Zombie debt collectors dig up your old mistakes

[bkfiler]

Zombie debt collectors dig up your old mistakes

There’s a hot new growth industry: companies that buy bad debts for pennies and squeeze you to pay in flagrant violation of federal law. Here’s how to get them off your back.

By Liz Pulliam Weston

Debbie made a mistake when she was in college.

As a student in Fort Worth, Texas, she maxed out a Citibank credit card with a $300 limit and never paid the bill. Debbie said Citibank charged off the debt sometime between 1987 and 1989, and the liability has long since disappeared from her credit report.

Besides that, the statute of limitations -- the amount of time a creditor can sue over an old debt -- expired in the early 1990s. Both her old home state of Texas and her current state of California generally prohibit creditors from suing once a debt is more than four years old.

That’s why she was stunned when a collection agency called her last summer, demanding she pay the 17-year-old bill. The calls have continued off and on since then, along with monthly bills listing varying amounts that the collection agency wants her to pay.Don't let retirement
sneak up on you.

Create a perfect plan.

“The last time [they called], I told them the statute of limitations had run out on the debt and to stop harassing me,” Debbie said. “They said it hadn't. I finally had to hang up on the man.”

There’s money in old debt
A decade ago, most people who reneged on debts could rest easy after several years passed, since few creditors tried to collect on old bills, particularly for small amounts.

Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar. Then, they use credit scoring and other new technologies to identify which debtors are most likely to pay. The players in this “junk debt” market range from fly-by-night outfits to well-established companies funded by Wall Street investors.

It’s a business that barely existed 10 years ago. In the last three years, it’s been growing at a 30% annual rate, according to credit industry analyst Sean McVity of Keefe, Bruyette & Woods. Among the signs of the industry’s maturity:

Four debt-buying companies have gone public in recent years, including Asset Acceptance of Warren, Mich., which had its $150 million IPO in February.

Some buyers have attracted major funding from investment banks such as Bear Stearns and Goldman Sachs.

Last year, more than $75 billion in old debts were sold.

The amount that companies pay for bad debt depends on the type of account and its age. In general, McVity said:

Debts that have recently been charged off: 6 to 7 cents on the dollar.

Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.

Years-old, out-of-statute debts: A penny or less.

A growing number of companies are discovering that these very old accounts, once thought to be uncollectible, are just the opposite. Squeezing even a small payment from these debtors can make collection activities worthwhile.

“The economics are pretty simple. For $100 of (old debt), you pay 25 basis points -- a shiny quarter,” said McVity, whose investment banking firm tracks debt-buying trends. “If you get (the debtor) to pay you $1, you got your money and covered your costs.”

Opportunity frequently turns into abuse

Where some are finding profits, though, others are spotting abuses. Consumer attorneys say the explosive growth of this industry has led to widespread violations of the federal Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

“I don’t advocate people not paying their bills,” said Shreveport, La., lawyer David Szwak, who specializes in consumer law. “But there’s an element of the debt collections field that is rabid.” Some collectors, he said, “will go to any lengths to harass people and defraud them.”

Among the worst practices attorneys have seen:

Suing or threatening to sue over debts even though the statute of limitations has long expired.

Illegally “re-aging” debts on credit reports. The collectors tell credit bureaus that an old debt is, in fact, a new one. The goal: To extend the seven-year limit on reporting negative items and put more pressure on the consumer.

Promising to delete a negative mark from the consumer’s credit report in exchange for a token payment. Not only does the collector fail to follow through, but the payment can revive the statute of limitations and lead to a lawsuit. Even if the collector does back off, the unpaid debt could be sold to another company that might renew collection activity.

Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts -- often purchased from other lenders -- onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards, Szwak said, but the borrowers say no such disclosure was made.(im waiting to actually see this but i do keep seeing it talked about.)

Verbally abusing and harassing consumers. My readers have reported being cursed, berated and called repeatedly despite requests to stop -- all violations of federal laws.

