More than a third of U.S. adults pursued by collection agencies

[Mutton Chop]

http://www.reuters.com/article/2014/07/29/us-usa-debt-collection-idUSKBN0FY1XJ20140729

Are you surprised by this number?  Avg. debt in collections > $5k. 

[LalsConstant]

While I don't dispute that all this information is what is reported, as someone who experienced his own financial meltdown, I got quite an education from the School of Hard Knocks in how this system works.

Simply put, the short version is these numbers are probably incredibly inflated by creditors and debt collectors will in excess of what’s actually owed.  A long explanation follows.

First, the creditors don't do themselves any favors, they simply do not work with you at all and they set this whole thing up for failure.  I literally had someone at Discovercard tell me I should just continue to default until it went into collections, only then could I actually try to reach a resolution or negotiation stage.

I understand why this is so, the debt collector will offer a simple up front payment for the whole account, and it's easier to sell off the debt in lots and have a consistent recovery.  But this creates some ridiculous results, which I will elaborate on presently.

Debt collectors act in a manner which is not conducive to accomplishing the goal of getting the debtor to satisfy the debt to the highest degree possible.  They are deceitful, unlawful and unethical and I would be so bold to make this a universal declaration.  However much you might want to honor your commitment, you simply cannot work with people like this, they are more interested in duplicity for its own sake than any business purpose, and it baffles me this industry persists in such a manner when it could be done sustainably and ethically as a legitimate service.

As an example, if you work out a tentative proposal or deal with these people, then they will say let us review this and call you back.  When you speak to them again they suddenly have no recollection, the person you talked to doesn't exist, you are a liar, etc.  Over and over again they will iterate this as many times as you will humor it, just to elicit maximum frustration and stress.  But you stop communicating with these people like any sane person would after two or three cycles of this, it is fruitless.  They're clearly not reliable or serious.

The effect is, the amount you owe will gradually make its way to the credit reporting bureaus.  Now eventually, and I stress eventually, you will get that 1 in 100 person in the debt collections industry who isn’t a colossal assclown who will actually be interested in doing his job.  But this person, or more likely his employer, will still screw you.

What happened to me and so many others is say you owe $10,000 legitimately.  Well, when you stop making payments, after about 3 months $10,000 magically inflates to about $18,000 or $20,000 using a schedule of fees and charges that does not trace to any document you ever personally signed, nor does it mathematically tie to any formula or rate they can supply you.  This is usually done by the creditor so when they sell the debt, they can charge more.  It also helps the debt collector, as I’ll explain.

The creditor will stonewall you as I discussed previously.  The debt collector, once you get one that’s somewhat interested in actually doing their job, will say “Well you owe twenty grand, but I like you, I’m going to knock it down to about twelve thousand, but I think we can work it down a little more.”  Gosh isn’t he a nice fellow, cutting you a break like that?

One of two things will happen.

1) The collector will not negotiate any further and the conversation will end with them telling you they’re filing a lawsuit.  They never do.  They just sell it to someone else, so this will repeat until 2 happens.

2) So you’ll back and forth and hem and haw and eventually you’ll agree to something like I will pay you the original ten thousand dollars spaced over 5 years or whatever, but you have to report that this is payment as we agreed and they will say sure, yes, we accept that.  And you get this set up and you think well I messed up, but I’ve honored my commitment and we came to a resolution and I am going to put this behind me and be a better person.

Except after about three months into this, you pull your credit report, and guess what?  Not only are they still calling you delinquent on the account, the repayment plan itself is also a strike against you.  This is not what you agreed to yet there it is.  Also, you realize you now have two strikes, both the fact you reneged and the fact you settled the debt, so you would have been better off to just renege and let it go.  Doing the right thing results in more punishment.

So you get to fight that for several years constantly having to track which bureau believes what.  Also, all the burden of proof is on you, all the debt collector has to do is say “Nope it’s this way” and send the bureau a thicker pile of paper than you sent (the veracity and appropriateness of those documents vs. yours is beside the point), and that’s how it is again.

Now that’s not the best part.

The best part is about two years after you finish paying this off, you get a letter. 

