Junk Debt Buyers
A junk debt buyer is a company that purchases portfolios or bundles of debts from original creditors or other debt buyers for a substantially lesser amount than the original debt itself but look to collect on the full face value of the debt from you. These debts can be from defaulted obligations due on credit cards, installment contracts, utility contracts, student loans, etc. After purchasing these portfolios of bad debt, these companies may attempt to collect from you the debt owed or may re-bundle and re-sale the debt to other debt purchasers. The price paid for the bad debt by the debt buyer is typically relative to what the debt it, how old it is, whether or not you’ve made any payments, have a job/assets, and whether or not the original creditor has good records to sell with the debt (credit card statements, original applications, full debtor names, social security numbers, etc) and whether or not other debt buyers or collection agencies have taken a crack at it and couldn’t successfully collect either. To see how this debt buying business is profitable, read this article.
For example, let’s say you took out a credit card with Chase Bank a few years back and due to unforeseen circumstances you could no longer afford to make your credit card payments. Chase Bank, the original creditor or the entity who actually loaned you the money, may try to collect the debt themselves calling you or sending you letters for a certain period of time after you have defaulted (became late) on your payments. They may even hire a debt collection agency to contact you on their behalf to try to collect the debt. When a bank gives up on collecting the debt from you, typically around 180 days delinquent, approximately 6 months, they “charge off” the debt. That doesn’t mean you don’t owe the debt. A charge off is simply an accounting practice used to mark your debt as “bad debt” or “noncollectable” as a means to balance their books. After banks charge off these debts, they often auction them off to junk debt buyers for pennies on the dollar and have nothing more to do with the accounts.
Why didn’t they try to call me first? Send me a letter? It just seems so extreme from them to just sue me out of the blue like this!
Your first introduction to a junk debt buyer is usually through a “dunning” letter you receive in the mail, a telephone call or a cordial hand delivered invitation to you courtesy of your local process server, a law suit. Your first experience with a junk debt buyer just might be a lawsuit out of the blue. A company you’ve never heard of claims that they purchased some debt of yours and are now suing you likely for an amount something much greater than what you recognize. This is quite common as junk debt buyers literally file thousands upon thousands of lawsuits against consumers and the vast majority of these lawsuits go unanswered resulting in judgments and relatively easy money and profitable returns for these debt buyers. Not to mention, when people find out they’re being sued, its a scary process and they usually call up the debt buyer or their lawyer and try to pay them to avoid the lawsuit. Why wouldn’t they just sue you? It’s the quickest way to the money.
The usual dead giveaway of a junk debt buyer is in the way the caption of the lawsuit reads, for example: “Portfolio Recovery Associates Assignee of Chase Bank“. Basically what this caption translates to is “We are Portfolio Recovery Associates. We have acquired this debt through assignment and are suing the defendant to enforce the rights to collect that debt”.
What they frequently try to do is blur the line between them and the original bank who issued you the line of credit in the first place so perhaps you view them as one in the same. Of course, what most people don’t realize is that if they acquire the account through an assignment, they must actually produce the assignment, which is a document showing the purchase of that account ever took place.
Large debt buyers such as Midland Funding, LVNV Funding, Portfolio Recovery Associates and many other debt buyers frequent the dockets of courts across the nation and are the most popular names in junk debt business. It is worth noting that they do not all function exactly the same and the way in which they handle their pursuit of a claim could be very different from another junk debt buyer.
The big junk debt buyers, from what I have seen, don’t typically do much “hands on” of the legal collection of the debt, they farm this work out to debt collection law firms. However, it appears from the prospectus of many of these debt buying corporations that we soon may see a shift to inside legal collections in an attempt to curb contingency fee costs paid to outside debt collection law firms. These debt collection law firms typically handle all the debt collection steps, including making those annoying phone calls, send out the dunning letters, the “verification” letters and ultimately filing the lawsuits against you.
To make matters even more confusing, these junk debt buyers use obscure subsidaries or LLC’s in the state where they actually file the lawsuits to do the actual collecting of the debt. A look at some of the publicly traded debt buyer companies through their SEC filings shows how “stacked” their company models are. They might create one LLC to do the purchasing of the debt, another to sue people on that debt and yet another to do credit reporting on that debt. An excellent example of this is debt buyer Encore Capital Group, Inc. which uses its subsidiary Midland Credit Management, LLC a “servicer” of the debts to do credit reporting/destroying and uses another subsidiary, Midland Funding, LLC to actually sue consumers.
It’s common now days to see debt collection lawyers creating their own debt buying entities and using their debt collection law firm to sue consumers to collect the junk debt at an enormous profit. I do believe there is a special place for those lawyers…and their “clients”.