September 14, 2018
Author: Jonathan E. Kramer
Organization: Whitfield & Eddy P.L.C.
PITFALLS TO COLLECTIONS GENERALLY
There are a thousand things that can go wrong during collections: (a) someone can file bankruptcy –which changes the rules; (b) debtors and witnesses can hide assets; (c) people can move out of the state or out of the country; (d) you can draw a judge that is really slow on getting rulings out; (e) you can have a debtor that dodges service of process; (f) you can have a secured creditor with blanket security interests help the debtor avoid you; and all sorts of other issues.
Collections work is just tough. Even the government, who should be out trying to assist judgments have meaning, seems to be against you. Collections work is expensive, time consuming, and is not always successful. Moreover, reasonable collectors are sometimes lumped together with those in the industry that use threats and bully-tactics. No use crying about it. That is just how it is. So what? So have reasonable expectations. Think about these issues during the case, before you put 100 hours into trial preparation. Think early about what you are going to do if you win, and what your debtor might do if he or she loses.
Here is an example. According to Longnecker v. Deutsche Bank Nat. Trust Co., 842 N.W.2d 680 (Iowa Ct. App. 2013), in May of 2011, Deutsche Bank completed its sheriff sale on a house after a regular judicial foreclosure case. Then it got sued by it’s debtor claiming that Deutsche Bank had no rights to the house. The problem was that the judgment was entered in March of 2007, and there is a statute that says you lose your judgment two years after you get a judgment foreclosing a mortgage on the debtor’s residence.
Now Deutsche Bank was not just waiting that whole time, it had given the debtors a six month delay of sale, and then it was set to sell the home in February of 2008, but one of the debtor’s filed bankruptcy. After that bankruptcy, the bank tried again, and set the sale for December 30, 2008, but the same debtor filed another bankruptcy. After that bankruptcy was dismissed, the bank reset the sale for July 2, 2009, but the guy filed another bankruptcy. That bankruptcy was dismissed and then the Bank got another sale date of January 7, 2010 – and the debtors convinced the bank to cancel that sale because they had a short sale buyer. The bank set sales two more times that were each interrupted by bankruptcy petitions of the spouse, and then finally the bank completed sale lucky number seven. Unfortunately, the statute of limitations ran between tries number four and five (the court found that number four would have worked and was voluntarily cancelled). Of course the bank made lots of arguments why these conniving debtors should not get a free $700,000 home, but it lost.
PRIORITY AND PERFECTION
REAL ESTATE
Iowa is a notice state. In order to have an interest in real estate it is not sufficient for the instrument to be signed, it must also be recorded, or else the transferee risks loss to a subsequent purchaser for value. See Iowa Code § 558.41. Once filed, the transfer provides constructive notice to all others, so that they cannot be a bona fide purchaser for value. The recording act does not protect those that did not provide value (like lien holders). See e.g. Freedom Financial Bank v. Estate of Boesen, 805 N.W.2d 802 (Iowa 2011) (spouse was not a bona fide purchaser for value). Lis pendens actions provide notice, but also create a duty to intervene or else lose priority for unrecorded interests. See Iowa Code § 617.11.
UCC BASIC ISSUES – THE UCC IS NOT BASIC
Iowa’s version of the Uniform Commercial Code is contained in Iowa Code chapter 554. Although the UCC covers many issues (270 pages or so) for purposes of basic collection law we care most about the ideas of categorization of property, priority and perfection. The UCC generally answers questions as to who holds various rights to personal property, and what the procedures are to determine and enforce those rights.
CATEGORIZATION
UCC rules are different depending on whether the property involved is “equipment”, “inventory”, “general intangibles”, “accounts”, “proceeds”, “fixtures”, “securities” (which can be “certificated” or “uncertificated”), “accounts” or something else entirely. Moreover, the definitions are generally UCC specific and UCC limited, so these terms for UCC purposes are completely different than the standard usage. For example, a bank account is not an “account” and a car dealer’s “inventory” might be split up into “equipment”, “inventory”, and “proceeds”. These topics are issues the lawyers can fight over, because the categorization may make the difference between getting paid and paying someone else.