This letter points out you owed 20 grand and settled for 10 (with no mention you originally only owed the ten), so they are here to collect the other 10 grand you owe, plus five years of interest and late fees they are attaching based on no rate, formula or numbers they care to give you (how the hell can you do that if you’re not even the original lender but never mind), so you now owe like 25 grand, but they are willing to make a special offer to you to settle for 10…

I am willing to bet if you settled for 10, they would be back in a few years to collect the other 15…

But you don’t fall for it.  Of course you ignore it because the debt is well past the statute of limitations at this point, and you’ve been lied to so many times you know better by now than to even try.  Also by this point you’re quite educated in the process and the legalities and you know they have no right or power to do this.  They can send you letters all day and you can ignore them all day, except you keep the most recent one always because when you appeal to the credit bureaus to take it off after the requisite 7 or 10 years you are going to supply a copy of that amount they are claiming and point out it doesn’t match your report to strengthen your case the item is inaccurate.

Eventually, it comes off, if only because each layer of lies and debt transfers makes their written case deteriorate.  The debt collector eventually has no paperwork of their own to bury yours in; remember before it was a contest of who submitted the thicker packet of paper, now it’s your turn to win.

The end lesson, if you want people to act as honorably as possible and honor their commitments as much as possible, don’t funnel such matters off to people who are far worse than the negligent debtors they so vocally assert their moral superiority to.  Also, credit reports, when you start looking at how they work, actually don’t make a lot of sense or tell you anything meaningful about people because they are full of garbage.

I am not an expert on credit, at all, but I got my score from 550 to 726 after my personal financial meltdown so I’m not exactly stupid about how this system works now either.  There is no way I deserve a 700s score, I don’t consistently use enough credit to merit that, yet I have it because I’ve figured out the simple things you need to do to manipulate the system.  And I can tell you it is FUBAR.  Fair Isaac is the biggest load of nonsense imaginable.

I am not inherently opposed to a credit bureau or debt collectors, but until the former has to completely disclose all of their internal workings and methodologies and the latter decides to grow up and act like adults, I say get yourself together, and then game the hell out of this system.

I have one zombie debt left, this year I should be able to get rid of it.  It has been six years since it was legally collectible but it appears I owe this amount, which is inaccurate and overinflated.  I have the proof, I am just waiting one more month so I have the strongest case possible when I contest it.

[gimp]

Thanks for the excellent post, Lals.

One thing you might be missing - debt collectors buy the debt for pennies on the dollar. You could often settle for a small fraction of what you originally owed. That wouldn't stop the rest of the bullshit you described, of course...

[fantabulous]

Thanks for the excellent post, Lals.

One thing you might be missing - debt collectors buy the debt for pennies on the dollar. You could often settle for a small fraction of what you originally owed. That wouldn't stop the rest of the bullshit you described, of course...

It sounds like settling for pennies on the dollar in fact fuels the bullshit further.

[Cpa Cat]

We went through this. My husband had legitimate bad credit and debts that he had defaulted on when younger. We got nowhere trying to deal with it. Heck, my husband used to be a debt collector - and he still had no luck!

Some of these debts were being reported multiple times (the best one was a $50 cable disconnect charge that was reported 5 times under different names). There were a few "zombie" type debts that were past the statute of limitations, but the dates were being mis-reported. We tried protesting, writing to credit report bureaus, but it seemed like the system was stacked against us, even when we were trying to do the right thing.

So eventually a friend of ours recommended some internet service - "The shady law offices of Internet JD" - which consisted of us paying $70 a month to have some paralegal basically harass these people with legal letters. They demanded proof of the debt be presented and proof that it was within the statute of limitations and when it couldn't be, they demanded it be removed from the credit report. They sometimes sent 10 letters a day to the same debt collectors (we were the return address, so if the company had no legit address, we got the rejected letters). We had boxes of these "return to sender" letters - I think eventually the Shady JD had us send those letters en masse to the credit reporting bureaus, to harrass them to get them to remove the debts.

Three months later, something like 25 debts (including duplicates) were removed. We cancelled the service at that point, since nothing more could be done. We actually got all but one removed. Apparently none of these people are able to substantiate the debts they're trying to collect. The one that remained was 1 year away from the statute of limitations and it was one of those debts that was described earlier (You did owe $500, now you owe $5,000). They refused to settle and we walked away from it - it dropped off.

[Shor]

So eventually a friend of ours recommended some internet service - "The shady law offices of Internet JD" - which consisted of us paying $70 a month to have some paralegal basically harass these people with legal letters. They demanded proof of the debt be presented and proof that it was within the statute of limitations and when it couldn't be, they demanded it be removed from the credit report. They sometimes sent 10 letters a day to the same debt collectors (we were the return address, so if the company had no legit address, we got the rejected letters). We had boxes of these "return to sender" letters - I think eventually the Shady JD had us send those letters en masse to the credit reporting bureaus, to harrass them to get them to remove the debts.