Mickey, a Virginia resident, said he was the target of “colorful words” when he told a collection agency to cease bothering him about an old debt. Mickey stopped paying on his $4,000 Discover card balance in 1994; the account no longer appears on his credit report and the statute of limitations ended years ago.

“They would usually start out with a normal tone. . . . It went downhill fast,” Mickey said. “They were calling a couple of times a day for awhile.”

Sometimes, it’s smarter just to hang up

Consumer advocates say this is exactly the kind of behavior Congress and state lawmakers were trying to prevent when they put curbs on collection behaviors such as statutes of limitations, the seven-year credit reporting limit and prohibitions against abusive collection practices.

“We don’t have debtors’ prisons,” Szwak said. “We have laws to protect people from being harassed by debt collectors for the rest of their lives.”

In fact, paying these old debts -- or even talking to the collection agency about them -- can make a bad situation worse.

As mentioned above, the smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions.

That’s why Robin Leonard, author of the “Money Troubles: Legal Strategies to Cope with Your Debts,” advises consumers simply to put the phone down and walk away if collectors call about an out-of-statute debt. (This chart at Bankrate.com summarizes state statutes of limitations, but details can vary by state.)

Paying off can hurt your credit score

What’s more, paying an old debt potentially can wreak havoc on a consumer’s credit score. Such a payment can update a delinquency so that it looks more recent and takes a heavier toll on a credit score.

Paying the debt is also no guarantee that the nightmare will stop. The collector may decide that if you’re willing to pay at all, you could be made to pay more. Settling a debt for a smaller amount than the collectors says you owe could result in another agency trying to collect the unpaid portion. Or the collector might inform the Internal Revenue Service (IRS) that you’ve received “income” in the form of forgiven debt. (Yes, there are tax consequences to forgiven debt. See my colleague Jeff Schnepper’s article "5 truly nasty tax surprises.”)

Even if you manage to wrangle written promises from the collector that none of the above will happen, you would have to be willing to go to court if the agency reneged -- and possibly face an unsympathetic judge or one who doesn’t know much about collections law.

If you’re being contacted about an old debt, here’s what consumer attorneys advise:

Know the statute of limitations. If you racked up a debt in another state, you might want to check the statute of limitations there as well. But generally, it’s the statute of your current state that applies. If the statute has expired, the collection agencies’ legal remedies are limited.

Know your rights. Credit and debt collections can be an extremely complicated area of the law. Consider arming yourself with a book such as Leonard’s “Money Troubles” and -- if the amounts at stake are considerable or the level of harassment unbearable -- consider contacting an attorney. The National Association of Consumer Advocates can provide referrals.

Consider ignoring the call. If the statute of limitations has expired, Szwak said, put the phone down and walk away. There’s little to gain and a lot to lose if you keep talking. You could inadvertently extend the statute of limitations or find yourself roped into a repayment agreement that might not be in your best interest. “The debt collector is a lot smarter than (consumers) are, a lot more savvy,” he said. “They don’t have any obligation to tell you your rights.”

Write them. If ignoring them isn’t working, consider writing a letter demanding the agency stop contacting you. Send it certified mail, return receipt requested. Federal law requires them to comply with your request. Make sure in the letter you specifically say that you aren’t acknowledging you owe the debt.

Negotiate carefully. If the statute of limitations hasn’t expired, you may want to negotiate a settlement rather than risk a lawsuit. (Again, a lawyer’s advice could come in handy here.) Read “12 tips for negotiating with debt collectors.”

Keep an eye on your credit report. If a collection agency tries to repost an old debt or lie about the date it went delinquent, you’ll need to fight back vigorously. Dispute the entry with the credit bureaus and with the collection agency.

If the collector persists in its deception, you can demand that the collector produce a copy of the documentation that created the debt, such as the credit card agreement you originally signed, along with an account history, said consumer attorney Daniel Edelman of Chicago. Chances are the collector won’t have this documentation, and continuing to report the account without providing proof that you owe the money is a violation of the Fair Debt Collection Practices Act, Edelman said.

