The New York Times Magazine ran an interesting article on the “dark, labyrinthine, and extremely lucrative world” of consumer debt collection. Its principal characters were an ex-Wall Street banker and an ex-con. Frankly, it read like the cast of characters from a comedy movie like Repo Man. One of the topics the article raised was how sometimes debt collectors will resell consumer debts to multiple collectors, and the non-rightful owners will then attempt to collect on the debt. The quick lesson is that New York bankruptcy is a far better option for the deeply indebted than paying off someone you don’t owe money to, but some explanation is necessary.
It’s well-known in bankruptcy circles that creditors like big banks will sell off large amounts of charged-off credit card debt to collection companies for pennies on the dollar-value of the debt. What the Times Magazine article points out is that the contracts for selling the debts completely shield the selling creditor from any liability if the information on the debt is inaccurate or if the debts aren’t even collectible. The debts involved here, called “paper” in the article, are no more than large spreadsheets with names, last-known addresses and phone numbers, Social Security Numbers, and amounts owed.
From here, the buyers can collect on the debts or resell the paper. Sometimes they resell it to multiple collectors simultaneously, which, obviously, is illegal, and in other situations, the paper ends up stolen, so some debt collectors are attempting to collect on debts fraudulently.
It’s surprising the article didn’t discuss whether anyone stole the paper to commit identity theft.
If you owe money on a debt and you start getting collections calls, consider that it’s possible the collector does not in fact legally own the debt and is trying to scam you. Here are a few tips if you think that’s happening.
- Although it rarely hurts to look at your credit score, by the time your debt is sold to a collector, its rightful owner might not be accurately reporting the debt. It’s better to contact the original creditor and ask them whom they sold the debt to.
- Debt collectors who are trying to fraudulently collect on a debt know they’re breaking the law, so they’re not going to feel bound by the Fair Debt Collection Practices Act (FDCPA). Expect them to harass you, make more false statements, threaten you with arrest or wage garnishment, or engage in other unfair practices. You can see the Federal Communications Commission’s list of FDCPA violations here.
- In particular, when collectors contact you, try to find out who they are, where they’re located, and what evidence they have that they own your debt. The more evasive they are, the less legitimate they are.
- As in the article, an unusual potential ally in finding out who might be wrongly collecting on your debt will be the rightful debt collector. It might be able to help you identify who is trying to contact you, and it definitely won’t want to lose more business to a thief.
- Recognize that if you pay a fraudulent debt collector, the law may be on your side, but it will be difficult to get you your money back.
The New York Times Magazine article can be found here.
One of the benefits of New York bankruptcy is that no matter who supposedly owns your debts, the discharge order is good against all debts when it’s issued. Anyone who tries to collect on the debt can be held in contempt of court, which can result in monetary damages, attorney’s fees, and other sanctions.
The article suggested a national database for consumer debts, but that might not be such a good idea for privacy reasons, fraud, and the likelihood that the system simply wouldn’t work. It would be better to regulate the contract clauses that shield the selling creditor from liability. Until something like that happens, though, expect more shady dealings like the ones discussed in the Times Magazine, and expect New York bankruptcy to be a better alternative.
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 fair debt collection practices act Bruce Weiner for a free initial consultation.