You can find many of the definitions in Iowa Code § 554.9102(1), for example: Iowa Code § 554.9102(1)(ap) defines a “general intangible” as “any personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money, and oil, gas, or other minerals before extraction. The term includes payment intangibles and software.”
Iowa Code § 544.9102(1)(aw) defines “investment property” as a “security”, whether certificated or uncertificated, security entitlement, securities account, commodity contract, or commodity account.” Iowa Code § 554.8102(1)(o) defines a “security” this way: “except as otherwise provided in section 554.8103, means an obligation of an issuer or a share, participation, or other interest in an issuer or in property or an enterprise of an issuer: (1) which is represented by a security certificate in bearer or registered form, or the transfer of which may be registered upon books maintained for that purpose by or on behalf of the issuer; (2) which is one of a class or series or by its terms is divisible into a class or series of shares, participations, interests, or obligations; and (3) which: (a) is, or is of a type, dealt in or traded on securities exchanges or securities markets; or (b) is a medium for investment and by its terms expressly provides that it is a security governed by this Article.” These definitions were chosen as examples to illustrate the complexity of the UCC and the importance of not assuming that a term means what you think it means.
PRIORITY AND PERFECTION
Iowa Code § 554.9322 states the three most important general rules: (1) generally conflicting perfected security interests in the same collateral rank according to priority in time of filing or perfection; (2) a perfected security interest has priority over a conflicting unperfected security interest; and (3) the first security interest that attaches has priority over other conflicting unperfected security interests. There are all sorts of exceptions and details, but those are the general rules. So what does that mean?
It means that if you get a security interest on January 1, and didn’t follow the other rules for perfection, and you liquidate the collateral but you did not realize that someone else got a security interest on July 1 and perfected it, then that other creditor gets to come get the property from you or sue you for conversion and potentially punitive damages.
For some categories of property filing a proper UCC-1 financing statement with the secretary of state’s office will perfect a security interest, for other categories, only possession will work, other categories have other rules. Many types of property can be perfected in multiple ways, or can be temporarily perfected one way, to give you time to properly perfect another way. It just all depends on the classification of property.
Sufficiency of Filing. A UCC-1 financing statement must be “sufficient” for it to be considered properly filed. Sufficiency is governed by 554.9501 et seq. Iowa Code § 554.9503 provides for establishing what the name of the debtor is for purposes of filing. For example, Iowa Code § 554.9503(d) provides that people who have been issued a driver’s license or state ID must be identified based on that ID, unless they have multiple IDs, and (e) provides that people who have not been issued an ID in this state must be identified by their “surname” and first “personal name”. You can sure have fighting issues about what a surname or personal name is, when you consider married names, cultural names and norms, and people trying to assert their identity through their name.
ENFORCEMENT
If you obtain a security agreement, and the debtor defaults, the debtor is entitled to certain notices or else you lose your deficiency debt and may be liable to the debtor for damages. See e.g. Iowa Code §§ 554.9608, .9611, .9625.
What does all this mean? It means you should search the UCC filings on your debtors and you should consider whether other creditors are properly perfected or not when developing your collection strategy. It also means that asking about your debtor’s history of residence and name might be advantageous in some circumstances.
It also means that you very often will not have the information available to you as an involuntary creditor, creating involuntary transfers that other creditors (banks) have available to them, so you are always the underdog. It means that debtors can sometimes transfer property out from under you after you have (or think you have) seized it. It means that you can subject yourself to liability if you do it wrong.
I have attached no materials to this section because Article Eight and Nine alone are 100 pages. I recommend keeping a copy of the whole UCC available however, so I have included the link:
https://www.legis.iowa.gov/docs/ico/code/554.pdf.
SPECIFIC PROPERTY – REAL ESTATE
Real Estate can come in a variety of styles, each with its own unique complications. Generally land is categorized either as agricultural, residential, or commercial and is either improved or unimproved. For land that is improved, any owner of the land takes with it certain greater obligations for and liability for injury, maintenance, and repair.
1. Perfection – In order to perfect a lien on real estate in many jurisdictions you only need to transcribe your judgment into the county in which the land sits. That land will then be charged with the lien of your judgment from the date the judgment is recognized by that county. Iowa Code § 624.23. In many jurisdictions this is the only mechanism to obtain a perfected lien on real estate, and therefore the judgment must be re-transcribed into every county in which your debtor owns real estate.
