The debt buying industry has grown dramatically over the last few years, to become a multi-billion dollar industry and the new “darling” of Wall Street and private equity firms. Debt Buyers are companies that buy defaulted debt from original creditors or other debt buyers. The original creditor will charge off a debt (usually after 180 days of non-payment) and sell the account to a debt buyer; usually for pennies on the dollar. The debt buyer will then legally own the debt and begin collection efforts.
Although this has been going on for years, few consumers understand how this works. Upon receiving a collection notice from a debt buyer, the consumer will thrown the notice away, not realizing that the debt buyer purchased the debt from the original creditor. Often these attempts to collect the debt will happen years after the original debt was charged-off.
Collection efforts will include phone calls to home, work, family members and neighbors, an endless supply of collection letters, negative reporting on credit reports, and in some cases, lawsuits filed by the debt buyer against the consumer.
The results of the debt buying industry have been noticed by Wall Street and private equity firms. With new money being invested in the industry, competition for defaulted debt is fierce, which results in driving up the price of the defaulted debt portfolios. Since firms are paying more for these defaulted debts, they are expected a bigger return, which brings us back to the topic of this post. Because debt buyers are now paying more money for the bad debt they are purchasing, they need to collect a greater percentage of that debt, thus they need to “tighten the screws” on the consumers they are trying to get money out of. Filing a lawsuit against the consumer is becoming the defacto tactic of debt buyers and their attorneys.
State court systems are flooded with tens of thousands of debt collection lawsuits brought by debt buyers. Most of the time, the consumer will not respond to the lawsuit, thus resulting in a default judgment against the consumer debtor. The debt buyer, armed with their judgment, will them begin to garnish paychecks and checking accounts, and place liens against real property.
So what’s so bad about a debt buyer getting a judgment against a consumer who originally owed the debt? Nothing, except that many times it’s not that simple. When the debt buyer buys the debt from the original creditors, they will buy a “portfolio” of debt, they do not always get all the information and sometimes the information gets mixed up. I speak to lots of people who are being sued for a debt they never incurred, or a debt they have already paid off.
So what do you do if you find yourself being sued by a debt buyer? I am advising my clients to fight back. Most debt buyers do not have the paperwork to actually prove they owe the debt. Thus, if you challenge them in court, they will likely not be able to produce the appropriate documents to show that the consumer owes the debt or that the debt buyer actually owns the debt. Many times, the debt buyer is suing past the statute of limitations, has sued the wrong person or charged illegal fees.
There are a number of ways to challenge the debt buyers, so consumers should aggresivelly defend against this new barrage of lawsuits being filed by debt buyers. For additional information about creditor harassment and debt buyer’s see Bud Hibb’s website.