Again, an attorney experienced in debt collection law might prove helpful in particularly difficult cases.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

[bkfiler]

ugggg! can you believe i just now got an old debt mailed to me for payments by a collection agency. its freaking almost 20 years old and i even listed it on my petition as well haha.

guess im gonna send them i certitied letter tomorrow. but, why cant i sue them right now. its past SOL. their letter was send during the court stay and they were notified.

well except they bought it from the people that were notified. boy aint this a bunch of BS lol.

if was a $35 gas station bill now its $300 something. maybe i should send them $1 and promose to pay? what do you guys think of that? hehe


*leans back, looks toward sky - dreaming of $1000 lawsuit pocket cash*

[so-beyond-broke]

Hi Bk,

I wish I read this 2 1/2 years ago before paying out. Back in 2003, a collection agency - Performance Capital Management started hounding me for a debt that I incurred when I first started college in 1990. I was young and in college and it was so simple to get a CC esp if you were a college student and even w/o a job! Needless to say I got a card for $500. I was paying on it and so was my mom at the time. Anyway I moved away from home and at my last recollection the bill was about $200. The bill was still coming to my mom's house and she never forwarded the bill to me and at one point she mentioned that she paid the bill for me. Never heard about the CC anymore because I wasn't using it and never got a new one - so I thought it was a dead issue. mom must have not been completely truthful about helping me out and paying the bill. After all I never had seen this card on my CR's over the years. So one day this company started mailing me bills for this CC which originally had a limit of $500 was now reading $2000. I couldn't imagine why was it so inflated, but I guess 12 years of interest would do that. I ignored the letters and they then got a hold of both my work and home numbers and started to harrass me about how if I didn't pay them it would ruin my credit. At that time I had fairly decent credit and was concerned about this so I fell for their crap. I ended up paying a $650 settlement on this account that was closed in 1991. After reading this post, I really feel like I have been had. Boy it didn't ever occur to me about the SOL. Had I knew about the SOL I would have told this company what to do with their offer!!

I am learning something new each day,

so-beyond-broke

Originally Posted by bkfiler

Zombie debt collectors dig up your old mistakes

There’s a hot new growth industry: companies that buy bad debts for pennies and squeeze you to pay in flagrant violation of federal law. Here’s how to get them off your back.

By Liz Pulliam Weston

Debbie made a mistake when she was in college.

As a student in Fort Worth, Texas, she maxed out a Citibank credit card with a $300 limit and never paid the bill. Debbie said Citibank charged off the debt sometime between 1987 and 1989, and the liability has long since disappeared from her credit report.

Besides that, the statute of limitations -- the amount of time a creditor can sue over an old debt -- expired in the early 1990s. Both her old home state of Texas and her current state of California generally prohibit creditors from suing once a debt is more than four years old.

That’s why she was stunned when a collection agency called her last summer, demanding she pay the 17-year-old bill. The calls have continued off and on since then, along with monthly bills listing varying amounts that the collection agency wants her to pay.Don't let retirement
sneak up on you.

Create a perfect plan.

“The last time [they called], I told them the statute of limitations had run out on the debt and to stop harassing me,” Debbie said. “They said it hadn't. I finally had to hang up on the man.”

There’s money in old debt
A decade ago, most people who reneged on debts could rest easy after several years passed, since few creditors tried to collect on old bills, particularly for small amounts.

Today, however, collecting on old debts is a rapidly expanding industry. Aggressive companies can buy charged-off credit card accounts from the original lenders for pennies on the dollar. Then, they use credit scoring and other new technologies to identify which debtors are most likely to pay. The players in this “junk debt” market range from fly-by-night outfits to well-established companies funded by Wall Street investors.

It’s a business that barely existed 10 years ago. In the last three years, it’s been growing at a 30% annual rate, according to credit industry analyst Sean McVity of Keefe, Bruyette & Woods. Among the signs of the industry’s maturity:

Four debt-buying companies have gone public in recent years, including Asset Acceptance of Warren, Mich., which had its $150 million IPO in February.

Some buyers have attracted major funding from investment banks such as Bear Stearns and Goldman Sachs.

Last year, more than $75 billion in old debts were sold.