2. Priority – Even if there is no equity in the property because there are several other creditors that have superior judgments or mortgages on land, there may still be value in executing against real estate because it removes the debtor from the property and grants you possession until those other creditors go through the same process or through the foreclosure. Priority is usually determined by a “first in time” rule. The first in time rule usually does not differentiate between the types of real estate interests involved. There are exceptions, however, for certain types of interests that may have retroactive effect such as mechanics’ liens or interests given to buyers who are aware of other prior unrecorded interests.
3. Execution – Execution can be done through standard methods by the county sheriff in most instances, however some real estate is exempt from execution or partially exempt from execution as homestead. See Iowa Code chapter 561. Certain types of real estate also may have very short statutes of limitations to execute. See Iowa Code § 615.1. There may also be other rules of which you need to be aware such as periods of redemption or ability for parties to partition. Before executing on real estate, a party should be aware of any ownership limitation imposed by the state. For example, Iowa has a redemption period from general executions, during which time the debtor remains in possession. See Iowa Code § 628.3. Although not applicable nationally, some areas of the country have limitations on the ability of corporations to own agricultural land. See Iowa Code § 9H.4 (general prohibition on corporate farming). These limitations do not generally prohibit banks from obtaining such land through foreclosure but they may have effects particularly on private entities collecting debt or on banks who attempt to use wholly owned subsidiaries to accept real estate into REO. See Iowa Code § 9H.4(e) (potential exception for acquisition but not for leasing agricultural land).
Execution should not be undertaken lightly, as it often creates personal liability for property taxes, premises liability for injuries, duties of reasonable care to maintain the property, duties for environmental cleanup, duties to support local homeowners or condo association owners’ organizations and may remain subject to any restrictions and special assessments of those organizations. When dealing with commercial land, there may be various development rights or agreements in place with local governments that could be binding on future owners of the land. When dealing with agricultural land, there may be restrictions on the availability of government programs for certain owners. All of these issues should be investigated prior to sale.
4. Exemption – Homestead exemptions are available in virtually every jurisdiction as well as under the bankruptcy code for those filing for its protections. In most states, homestead exemptions are limited to a particular value and are not related to the type of home involved. Iowa has a geographic requirement. See Iowa Code chapter 561. Each jurisdiction is going to have different rules regarding how that homestead exemption is claimed and the procedures for determining the homestead or limiting the homestead. Most states allow a person to only claim a single homestead per intact family. There are often limitations on homestead exemptions for families that are not intact such as a couple currently going through a divorce or that are physically separated. There are also substantial issues relating to homesteads for people that have houses in multiple states as to how those homesteads are claimed and most of those issues relate to the intentions of the individuals involved.
5. Pitfalls – Real estate has fewer pitfalls and difficulties than virtually every other asset class. With respect to real estate there is little risk that the real estate will move, there is obvious risk of potential destruction of the property and of liability for accidents on the property, however there is often insurance available. There is also environmental concern and that environmental concern is substantial in some instances. Real property generally has a real estate tax associated with it which is a cost of caring for the property but real estate also has certain income potential which benefits the creditor on occasion. As stated above, some states have redemption periods where a person who has had their property sold at execution is entitled to either a right of first refusal or right to buy back the property at interest from the time of the sale and in some circumstances, the person is allowed to remain in possession of the property during the redemption period. As the size and complexity of the real estate increases, the pitfalls also increase.
6. Mechanic’s Liens - Mechanic’s liens in the private context are governed by Iowa Code chapter 572. This chapter has changed relatively recently, so that now much of the administration of the liens is handled through the secretary of state. The key pitfall for liens is that even if you search for them, you may not find them all because, pursuant to Iowa Code § 572.18 they can have retroactive priority from as long as 89 days after the completion of work to the original commencement of the work.
7. Environmental Liability – Although there are several statutes that impose liability for hazardous waste cleanup, it is sufficient for our purposes to point out one potential such act. The Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) imposes strict liability on any person in the chain of title regardless of fault and each such person is jointly and severally liable for the entire cleanup cost. See Superfund Liability attachment from EPA website.
