Over the years, we have seen our clients’ individual unpaid debts being collected by one collection agency after another sometimes involving abusive tactics. Many but not all debt collectors are legitimate and law-abiding. But from time to time our clients run into debt collectors who are really abusive. When we have confronted these bad actors on behalf of our clients, they have not hesitated to extend their abuse, including foul language, to us. When he have worked with clients outside of bankruptcy to settle debts or have raised questions about a debt’s legitimacy, we have seen the debt getting handed off to collection agency after agency, each apparently ignorant of the past history or of the questions we have raised about the debt. When we have demanded documentation to support a challenged debt, the response is often to ignore these requests.
A recent expose in the New York Times Magazine entitled “The Dark, Lucrative World of Debt Collection” details the sometimes sordid behind-the-scenes reality of such debt collections. It is eye-opening. Here is a link to it: http://www.nytimes.com/interactive/2014/08/15/magazine/bad-paper-debt-collector.html?a=1&m=en-us&_r=0 As this expose shows, bad debts are a lucrative business. Debt buyers pay pennies on the dollar for bundles of bad debt, that they then try to collect, making large profits. And at some point they will sell the debts off again. What is being handed around is just a list of names, Social Security numbers, contact information, account numbers and supposed balances due. This may or may not be accurate.
These debts can include some that are so old that the right to sue on the debt has expired. In other words, the debt is uncollectible. Although not mentioned in the article, it logically follows from the minimal and often old account information that is sold, the debt may have been settled or discharged in bankruptcy.
The upshot for those facing collections is “debtor beware”.
Based on our experience and what this article reveals, here is some advice to follow if faced with unpaid debts in collection:
1. Don’t assume that the debt collector owns the debt or is authorized to settle it. You should receive a written demand on the debt stating who owns the debt. The demand should state that you are entitled to dispute the debt and if so they will supply proof that you owe it. This is a matter of federal law. If this has not happened, be very suspicious. As the article points out, some supposed debt collectors are thieves trying to collect someone else’s debt.
2. If you settle, make sure you have something in writing from the debt collector making a firm offer. This must have all the account information and must clearly state what payment terms will be accepted as “payment in full” or similar language. When you send in payment, make sure the check has a notation of the debt, the account number and “payment in full” or “payment under settlement letter dated [DATE]” or something similar.
3. Do not respond to threats to send you to jail. These are illegal and bogus.
4. Any time you are dealing with suspected abuse, you should keep a detailed log of who called, the date and time, what was said, and the contact number. The number given may be a bogus one. Always ask for a telephone number “in case we get disconnected”. You might then consider hanging up then calling back claiming you got disconnected.
5. Recording these calls is legal, so long as you tell them you are recording. Knowing they are being recorded will give pause to any legitimate collector. If it does not, then be extremely suspicious.
6. It may make sense to get an attorney involved. If you already have an attorney, then your conversation should be limited to telling the collector that, demanding that he/she “correct your records”, and contact your attorney. If you have hired an attorney to file bankruptcy, most legitimate collectors will then contact the attorney to verify this, then put your debt at the bottom of their stack. This only works if you have really hired an attorney.
7. If you are having these types of troubles, it is probably a good idea to meet with a qualified and experienced bankruptcy attorney to understand that option. You should prepare a household budget showing all your basic living expenses. Whether or not you proceed with a bankruptcy, don’t ignore this option. Bankruptcy under Chapter 13 can allow you to pay your debts to the best of your ability, in a controlled and court-supervised process.