An ongoing source of distress for debtors is truly abusive debt collectors. Many of these alleged humans ignore the due process rights of debtors, lie, and break the law in their efforts to shake down debtors. Can anything be done? Finally, the federal and state governments are starting to take some action.
I. The Problems
A. Collectors Fail To Follow The Due Process Rules
I regularly have clients show me abstracts of judgment from state court cases in which they knew nothing about the suit until receiving the judgment. Are my clients lying? I don’t think so. In fact, a California state senator had the same thing happen to him. According to Jim Puzzanghera, in the August 20, 2012 Los Angeles Times:
Several years ago, debt collectors began pursuing state Sen. Lou Correa (D-Santa Ana) for an unpaid Sears bill they said he owed. He told them they had the wrong man, but the debt collectors never wavered. “These folks are very aggressive,” Correa said. “They’ll call back repeatedly and say, `Tell us some personal information so we can tell it’s not you.’ When all of a sudden is the burden of proof on me?” Last year, Correa discovered his Senate paycheck was being garnisheed [sic] because of a $4,329 lien for the Sears debt. Brachfeld had obtained a default judgment in court, even though, Correa said, the lawsuit was never served on him and he knew nothing of the claim or the court hearing. He later learned that the debt belonged to a Luis Correa from Santa Ana. The man had a different Social Security number, different address, even different first name — the senator is legally Jose Luis Correa. “I always pay my bills on time. Then to have somebody garnish my wages, I thought was pretty astounding,” the lawmaker said. He later resolved the problem and stopped the wage garnishment. Now Correa is supporting a bill by state Sen. Mark Leno (D-San Francisco) to require debt collectors to document that they are pursuing the right person for the correct amount of money. The bill passed the Senate and is pending in the Assembly.
If these entities can abuse a state senator, where does that leave the average person without any political clout?
B. Collectors Lie
Shock of ages! Debt collectors lie. A little further in the L.A. Times article we read:
Katie Brown got a call in March about her unpaid $3,000 credit card bill from Hhgregg Inc. The person said he was from a free legal aid service she had contacted to try to stop harassing phone calls from debt collectors. “After I told him everything, he laughed and said, `Now let me tell you who I am. I hold your debt from Hhgregg,’” said Brown, 26, of Piqua, Ohio. She didn’t know how the debt collector knew she had contacted legal aid. “I was scared they would get to my husband’s work and start calling them,” she said, “because at this point they would stop at nothing if they were going to misrepresent themselves.”
In a case I have pending on behalf of a client, against a collector, in the Bankruptcy Court, the collector’s written response contained pure perjury! I know because the collector is claiming that they received no notice when I personally had a phone call with the collector’s representative, and followed the call with a fax and a letter sent via the U.S. Postal Service. In the complaint I included a copy of the fax — with proof of fax receipt — and in a subsequent supplement I included a copy of the receipt of mailing.
C. Collectors Ignore The Law
Collectors also buy and sell debts that were discharged in bankruptcy! Here’s part of an interesting discussion of the problem from BloombergBusinessweek:
A fresh start with bankruptcy? Big lenders keep squeezing money out of consumers whose debts were canceled by the courts. In a financial version of Night of the Living Dead, debts forgiven by bankruptcy courts are springing back to life to haunt consumers. Fueling these miniature horror stories is an unlikely market in which seemingly extinguished debts are avidly bought and sold. . . . [D]ischarged debts have attracted the attention of little-known firms expert at buying and selling a range of delinquent consumer obligations. Back-due bills with a face value of billions of dollars change hands at a steep discount every year. Five of the companies in this business are publicly traded on Nasdaq. Others have large private-money backers. B-Line, in Seattle, was acquired last year by the Dallas-based hedge fund firm Lone Star Funds. The investment bank Bear Stearns (BSC) owns two bankruptcy-debt buyers: Max Recovery and eCast Settlement. The very existence of this marketplace confounds even some veterans in the bankruptcy field. During a preliminary hearing in New York in March, U.S. Bankruptcy Judge Robert Drain asked a lawyer for JPMorgan Chase (JPM) how the bank had managed to sell consumer credit-card debts that had been discharged. “I don’t know who would buy a discharged account,” the perplexed judge said. “Happens all the time, your honor,” the Chase lawyer, Thomas E. Stagg, responded. Drain’s confusion is understandable. Traditionally, discharged debt was seen as not worth the paper it’s written on. Once a judge excuses some of a debtor’s obligations—part of the bankruptcy system’s goal of granting a financial fresh start—that person has no legal duty to pay them. In fact, bankruptcy law prohibits efforts to collect discharged debt. In the 1990s, businesses adept at tracking and trading consumer debt expanded their reach to dabble in accounts enmeshed in bankruptcy. That dabbling has grown into a robust market. Some of the trade in so-called bankruptcy paper involves debts that remain collectible. What’s troubling is that the market now also includes billions in discharged debts, which ought to have no dollar value. Owners of canceled liabilities can revive their value in two main ways: by directly pressuring consumers to cough up cash or by gaming the credit system . . .
A. Discharge The Debt In Bankruptcy And Sue Violators
The first solution in dealing with a creditor is to discharge the debt in bankruptcy. Once the debt is discharged, if anyone tries to collect it again, you can sue them in the Bankruptcy Court for violating the discharge injunction of 11 U.S.C. § 524(a). I file several such actions each year. Unfortunately, not enough people sue to enforce the discharge, so creditors view me as a nuisance — part of the cost of doing business in discharged debts.
B. Complain To The FTC, CFPB, And State Attorney-General
Back to the L.A. Times article:
In addition to lawsuits, consumers have been complaining to government officials. Last year, the Federal Trade Commission received more complaints about debt collectors — 180,928 — than about any other industry. The figure is up 73% from 2008. “We’ve seen a high level of complaints, and I think some of it is collectors realizing in hard times they may have to press that much harder to get someone to pay,” said Tom Pahl, the FTC’s chief debt-collection lawyer. “And a lot of them are pressing.” About half the FTC’s complaints concerning debt collectors are about harassing phone calls, including those that contain verbal abuse and come at odd hours of the day or night. Federal law prohibits harassment and limits the frequency and hours that debt collectors can call.
Thus, if you are being victimized by debt collectors you are clearly not alone. By the way, the FTC and the State Attorney-General really do pay attention to big surges in complaints. The old adage about the squeaky wheel getting the oil applies here.
C. Write To Your Members Of Congress
Let’s face facts: elected officials are political prostitutes who will do anything to stay in office. If you have lots of money you can buy them. But it takes a lot of money.
If you are facing debt collection abuse, you don’t have a lot of money, so you can’t buy your elected officials. However, you can write to them. If enough people do write, the politician will perceive a trend and will take a public stand. You might be surprised at how effective a letter writing campaign can be.
Unfortunately, complaining to the governmental entities and writing to Congress will not address your immediate concern. What will do the trick is filing for bankruptcy protection, and then suing any collector who violates the law. The key provisions that collectors violate are: the automatic stay of 11 U.S.C. § 362(a), the discharge injunction of 11 U.S.C. § 524(a), and the Fair Debt Collection Practices Act found in 15 U.S.C. § 1692, et seq..
And don’t try to go it alone. Unless you have a solid legal background in creditor/debtor law, you will have great difficulty succeeding. Call a good bankruptcy attorney to help you.