SPECIFIC PROPERTY – PERSONALTY
Personalty encompasses a broad range of property. Some of the more common unusual rules are listed herein.
1. Debts to the Debtor. Money and promissory notes and the like owed to the debtor can be levied upon at their face (par) value. Iowa Code § 626.87.
2. Appraisal. Personal Property generally has to be appraised before being sold, but appraisal does not mean expert appraisal, it means something of substantially less quality. Iowa Code § 626.93. The appraisal is only used to limit the bidding at the sale.
3. Airplanes and airplane related parts (propellers, engines, etc.) are not covered under standard security agreements or UCC filings. Those security interests must be registered with the FAA. See Guide attached. See also 49 USC § 44103.
4. The Surface Transportation Board acts in a similar capacity for railroad “rolling stock.” See 49 USC § 11301(a).
5. The U.S. Coast Guard Documentation Center is at least one place to look regarding documentation for marine vessels, but that agency is not a required depository for such transactions or documentation. See 46 USC § 31301 et seq.
6. Any property located within a leased building, warehouse, shop or other place of business may be subject to claims of liens by the building or shop owners under various statutory laws (e.g. Landlord’s liens, Warehouseman’s Liens, Artisan’s Liens). See generally Iowa Code chapters 570-584.
7. Wages – limited by state and federal law. Iowa Code limits are contained in Iowa Code §642.14 and Iowa Code § 630.3A. See also Notice of Garnishment Form (attached).
SPECIFIC PROPERTY – BUSINESS INTERESTS
LLC/Partnership Interests - Commercial debtors often have interests in multiple business entities. Very often these are not the long term family manufacturing companies that would have been an incorporation started nearly a century ago but instead are very new single purpose entities created to have little accumulated wealth. Commonly used business entities for asset protection purposes include, but are not limited to, limited liability companies, limited partnerships with limited liability companies as general partners, and trusts.
Most local and national business bar associations have encouraged, lobbied for and obtained, easy mechanisms for protecting invested money in business ventures. Limited liability company statutes are a product of bar associations wishing to have the informality and flexibility of partnership law merged with the clear limited liability for investors of corporate law. Often a business entity with one or few owners can use that entity to obtain limited liability from their own actions. This conglomeration of law has resulted in an exceptionally effective asset protection vehicle, so it is often used by practitioners.
Ownership in corporations is held in shares and those shares can be executed against as most other normal personal property. The owner of the shares are then entitled to all of the normal aspects of ownership, including full voting rights and access to certain information regarding the company. Limited liability companies are not similar. Very often limited liability company statutes contain a provision, passed down from old partnership law that allows an exclusive remedy for creditors of a member in a limited liability company. That remedy is a “charging order”. A charging order must be obtained judicially rather than through the sheriff’s office execution procedure. A charging order is effectively an involuntary assignment of any future rights to payment from the limited liability company to a member of a limited liability company in their capacity as member.
1. Perfection – Perfection is going to be determined by the local law of the entity of the jurisdiction in which the entity is formed and often requires action to be taken in that same jurisdiction. A charging order, once granted by a court, must be served on the registered agent or appropriate officer of the limited liability company and must be noted on the books of the company. Perfection obviously causes some problem with the officer of the limited liability company when the registered agent of that company is also that same debtor member against whom the assignment is granted. (But a limited liability company can opt into the security rules under the UCC – See Iowa Code § 554.8103.)
2. Priority –Most limited liability statutes are vague as to how the company should handle multiple charging orders against the same interest. Although a first in time rule should perhaps apply, charging orders for LLCs are creatures of statute and no statutory guidance exists.
3. Execution –Under some versions of the Limited Liability Company Acts as enacted by the jurisdictions within the United States, in the event the charging order does not result in full payment of the judgment within a reasonable time, the Act provides for the court to then order execution of the entirety of the membership or partnership interest through the normal execution process. This would be an action of special execution rather than general execution.
