment.

-- See Civil Deskbook at pages 95 – 96.

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▪If the parties leave the post-judgment interest rate blank in their agreed judgment, the court should send the Order Concerning Post-Judgment Interest Rate (Handout 3 and Slide 54 above) to the parties.


▪ If the plaintiff does not respond to the Order within 10 days, the court should deem that to be a waiver of post-judgment interest and enter zero in the judgment.

▪ If the plaintiff responds by returning Form B (see next slide), and the parties stipulate to the contract interest rate, the court should enter the contract rate or 18%, whichever is less.

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Step 6E: Form for plaintiff to return requesting post-

judgment interest

Post-judgment interest flowchart (Handout 4)

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Poll

▪The post-judgment interest rate in a debt claim case is:▪Never more than 5%.▪The rate specified in the contract or 18%, whichever is less.▪Whatever the court decides.

Poll

▪ If the plaintiff submits a proposed default judgment and puts zero as the post-judgment interest rate, the court should:

▪ Accept that as a waiver and specify zero as the post-judgment interest rate.

▪ Give the plaintiff 5% as the “statutory” rate.

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Poll

▪ If the plaintiff leaves the post-judgment interest rate blank in either a proposed default judgment or an agreed judgment, the court should:

▪ Send the plaintiff an order requesting clarification of the post-judgment interest rate.

▪ Enter zero as the post-judgment interest rate.

▪ Give the plaintiff 5% as the “statutory” rate.

Step 7: Judgment

▪ Every judgment must:▪State the determination of the rights of the parties;▪State who must pay the costs;▪Be signed by the judge; and▪Be dated the date of the judge’s signature.

-- Rule 505.1(c)

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Step 7: Judgment

Step 7: Judgment

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Step 7: Judgment

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Step-by-step debt claim cases: filing through judgment

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