Three months later, something like 25 debts (including duplicates) were removed. We cancelled the service at that point, since nothing more could be done. We actually got all but one removed. Apparently none of these people are able to substantiate the debts they're trying to collect. The one that remained was 1 year away from the statute of limitations and it was one of those debts that was described earlier (You did owe $500, now you owe $5,000). They refused to settle and we walked away from it - it dropped off.

I love/hate how the only way to fight bureaucracy is with, yup a crap load more bureaucracy, right to the face!
I always wondered why someone doesn't come in and start collecting and settling these debts the way they were meant to be done. Instead they buy at a discount and if they can't drastically extort money out of the indebted, they pass it off to the next sucker?

Surely the banks would be looking for a competitive debt buyer who is trying to actually finalize the accounts, or is there just too much risk involved to be betting on the debt-laden American actually off their debt?

[Cpa Cat]

I love/hate how the only way to fight bureaucracy is with, yup a crap load more bureaucracy, right to the face!
I always wondered why someone doesn't come in and start collecting and settling these debts the way they were meant to be done. Instead they buy at a discount and if they can't drastically extort money out of the indebted, they pass it off to the next sucker?

Surely the banks would be looking for a competitive debt buyer who is trying to actually finalize the accounts, or is there just too much risk involved to be betting on the debt-laden American actually off their debt?

I found it frustrating because we had the means and willingness to simply pay off all of the debts. But we couldn't. We couldn't even get a response from the credit bureaus about the "phantom" debts that were being reported despite the fact that the companies did not exist and could not be contacted. We couldn't address any misreporting with them. They just ignored us - even when we followed the rules and put everything in writing, etc.

And on the debt collection side of it, we couldn't get any kind of settlement agreement in writing. We quickly realized that we would be punished for paying. They would take our money and possibly 1) continue to harrass us; 2) continue to report it; 3) reset the statute of limitations based on our cooperation.

The truth is that once the debt is sold off, there is no real interest in settling it fairly. The interest is only in extorting as much money as possible from the debtor with as little effort as possible. The straw that broke the camel's back for us and taught us that we couldn't consider actually PAYING the debts was that we paid one to a debt collector and then they sold it to another debt collector as a delinquent debt!

[paddedhat]

There is also some really odd collateral damages that arises from this whole cluster-f. My wife and I both got new phone numbers in the last eight years. Hers was about 4-5 years ago, mine was eight. Shortly after getting hers, she discovered that it was recently owned by a young, deadbeat college kid who must of owed money to dozens of lenders. She spent the last several years chipping away at the morons calling to talk to the kid. Eventually it stopped. I recently discovered that my phone was owned by another deadbeat, and after EIGHT years of a cold trail, the agencies decide to give me a call, hoping to find Luane Dinger, or dingle, dingleberry or whatever her name was. It can be pretty entertaining actually. I quickly state the fact that she last had this number in the mid-2000s and that their trail is cold, and nearly a decade old. About 1/3rd of the time, the moron will respond with, "do you know how to contact Luane?" This is where I typically come unglued and ask, " are you retarded?" Now, one of two things happen. Typically, they hang up, but occasionally somebody wants to get into it. I usually continue to ask if they are a little slow, and if they make a good living chasing decade old dead ends. Every so often I get one of them so pissed that they curse and slam the phone down..........score.

[marty998]

Snip.

Surely there are laws against this? Do you have a consumer credit code over there like ours http://www.comlaw.gov.au/Details/C2013C00463? Protects against these scenarios and various types of predatory lending.

Honestly it sounds like a Monty Python sketch. Glad to see you've come out the other side intact.

[slugline]

Like Paddedhat above, I've also inherited phone numbers that belonged to debtors. In addition, I've had the privilege of having my phone number associated in a database with a debtor with the same first and last names as my own. Now, _those_ are some annoying calls to handle.

[MicroRN]

While I've never had any accounts in collections, I had a very irritating situation a few years back.  I have a fairly common name.  I lived in an apartment building, where another woman with the same name lived.  She apparently left town abruptly leaving behind a ton of debts.  Since I had the same name and street address (minus the apartment number), I started getting harassing letters and phone calls.  It took over a year to convince all these companies that I was not her. 

To top that off, the folks who previously lived in the house we rent left a lot of debts behind too.  No phone calls, thank goodness, but tons of letters, and we even had a process server show up on the doorstep.