4. Exemption –Business interests are normally exempt under standard exemption language in most states, however because business interests are personal property they may be subject to an exemption of any state that contains a “wildcard” or general monetary exemption without respect to the type of property. This type of claim can add excessive burdens on the creditor as business valuation can be an expensive fact issue for the Court to determine. If possible, I would recommend allowing the exemption to be paid first out of proceeds and being prepared to bid cash of the exemption amount if necessary.
5. Pitfalls – Owning a charging order against a membership in a limited liability company or an interest in a partnership does not grant control rights to the creditor, and therefore it does not put the creditor in a position to have any liability to others. As a result, there are few factors that could be considered pitfalls for being the beneficiary of a charging order. Conversely, in the event the creditor completes execution against the membership interest or partnership interest, at that point the creditor becomes a full “assignee” of the interest on a permanent basis. Most statutes provide that the creditor is still not entitled to any control over the entity but now would be responsible for any phantom income associated with the business entity but may have less of the protections against a normally afforded minority interest holders against freeze out tactics or dilutive share splits.
Stock – Unlike LLCs and partnership interests stock is more straightforward. Either the stock is in a certificate form or it is “issued” in the books of the company. Certificated stock is only bound by the restrictions on transfer shown on the stock certificate itself (or incorporated by reference thereon), whereas uncertificated stock can be bound by any number of bylaws or corporate stock transfer agreements. This would make certificated stock appear more attractive, however, certificated stock can only be executed upon by having the shares themselves in the possession of the sheriff. Uncertificated stock can be “seized” by simply serving a notice of levy on the company, making uncertificated securities easier to control.
1. Perfection and Priority – If uncertificated, perfection is by seizure by levy on the company, but priority is based on UCC-1 filings and first in time. If certificated, both perfection and priority are by possession.
2. Execution – Seizure and sale.
4. Exemption – Same as LLC Interests above.
5. Pitfalls – (1) Finding the shares; (2) having the sale accepted by the Company; (3) dealing with restrictions on transfer; (4) going through a “lost or stolen share” reissuance process at the company; and (5) having the company take action to dilute the shares (with or without notice), all can be problematic. If the corporation is an “s” corporation, there is also tax liability.
INTERSTATE/INTERNATIONAL COLLECTIONS
Each state has a statutory procedure for how to enforce and domesticate judgments from other states and even foreign jurisdictions. Generally those statutes provide that the judgment from the first state must be certified by a judge, that judge’s certification must be authenticated by the clerk of court in that jurisdiction indicating that the judge is active and that clerk’s authentication must be re-certified by the judge indicating that the clerk of court acted appropriately within the jurisdiction.
In Iowa, Iowa Code chapter 626A provides the procedures for registering a foreign state judgment in Iowa, Iowa Code chapter 626B provides the procedures for registering a foreign country judgment in Iowa, and Iowa Code chapter 626D provides the procedures for registering tribal government judgments.
Filing of foreign judgments will be given full faith and credit generally, however, the debtor is also generally entitled to a time period to assert a collateral attack prior to enforcement. For that reason, judgments will not be entitled to create liens immediately upon filing. See e.g. Iowa Code § 626A.3.
COMMERCIAL VS. CONSUMER
MEDICAL DEBT
Medical debt is generally treated as consumer debt. Generally collectible like other consumer debt, except if worker’s compensation is involved. See Iowa Code §537.7103(7) (“A debt collector shall not collect or attempt to collect charges from an employee or an employee’s dependents for treatment rendered the employee by any health service provider, after receiving actual notice that a contested case proceeding for determination of liability of workers’ compensation benefits is pending as provided in section 85.27, subsection 6.”) For my purposes, getting a copy of the file stamped petition with the commissioner, and an agreement from the lawyer to inform me of any settlement, ruling, or dismissal is sufficient. This provision appears to apply to debts greater than $25,000 (because “charges” is undefined in the statute).
LANDLORD-TENANT
Actions for rent are generally not consumer debt, because they are governed under a separate and distinct act that provides for attorney fees, limits collateral, and otherwise strikes a balance between landlords and tenants, under state law. Assignment of those debts to a collection agency will likely bring those debts into the fold of the FDCPA as debts incurred for a household purpose. See Staley v. Barkalow, 834 N.W.2d 873 (Iowa Ct. App. 2013) (citing to the Uniform Consumer Credit Code to support understanding and interpretation of the Uniform Residential Landlord and Tenant Act).
