Usually lawyers’ role in debt collection is to represent creditors or debtors. Rarely is the core of their business collecting debts. The big debt collection money comes from buying old debts from banks for a fraction of their value and hoping to recover enough of them to make the purchase worthwhile. It often is.
For lawyers though, direct debt collection principally involves old, unpaid civil judgments owed to their clients. As a result, for many years New York City exempted lawyers (and their firms) from acquiring the debt collection license the city requires of other debt collectors. This changed in 2009 when the city council passed a law narrowing the kind of attorney debt collections that required the license. Now lawyers in New York City can only collect debts on behalf of their clients. They cannot otherwise operate their practices as debt collectors.
Some New York City debt-collector lawyers sued the city, claiming the new law impeded on the state’s prerogative to regulate lawyers. A federal district court sided with the lawyers, but on appeal, the Second Circuit sent the case to the New York Court of Appeals to resolve the dispute under New York law. (In fact, it’s unclear how the lawyers had standing in federal court over what was obviously a state-law issue.) The New York Court of Appeals held that the city’s law did not interfere with the state’s power to regulate lawyers because it did not regulate lawyers “as such” and created explicit exceptions for lawyers collecting debts owed to their clients. Consequently, when the case returned to the Second Circuit, it had no choice but to rule in favor of the city.
The Second Circuit’s opinion can be found here (pdf).
Despite the long, winding process the case took through the federal and state courts, the effect is not that significant. Lawyers and law firms operating in New York City that collect debts they purchased will need to obtain a license from the city to do so.
If you live in New York City and a law firm debt collector is attempting to recover a debt from you, then you should certainly ascertain whether it’s appropriately licensed. If it’s not then you can complain to the city. If you are interested in resolving the debt through bankruptcy, then you should consult with an experienced New York bankruptcy lawyer.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced business bankruptcy lawyer Bruce Weiner for a free initial consultation.