A new California law governing "coerced debt" will soon be taking effect. This legislation, 2022 Cal. Stats. ch. 989, defines a "coerced debt" as a:
"particular debt, or portion thereof, for personal, family, or household use in the name of a debtor who is a victim of domestic violence, or a victim of elder or dependent adult abuse, or a person who is a foster youth, incurred as a result of duress, intimidation, threat of force, force, fraud, or undue influence".
Cal. Civ. Code § 1798.97.1(d)
The law will require a claimant, upon receipt from the debtor of adequate documentation AND a sworn written certification that some or all of the debt being collected is coerced debt, to cease collection activities until the claimant completes the review required by the legislation. Cal. Civ. Code § 1798.97.2(b). A person will also be prohibited from causing another person to incur a coerced debt, and would make a person who causes another person to incur a coerced debt civilly liable to the claimant. Cal. Civ. Code § 1798.97.2(a). Under this legislation, a debtor is authorized to bring an action or file a cross-complaint against a claimant to establish that a particular debt, or portion thereof, is coerced debt. Cal. Civ. Code § 1798.97.3. If a debtor establishes that a particular debt, or portion thereof, is coerced debt, the debtor will be entitled to specified relief, including an injunction prohibiting the claimant from holding or attempting to hold the debtor personally liable on the particular debt, or portion thereof, that is coerced debt, or from enforcing a judgment related to the particular debt, or portion thereof, that is coerced debt against the debtor. Cal. Civ. Code § 1798.97.3(b). The court will be required to issue a judgment in favor of the claimant against any person who coerced the debtor into incurring the debt. Cal. Civ. Code § 1798.97.3(c) provided that person "has been brought within the jurisdiction of the court and joined as a party to the action and "the evidence supports such a judgment". Id. The law will apply only to debts incurred on or after July 1, 2023, but does allow a debtor to file a cross-complaint in an action to collect a debt incurred before that date, unless a final judgment has been entered into that action. Cal. Civ. Code § 1798.97.5. Notably, the legislation does not apply to secured debts. Cal. Civ. Code § 1798.97.4(a).
Although relatively short, the law is complicated with many defined terms (in bold face above) and a number of requirements and prohibitions in addition to those described above.
The law will undoubtedly lead to some unintended consequences. In some circumstances, for example, a debtor may enjoy a windfall as a result of a coerced debt because the law does not require the debtor to return or repay any benefit received as a result of the coerced debt. In other cases, the person who coerces the debt may avoid liability to the claimant simply because he or she is not subject to the court's jurisdiction. The claimant will in most cases likely to be an innocent party because the law does not permit a coercer to be a claimant. Therefore, it is unclear why it is equitable to impose costs and delays on the claimant as consequence of the acts of the coercer. Finally, to the extent that the legislation applies to existing agreements, it may constitute an unconstitutional impairment of contracts. U.S. Const. Art. I, § 10 and Cal. Const. Art. I, § 9.
