There is money in bad debt – A LOT OF MONEY!

In the last year there has been close to $100 Billion in old and bad debt sold in the U.S. alone.

   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 several years, it’s been growing at a 30% annual rate. Several debt-buying companies have gone public and have had multi-million dollar IPO’s.

   The general formula for old debt buying is: 

For every $100 of old debt that is purchased at say, .25 cents. If you are able to get a debtor to pay you $1, then you have got your money back and covered your costs.

   The problems start when these debt buyers start becoming abusive towards consumers. Many of them will use any method to harass and defraud unsuspecting consumers. Some of the worst practices used on the public have been:

  • 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 the credit bureaus that an old debt is, in fact, a new one. Their goal is to extend the seven-year limit on reporting negative items to the credit bureaus.
  • Promising to delete a negative listing from a credit report in exchange for payment.
  • Bait-and-switch credit cards.
  • Verbally abusing, intimidating, and harassing consumers.

   There is also a hidden secret with paying an old debt – paying off an old debt can seriously hurt your current credit score. Why you may ask? The updated delinquency reflects your current financial payment history. This is where re-aging comes into play.

If you are being contacted about an old debt, here are some helpful tips for you:

Know Your State’s 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 “Money Troubles” and — if the amounts at stake are considerable or the level of harassment unbearable — consider contacting an attorney. 

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 A Letter To The Collection Agency - 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.

Keep A Very Watchful 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.

   As many of of my students and clients know, there is a technique to get the collection agency off your back. 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. 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  website.

Stay Tuned and Informed

Mark