The amount that companies pay for bad debt depends on the type of account and its age. In general, McVity said:

Debts that have recently been charged off: 6 to 7 cents on the dollar.

Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.

Years-old, out-of-statute debts: A penny or less.

A growing number of companies are discovering that these very old accounts, once thought to be uncollectible, are just the opposite. Squeezing even a small payment from these debtors can make collection activities worthwhile.

“The economics are pretty simple. For $100 of (old debt), you pay 25 basis points -- a shiny quarter,” said McVity, whose investment banking firm tracks debt-buying trends. “If you get (the debtor) to pay you $1, you got your money and covered your costs.”

Opportunity frequently turns into abuse

Where some are finding profits, though, others are spotting abuses. Consumer attorneys say the explosive growth of this industry has led to widespread violations of the federal Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

“I don’t advocate people not paying their bills,” said Shreveport, La., lawyer David Szwak, who specializes in consumer law. “But there’s an element of the debt collections field that is rabid.” Some collectors, he said, “will go to any lengths to harass people and defraud them.”

Among the worst practices attorneys have seen:

Suing or threatening to sue over debts even though the statute of limitations has long expired.

Illegally “re-aging” debts on credit reports. The collectors tell credit bureaus that an old debt is, in fact, a new one. The goal: To extend the seven-year limit on reporting negative items and put more pressure on the consumer.

Promising to delete a negative mark from the consumer’s credit report in exchange for a token payment. Not only does the collector fail to follow through, but the payment can revive the statute of limitations and lead to a lawsuit. Even if the collector does back off, the unpaid debt could be sold to another company that might renew collection activity.

Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts -- often purchased from other lenders -- onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards, Szwak said, but the borrowers say no such disclosure was made.(im waiting to actually see this but i do keep seeing it talked about.)

Verbally abusing and harassing consumers. My readers have reported being cursed, berated and called repeatedly despite requests to stop -- all violations of federal laws.

Mickey, a Virginia resident, said he was the target of “colorful words” when he told a collection agency to cease bothering him about an old debt. Mickey stopped paying on his $4,000 Discover card balance in 1994; the account no longer appears on his credit report and the statute of limitations ended years ago.

“They would usually start out with a normal tone. . . . It went downhill fast,” Mickey said. “They were calling a couple of times a day for awhile.”

Sometimes, it’s smarter just to hang up

Consumer advocates say this is exactly the kind of behavior Congress and state lawmakers were trying to prevent when they put curbs on collection behaviors such as statutes of limitations, the seven-year credit reporting limit and prohibitions against abusive collection practices.

“We don’t have debtors’ prisons,” Szwak said. “We have laws to protect people from being harassed by debt collectors for the rest of their lives.”

In fact, paying these old debts -- or even talking to the collection agency about them -- can make a bad situation worse.

As mentioned above, the smallest payment can revive the statute of limitations in some states, leading to more aggressive collections and lawsuits. Even acknowledging that the debt is yours can restart the clock in some jurisdictions.

That’s why Robin Leonard, author of the “Money Troubles: Legal Strategies to Cope with Your Debts,” advises consumers simply to put the phone down and walk away if collectors call about an out-of-statute debt. (This chart at Bankrate.com summarizes state statutes of limitations, but details can vary by state.)

Paying off can hurt your credit score

What’s more, paying an old debt potentially can wreak havoc on a consumer’s credit score. Such a payment can update a delinquency so that it looks more recent and takes a heavier toll on a credit score.

Paying the debt is also no guarantee that the nightmare will stop. The collector may decide that if you’re willing to pay at all, you could be made to pay more. Settling a debt for a smaller amount than the collectors says you owe could result in another agency trying to collect the unpaid portion. Or the collector might inform the Internal Revenue Service (IRS) that you’ve received “income” in the form of forgiven debt. (Yes, there are tax consequences to forgiven debt. See my colleague Jeff Schnepper’s article "5 truly nasty tax surprises.”)

