Debt Buyers Often Have No Idea Whether Debts are Actually Accurate
Would you pay millions of dollars for something without knowing what it is and without getting any warranties that what you’re purchasing is what you’re getting? Probably not – unless you’re a debt buyer, which does just this, often to the detriment of consumers.
How Debts are Purchased
As you may know, debt buyers purchase unpaid debts from creditors in bulk. They may purchase hundreds, even thousands of accounts all at once, for pennies on the dollar. The logic is that if they pay .10 on the dollar to the original creditor and collect .30 on the dollar from the consumer, that’s a big profit when multiplied by the amount of debt they are buying.
The problem is that creditors don’t have the time, money, manpower, or desire, to go through every single one of their accounts and make sure their records are perfect and up to date. As such, the creditors will often sell the accounts to the debt buyers “as is.” That means that the creditor—say, Chase Bank, or Target—isn’t guaranteeing to the debt buyer the collectability, correctness, enforceability or accuracy of any of the loans being sold. These clauses are often found in what are known as “Forward Flow Agreements.”
The debt buyers also don’t have the time or resources to review everything they’re buying. So they proceed to collect on debts they purchased, which they know may or may not be accurate.
They may not have all the paperwork needed to document what’s owed on many accounts. They may not have original agreements between the creditors and the debtors that document the terms of the loan, and affect calculations of interest or attorneys fees that are being tacked onto the principal balance owed. Payments or settlements may not have been accounted for. The statute of limitations to collect the debt may have passed. They may even attempt to collect debts discharged in a bankruptcy.
The Effect on Lawsuits and Bankruptcies
Making the whole scenario more of a racket, in many lawsuits, the original creditors will file affidavits verifying the accuracy of a debt, even though the debts were sold with no guarantee of accuracy. This likely amounts to perjury (but good luck getting any state attorney to bring that charge against a bank or original creditor). Even if a creditor never files a lawsuit, the debt can be reported to someone’s credit.
Debt buyers can be included in consumer bankruptcies, but in many cases, the amount may have to be contested by the consumer through an adversary proceeding to ensure that it is correct, or to verify that the debt collector even has proper paperwork documenting the loan and its terms.
This can be a significant issue in Chapter 13 bankruptcies, where the amount of the total indebtedness of a consumer can affect the amount of payments that are made, and even affect the consumer’s legal right to file a Chapter 13 in the first place.
If you are considering bankruptcy in Miami or are being sued for a debt, you have defenses available to you. Contact Jacobs Legal to discuss getting representation to fight the banks and creditors that are looking to collect from you.