Archives for February 2013

Not your usual dull bankruptcy case…!!

A bankruptcy trustee colleague of mine related the following story about a recent case where he was the trustee for an “interesting” debtor in bankruptcy:

After hearing the case about a year ago and doing his usual investigation, he filed a final “no asset” report that there was nothing for creditors. He said it “sure looked like” a “No Asset” case to him. Then he got a call from “every Trustee’s best friend, the ex-wife.” It turns out our intrepid debtor had gotten the house in their divorce, had moved in, but had never transferred title into his name.  This gentleman “must have thought listing his interest on his bankruptcy schedules wasn’t important.” He  then tries to sell the house,  but the title officer, seeing the bankruptcy, calls the trustee about it. The trustee sells the house, using the money to pay creditors including the IRS. He also refers the debtor to the United States Trustee for possible investigation of bankruptcy fraud.

But that’s not the end of the story. My trustee friend found out a few months ago that this debtor also had an undisclosed  malpractice claim against a chiropractor and the case is going to trial in the spring.  Even more recently, he learned that someone set off a massive amount of explosives on property owned by local  dentist. There was damage to surrounding homes: busted windows, one house reportedly knocked off its foundation, blackened trees and a 10 foot diameter blast crater. The rumor was that it was this same debtor who set off the explosion, using an old C4 explosive and that this gentleman  may have a license to handle explosives, “which is itself a frightening thought.” Sure enough, the individual in question has been arrested.

Just another day in the life of a trustee… those of us who have been there know how challenging the job of a trustee can be. But the other point for the rest of us is that those who commit fraud have to remember that there is always someone, usually an “ex” someone, who knows the truth and wants to tell it.

Federal Trade Commission reveals the truth about debt buyers- debtors be savvy and demand proof

A large portion of past due debts are bought by professional “debt buyers” who then attempt to collect the bad debt. The Federal Trade Commission just issued a 162 page report after studying this practice for over 3 years. The report is eye-opening.

The FTC notes that it “receives more consumer complaints about debt collectors, including debt buyers, than about any other single industry. Many of these complaints appear to have their origins in the quantity and quality of information that collectors have about debts.”

The FTC found that debt buyers pay an average of 4 percent of face value, and for older debts, the cost is “significantly lower”. The debt is still fully due, but the buyer’s have a large profit percentage. This reflects, we believe, the inherent riskiness of what is being purchased.

Debt buyers will commonly buy these debts in bulk on an “AS IS” basis. Buyers typically received the basic information required for notices required under federal law, such as the amount of the debt. They also commonly had other information which has to be requested by the debtor by disputing the debt in writing.  This information, the FTC found ” included the name of the original creditor, the original creditor’s account number, the debtor’s social security number, the date of last payment, and the date of charge-off.”

What is revealing is what Debt Buyers did not receive upon buying the debt. This includes the history of previous disputes on the account  or information that would allow them to break down the outstanding balance into principal, interest, and fees.  Most of the time, the FTC found, Debt Buyers received “few underlying documents about debts” such as account statements, loan agreements or other documents showing the terms and conditions of credit. Yet these are the very kinds of proof that a court of law is likely to require if suit is filed.

The FTC found that some debt that was purchased was beyond the statute of limitations, meaning that a suit on the claim could be readily dismissed as time barred, IF the defendant asked.

These findings square with our experience. It usually pays if there is a basis for question to demand the underlying documents and proof of the debt. The results may not be immediate. We have found the same disputed debt being passed from collection agency to collection agency. But many times, the original signed agreements or purchase or charge records simply do not exist.

Of course, no one should ignore collection efforts. It just pays to be savvy and demand proof when appropriate.

 

Recognized Quality & Experience