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Debt buyers file massive numbers of complaints in California courts and in other state courts throughout the country. A large percentage of them result in a default judgment against a consumer defendant. A 2010 study of debt buyer lawsuits in New York City found that over 94% of the cases resulted in a default judgment.  I recently did my own informal review of cases filed by a debt buyer in San Francisco Superior Court, and could only find one case (out of dozens) where a defendant had filed an answer.

The business model of the debt buyer depends on the fact that most consumers will not take any action to oppose a lawsuit.  If every defendant sued by a debt buyer chose to litigate, debt buyers’ profits would be drastically reduced.

Once the debt buyer has a default judgment, it will proceed to execute that judgment by levy, wage garnishment or a lien on real estate.  That means, if the consumer has income, funds in a bank account, or any valuable property, the debt buyer can take steps to get its judgment paid from that money or property.

In many cases, a consumer who is sued will not seek legal advice when he or she is served with the summons and complaint.  There are many reasons why people fail to take action after being properly served with notice of the lawsuit.   However, failure to file an answer means that the debt buyer proceeds to get a default judgment.  Once the debt buyer gets a default judgment, it may then levy the consumer’s bank account or garnish his wages.

If the consumer seeks help soon after the entry of the default, it may be possible to vacate or set aside the default, and oppose the lawsuit.  If a consumer has few other debts, opposing the suit may be the simplest and most appropriate course of action.

Whether you can successfully vacate a default judgment depends on the circumstances and the length of time that has passed since the default was entered.   The following summary describes the legal standards that apply where a defendant received the summons and complaint but did not respond in time to avoid default.  (Other factors are to be considered if the defendant was never served.)

There is a strong public policy favoring resolution of cases on their merits, based on consideration of the admissible evidence.  Doubts as to whether such relief should be granted are to be resolved in favor of the party seeking relief.  However, courts must enforce statutory deadlines and the finality of judgments.  Therefore, the consumer must act quickly and provide evidence of the circumstances that led to the default.

Under Code of Civil Procedure Section 473(b), a party can be relieved of a judgment that resulted from his or her “mistake, inadvertence, surprise or excusable neglect.”  A party moving for relief under this section has six months to seek relief, but should file the motion as soon as possible after the default is entered.

  • Mistake may be found if the defendant had a mistaken belief about a material fact, and the mistake led to the default.  For example, a client who mails the answer to the court to be filed but omits the filing fee.  The answer is rejected and a default is later entered.
  • Inadvertence or excusable neglect are more frequently asserted in this situation. “Inadvertence” is not defined by case law but seems to to fall somewhere between mistake and excusable neglect.  One example may be: a consumer is served by substitute service while he is out of town.  When he returns home, he searches for help in filing the answer, but runs out of time, and a default is entered.
  • Excusable neglect may be found if unavoidable circumstances led to the defendant’s failure to act, such as an illness, duty to care for a sick family member, or other urgent demands on defendant’s time.  There is no set formula to determine excusable neglect, but the defendant should offer facts to show that he acted reasonably under the circumstances.

Section 473(b) can be effectively used in various circumstances, but there are defendants who are served but do not have grounds to vacate a default under that section.  A common scenario is the consumer who believes there is no defense to the action and sees no point in responding to the complaint.  Sometime later, when the creditor takes steps to execute the judgment,  he may then decide to act, but the law does not provide for a remedy in this situation.

Where a consumer did not have notice of the lawsuit, and the entry of default or some later action is the first actual notice of the lawsuit, the circumstances must be evaluated by an attorney to see if the default can be set aside under Code of Civil Procedure Section 473(d), Section 473.5, or California Civil Code 1788.61(a) (which specifically applies to debt buyers).

If a default judgment has been entered against you, contact my office to help you evaluate your options.

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