Even if you manage to wrangle written promises from the collector that none of the above will happen, you would have to be willing to go to court if the agency reneged -- and possibly face an unsympathetic judge or one who doesn’t know much about collections law.

If you’re being contacted about an old debt, here’s what consumer attorneys advise:

Know the statute of limitations. If you racked up a debt in another state, you might want to check the statute of limitations there as well. But generally, it’s the statute of your current state that applies. If the statute has expired, the collection agencies’ legal remedies are limited.

Know your rights. Credit and debt collections can be an extremely complicated area of the law. Consider arming yourself with a book such as Leonard’s “Money Troubles” and -- if the amounts at stake are considerable or the level of harassment unbearable -- consider contacting an attorney. The National Association of Consumer Advocates can provide referrals.

Consider ignoring the call. If the statute of limitations has expired, Szwak said, put the phone down and walk away. There’s little to gain and a lot to lose if you keep talking. You could inadvertently extend the statute of limitations or find yourself roped into a repayment agreement that might not be in your best interest. “The debt collector is a lot smarter than (consumers) are, a lot more savvy,” he said. “They don’t have any obligation to tell you your rights.”

Write them. If ignoring them isn’t working, consider writing a letter demanding the agency stop contacting you. Send it certified mail, return receipt requested. Federal law requires them to comply with your request. Make sure in the letter you specifically say that you aren’t acknowledging you owe the debt.

Negotiate carefully. If the statute of limitations hasn’t expired, you may want to negotiate a settlement rather than risk a lawsuit. (Again, a lawyer’s advice could come in handy here.) Read “12 tips for negotiating with debt collectors.”

Keep an eye on your credit report. If a collection agency tries to repost an old debt or lie about the date it went delinquent, you’ll need to fight back vigorously. Dispute the entry with the credit bureaus and with the collection agency.

If the collector persists in its deception, you can demand that the collector produce a copy of the documentation that created the debt, such as the credit card agreement you originally signed, along with an account history, said consumer attorney Daniel Edelman of Chicago. Chances are the collector won’t have this documentation, and continuing to report the account without providing proof that you owe the money is a violation of the Fair Debt Collection Practices Act, Edelman said.

Again, an attorney experienced in debt collection law might prove helpful in particularly difficult cases.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

[SinkingFast]

I bet this is what happened to my Mom.

Brother had taken over managing the finances on Mom's house for several years. A couple times she found out he didn't pay the taxes. Neighbors told her they'd seen her house advertised in the tax sale in the newspaper. She got those taken care of. He let the insurance go and didn't tell her. The last 4 or 5 years, she had no homeowners. Her house was being taken by an airport expansion plan. The airport people had been to her house, did the appraisal, and made the buy-out offer. Mom called the Assessor's Office to make sure she was current on all her taxes. Yep. No outstanding taxes due on her house.

Outa the blue, Mom got a letter in the mail from an attny. Said she owed some company in Florida for 3 years of old taxes, plus penalties, plus interest. Mom got all in a dither. Worried that she needed a clean title to sign over to the airport. Mom paid the whole amount because she was afraid the airport would kill the buy-out deal if she didn't pay up.

After they got payment, they sent her some sort of release paperwork. That company bought up Mom's old tax debt several years before they had that attny contact her. They were waiting for the right moment to strike hoping to get lucky. Who better to hit than an old woman about to sell her house at a premium to the Airport in a Court ordered Sound Remediation Settlement. I'd bet money, the County sold off those old taxes for pennies on the dollar just to get rid of them.

[lostsoul23]

I have to admit, I am SO ready for the phone to ring with a zombie collector. Knowing what I know now, I will have a field day. (Or maybe I'm just in the mood for a good fight.) :P

[quest42]

As I understand it, my niece took out a tuition loan in the 1980's. She began some courses, but the school went out of business before the term ended. She got no credit for the incomplete courses. She did not pay on the loan.

She declared bankruptcy in California years later.

Recently, she's had dunning letters from a creditor. They say they purchased that old loan from the school. They claim that educational loans cannot be discharged in bankruptcy, survive statutes of limitations, and claim that she now owes over $10,000 in principal, interest, and late fees.