FAIR DEBT COLLECTIONS PRACTICES ACT
The FDCPA generally protects consumers from overbearing collection tactics of debt collectors. If you fall within the statute, and violate it, the case against you can have some teeth. The details about what the statute requires is too onerous to go through in a seminar that is not specifically on those topics, so for our purposes we will just say, you have to make disclosures to the debtor, you have to not lie to, harass, or trick the debtor, and you have to protect the debtor’s privacy.
With that said, we will cover what brings your case into the statute, we will then cover the debtor’s remedies, and finally some points to protect yourself.
KEY DEFINITIONS
Consumer: “means any natural person obligated or allegedly obligated to pay any debt.” 15 USC § 1692a(3). Notice that companies are not consumers, and people who don’t owe and you don’t claim to owe you money are not consumers.
Creditor: effectively is limited to that actual person legally owed the debt. 15 USC § 1692a(4). Notice that this is not the same as a “debt collector.”
Debt: an “obligation or alleged obligation to pay money arising out of a transaction in which the money, property, insurance, or services which are the subject of the transaction are primarily for personal, family, or household purposes. . . .” 15 USC § 1692a(5). An obligation to deliver documents is not a debt. A debt requires a “transaction.” Duffy v. Landberg, 133 F.3d 1120, 1124 (8th Cir. 1998). It is not a “debt” if the transaction was for commercial purposes i.e. buying a house for a rental or flip. Petsche v. EMC Mortg. Corp., 830 F.Supp.2d 663 672 (D. Minn 2011) (mortgage to buy “investment property single family home was not under FDCPA).
Theft creates debt, but is not a transaction for purposes of FDCPA. Coretti v. Lefkowitz, 965 F.Supp. 3 (D. Conn 1997); but see Hansen v. Ticket Track, Inc., 280 F.Supp.2d 1196 (W.D. Wash. 2003) (court found tort was contract action in part because defendant claimed it was debt not damages).
Debt Collector: any person [in interstate commerce] in any business the principal purpose of which is the collection of any debts, or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.” The definition is expanded to also include anyone who collects their own debts in a different name. The definition specifically excludes employees in their individual capacity, certain sister entities under limited circumstances, and sometimes people who only assist in the enforcement of security interests, like repossession firms. Other exclusions and limitations apply.
REMEDIES
Violations of the act create a cause of action in the debtor for: (1) actual damages, (2) up to a $1000 in statutory additional damages, and (3) reasonable attorney fees. 15 USC § 1692k(a). Statute of limitations is generally one year. 15 USC § 1692k(d).
PROTECTIONS
Maintain written policies to appropriately train collectors, provide for human contact, human review and human follow up. 15 USC § 1692k(c) (bona fide error rule). Engage professional collectors and include in the contracts with your collectors an indemnification provision for collections practice and procedure violations, unless caused by you. Also, bad faith or harassing lawsuits can result in attorney fees against the plaintiff. 15 USC § 1692k(a)(3).
WHAT ISN’T IN THE STATUTE?
Overshadowing. You can’t give the statutory disclosure and also make some other statement that arguably is different/lesser than the disclosure. Ex. “You have 30 days to dispute this debt. But if you don’t pay it in five days I am going to file suit.” Russell v. Equifax ARS, 74 F.3d 30 (2d Cir. 1996).
What is a reasonable attorney fee. If you confess judgment or offer settlement of $2,000 in first five days, could you still be on the hook for a substantial fee? Ryan v. Allied Interstate, Inc., 882 F.Supp.2d 628 (S.D.N.Y. 2012) ($300 hourly rate reasonable for partner, Defendant confessed judgment for “reasonable fee”, and court decreased $7000 fee claims to $3000) Can you require the debt be offset against your claim? In re Acosta-Garriga, 2013 WL 3853200 (M.D. Fla 2013) (setoff allowable if state law provides).
Is a lawyer a debt collector? See Glazer v. Chase Home Finance, LLC, 704 F.3d 453, 464 (6th Cir. 2013); but see Natividad v. Wells Fargo Bank, N.A., 2013 WL 2299601 (N.D.Cal. 2013) (declining to follow Glazer); Piper v. Portnoff Law Assocs., Ltd., 396 F.3d 227 (3d. Cir.
