Cocktails Anyone?  

Not every debtor who walks into a bankruptcy attorney’s office is a good candidate for debt relief. For one reason or another, bankruptcy might not be the best way to help. One such example is when a client only has debt resulting from identity theft. Rather than turn those clients away or refer them to other counsel, consider having a cocktail.

I don’t mean go to your local watering hole or make a Mojito. I’m referring to a cocktail of California Code Sections that protects debtors from having to pay claims resulting from identity theft.

We’ve all heard that internet scams are on the rise, and it seems like a new one is being introduced every minute. In many cases the victims think that they have no recourse but to pay the credit cards and banks from where the scammers took the funds.

Would a Chapter 7 or 13 solve their problem? Maybe, but what about in the instances where the client can’t or won’t file a bankruptcy? In those cases, we as Debt Relief Lawyers can still help. And it may be as simple as writing a letter to the creditors.

On February 22, 2023, I posted a note on the CDCBAA Listserv about how to use a mix of California Code sections, namely Penal Code § 530.5, § 530.55, and Civil Code §1798.93, to thwart a creditor's attempts to collect money from debtors who are victims of identity theft. I posted a form letter I used to send to my clients' creditors. As I wrote in the post, it has been effective about 80% of the time to get creditors to stop collection of the debt through the courts. Several members contacted me after the post and asked for a copy of the letter, but if any readers didn’t get one, a revised sample form letter can be downloaded from my website. Sample Letter

As defined in the Penal Code, Identity theft occurs when a person, without the consent of the owner, willfully obtains personal identifying information of someone, and uses it for any unlawful purpose, including to obtain, or an attempt to obtain, credit, goods, services, real property, or medical information without consent. Personal Identifying Information is broadly defined in PC § 530.55 as everything from a name and an address to an iris scan and includes account numbers and passwords.

The Civil Code allows a debtor to recover attorney fees and a fine of up to $30,000 against the creditor, also called a claimant, if it pursues legal action against the identity theft victim (“Debtor”). Additionally, debtors may be proactive and sue the creditor for a determination that (s)he is a victim of identity theft, and that the money is not owed to the claimant.

Injunctive relief is also allowed, as in the case of Mildred v. Big Bank of USA (“BB of USA”). In that matter, BB of USA was foreclosing on Mildred’s home for defaulting on the payments of her equity line. Scammers had used her personal identifying information to transfer the money out of the line, leaving her with a secured debt to the bank in the amount of $175,000. She complained and initiated a fraud investigation, but the bank concluded that she was responsible and started foreclosure proceedings.

A letter to any bank or collector should be addressed to the claimant at the "address designated by the claimant for complaints related to credit reporting issues." CC 1798.93(c)(6)(A) and should include the following:

1. A reference to the debtor and the account number being collected.

2. A statement pursuant to Section 813 of the Fair Debt Collection Practices
Act and/or Section 1788.30 of the Rosenthal Fair Debt Collection Practices Act that the attorney represents the debtor and that claimant is not to contact the debtor going forward;

3. A statement informing the claimant that the debtor disputes the claim because he/she is a victim of identity theft.

4. The wording of Penal Code § 530.5 defining Identity Theft;
5. The wording of Penal Code § 530.55(b) defining Personal Identifying Information; 6. A brief explanation of the facts to justify debtor’s status as a victim;
7. Reference a previously filed police report, or FTC or FBI report;
8. A statement to the effect that if claimant persists in collecting the debt, that you

are authorized to seek attorney fees, costs and a fine of up to $30,000 under Civil Code § 1798.93(c)(5) and (6).

In Mildred’s case, a variation of the letter posted on Listserv was sent out to BB of USA putting it on notice that she was the victim of identity theft and that if it proceeded with the foreclosure, I would initiate a suit for quiet title and request an injunction to stop the foreclosure. Moreover, the letter pointed out that if it went forward, we would request attorney’s fees and seek the imposition of the statutory fine. After some back and forth with in house counsel, the bank agreed to cancel the foreclosure and forgive the balance on the equity line.

It is foreseeable that a claimant may not be intimidated by the letter and proceed with collection or foreclosure. In that case the debtor's attorney would have to initiate or intervene in litigation to get relief. If that happens, however, and if the letter is properly prepared and served on the claimant, the debtor is well set to recover attorney fees, costs, and a hefty fine.

Cheers!