Is this legally true? What can she do? I can get more details, if it would help to find a solution.

Maybe this should have been posted here... http://www.bankruptcyforum.com/showt...6177#post56177

[nc73]

Originally Posted by quest42

As I understand it, my niece took out a tuition loan in the 1980's. She began some courses, but the school went out of business before the term ended. She got no credit for the incomplete courses. She did not pay on the loan.

She declared bankruptcy in California years later.

Recently, she's had dunning letters from a creditor. They say they purchased that old loan from the school. They claim that educational loans cannot be discharged in bankruptcy, survive statutes of limitations, and claim that she now owes over $10,000 in principal, interest, and late fees.

Is this legally true? What can she do? I can get more details, if it would help to find a solution.

Maybe this should have been posted here... http://www.bankruptcyforum.com/showt...6177#post56177

Yup student loans has no statute of limitation. Most don't get discharged either.

[HeatherB]

Originally Posted by bkfiler

Zombie debt collectors dig up your old mistakes

Bait-and-switch credit cards. Some credit card companies have offered borrowers low-rate credit cards and then tacked old, charged-off debts -- often purchased from other lenders -- onto the balance. The card issuers typically insist they disclosed that the old debts would come with the cards, Szwak said, but the borrowers say no such disclosure was made.(im waiting to actually see this but i do keep seeing it talked about.)

.

Got one for DH..... Well, the debt isn't out of Statue of Limitations but I'll give you a few exerpts from it....

"Resurgent Capital Services L.P. is expanding the obtions available to you to resolve your debt. LVNV Funding LLC now owns the debt you originally owed to Citibank (original account number XXXXX). As of the date of this letter, the balance you owe on your debt is $655.65. This debt remains seriously past due."

Blah Blah Blah....

"Resurgent is offering you and opportunity to resolve this debt. Arrangements have been made for you to obtain a Pre-Approved* Visa credit card issued through XXXXX Bank. You can pay your debt in full by balance transferring $590.00 of your debt to a new Visa credit card, and when your card is issued, the remaining $65.65 will be forgiven."

Then the terms are on the back. It says that if he gets the card, he will have to make $20 payments that will "free up" his credit line.

Ummm APR 19.%
Grace period (20 days)
annual fee ($35 - waived the first year)
Min Finance (.50)
Cash advance fee (3% but not less than $5)
Balance transfer fee (none)
Late Charge/overlimit fee (19.00)


Okay, initially I was a little excited because my DH's credit is POOR around 500 across the board. I'm just too afraid that somehow they will find something to charge us with. Then it has in bold letters "The terns of your Visa credit account, including any APR (or how calculated) are subject to change at any time".

Then another part says, "Debt Balance Disclosure: The owner of this debt may have the right to add interest to your debt while it remains unpaid.... "The interest rate that would be charged on the new card account may be higher than the interest rate the owner may be charging on your unpaid debt." - DUH!

That really scares the crap out of me.

Sorry, Resurgent, no love for you and a new CC!

Keep in mind, though that my DH has not filed Bk. It does state on their that if you are making payments already to them, already have this offer, are in bankruptcy or have discharged it in bankruptcy that this offer is not valid.

[truckerswife]

My attorney just told me that the statue for an old debt is 15 years. We had B-Real and Resergent Capital Services file on old debt from '97. I am in Ohio and we lived in Texas when we incurred the debt.

[lizbebe]

Well it appears that WAMU has already figured out this game, regardless of the age of the debt.

They signed a binding document with us last year during the short sale of our home, then they popped out from underneath a rock while we were going through the bankruptcy to harass us about our zero balance HELOC.

Their attitude now is "screw you" (a common WAMU philosophy): we are still going to try and collect on this debt.

As a result, I am making sure to include my old (paid off and charged off) WAMU mortgages on my BK so this company can't touch me. If I need to include more zero balance banking or credit cards, so be it. This eliminates surprises later on.



This is why I left this bank after many years -- they don't give a @$^& about their customers. They are forever crippled by their own stupidity.