2005) (using different logic than Glazer).
The FDCPA has lots of requirements including, but not limited to: debt verification, limits on when communications can be made, requirements that all communications communicate that you are a debt collector, and requirements to identify information regarding the debt history in the initial communications to the debtor.
Making a legal error is not a defense, and relying on advice of counsel is not a defense.
IOWA CONSUMER CREDIT CODE
Similar to the FDCPA except:
(a) It only applies to transactions entered into in this state; Iowa Code § 537.1201(1)(a).
Or is modified in this state; Iowa Code § 537.1201(1)(b).
Or solicitation, inducement, negotiation, collection or enforcement was done in this state;
Iowa Code § 537.1201(1)(c).
(b) Debts generally must be either payable in installments or a finance charge is included in the debt; Iowa Code § 537.1301(13)(a)(4).
(c) Debts must be less than $25,000; Iowa Code § 537.1301(13)(a)(5).
(d) Real estate sales with APRs less than 12%; Iowa Code § 537.1301(13)(b)(2).
(e) The act prohibits attorney fees. Iowa Code § 537.2507.
(f) The act prohibits taking a security interest in property other than that sold. Iowa Code § 537.3301(1).
(g) Consumers have the right to a notice of default and right to cure; Iowa Code § 537.5110.
(h) Damages in favor of a consumer may be setoff against the debt even after the statute of limitations runs; Iowa Code § 537.5202.
(i) Willful violations of parts of the act are criminalized; See Iowa Code § 537.5301(4).
(j) Debt collectors have a duty to register if they collect more than $25,000 in a year; Iowa Code
§ 537.6201(2).
(k) Debts include those collected by the creditor – not just the debt collector; Iowa Code § 537.7102(5).
(l) A few stricter obligations, disclosures and other rules; Iowa Code § 537.7103.
TORT JUDGMENT DIFFERENCES
Although bankruptcy will be discussed elsewhere in the presentation, I wanted to point out that some tort debts may be excepted from discharge in bankruptcy if the request to except from discharge is timely raised in the bankruptcy case, or potentially if the debt was not scheduled and no notice was provided the creditor. See In re Everly, 346 B.R. 791 (8th Cir. BAP 2006).
Particularly, the following types of debts are allowed to be excepted from a bankruptcy discharge:
a) Debt for money, property, or services to the extent obtained by false pretenses, a false representation or actual fraud, other than regarding the debtor’s or an insider’s financial condition; 11 USC § 523(a)(2)(A).
b) Debt for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny; 11 USC § 523(a)(4); See In re Pottebaum, 2013 WL 5592368 (N.D. Iowa Bankr. Oct. 9, 2013) (citing Hunter v. Philpott, 373 F.3d 873 (8th Cir. 2004))(must have specific fund trust arrangement, and not general obligation to fund employee plan – also employee withholdings entitled to greater protection than employer contributions).
c) Debt for willful and malicious injury by the debtor to another entity or to the property of another entity; 11 USC § 523(a)(6); Kawaauhau v. Geiger, 523 US 57 (1998) (reckless and negligent injuries are not included in the meaning of “willful and malicious injury”); In re Porter, 375 B.R. 822 (8th Cir. BAP 2007) and 539 F.3d 889 (8th Cir. 2008)) (Punitive damages award in employment action for willful and malicious injury under federal law is claim preclusive in bankruptcy under § 523(a)(6)); In re Foushee, 283 B.R. 278 (N.D. Iowa Bankr. 2002) (dischargeability includes attorney fees, punitive damages and actual damages - 523(a)(6) is directed at the nature of the conduct giving rise to the debt, rather than the nature of the debt); In re Hussain, 2012 WL 1098277 (S.D.Iowa Bankr. 2012) (An intentional tort inherently satisfies both the willful and malicious components of 523(a)(6)).
Also, wage claims and employee benefit plan claims have higher priority payment status (compared to unsecured creditors) if incurred within 180 days of cessation of business or the filing of the bankruptcy petition, whichever first occurs. See 11 USC § 507(4)&(5).