What is a Junk Debt Buyer?
Portfolio Recovery Associates, Ability Recovery, Asset Acceptance, Atlantic Credit,CACH, Calvary, LVNV, Midland Funding, Unifund… who are these companies and why am I receiving phone calls, letters or lawsuits from them? These companies are called “junk debt buyers”.
A junk debt buyer is a company who buys groupings of delinquent credit card accounts or student loans or other types of loans for pennies on the dollar. They buy these accounts in bulk, at a substantial discount, and then try to collect the monies that are allegedly owed from consumers just like you. This is a HUGE business which is VERY profitable if done correctly.
Is This Legal?
When a new potential client calls me, one of the first things that they say is… I have no idea who Portfolio Recovery is (or whatever junk debt buyer it is that contacted them). After I explain who that company is, the very next question is always “That isn’t legal, is it?”. Unfortunately, it is very legal. The right to collect on a debt is called a “cause of action” in legal terms. A cause of action is a “thing” that can be bought or sold. If I am injured in an auto accident, I can sue the other driver, or, I could sell the right to sue the other driver to you. This is perfectly legal. But think it through… if I sell my right to sue the other driver to you, what are your chances of prevailing against him in a court of law? Well, you are going to have a tough time proving the accident was his fault without having me as a witness. You are also going to have a tough time proving the damages in the case without having me as a witness. So, if the other driver doesn’t voluntarily settle, then what are your chances? Pretty slim, I would say. Buying junk debt is no different if you as the consumer take the right approach on the defense side.
How Do I Handle This Junk Debt Buyer?
In most cases, DEFEND, DEFEND, DEFEND. This is the advice that I give to almost every client who contacts me. If you defend, by hiring a knowledgeable consumer attorney, you are going to win a junk debt buyer case almost every time. Do not handle the claim by yourself, do not contact the debt buyer, do not discuss anything with them. Contact a Consumer Attorney and then hire that attorney and you stand a very, very strong chance of successfully handling the matter.
The reason that we defend goes back to the personal injury example that I listed above. Think about it… you did not ever have an account with this debt buyer, whether its Portfolio, Calvary, LVNV, whomever, at any time. You did have an account with a creditor at some point, maybe it was Bank of America, Capital One, Chase,Citibank, Discover… and you did default on the account. Ok, so you may owe somebody some money, somewhere, somehow. But in this instance, the original creditor chose NOT to pursue you and instead chose to sell the debt to a debt buyer. That was their choice, no one forced them to make that choice. For business reasons, or for accounting purposes, they choose to sell your account, and thousands of others, to the junk debt buyer. So do you now owe the debt buyer any money? That is for the debt buyer to prove, not you.
Going back to the personal injury example that I listed above, you would have a tough time proving the case if you bought my cause of action, right? We all can see how tough that would be. Well these debt buyer cases are the same but with one additional caveat. We KNOW that these debt buyers buy these accounts on an AS IS basis. AS IS, maybe you’ve heard that term when purchasing a used vehicle? AS IS means that you make the purchase with all known and unknown defects. There are no warranties or guaranties whatsoever. So for the debt buyer, on top of having no witness or no one to help prove the claim, they now have the added burden of having to prove a case where the KNOW that the documents may not be correct because the seller (the original creditor) said so. Does defending the case sound pretty good right about now? Why pay on a claim that may or may not be accurate, to a junk debt buyer who bought your account for likely 2 cents on the dollar?
Should I Ever Settle?
Yes, there are scenarios where you should settle, and in my mind there are three of them. (1) You settle if the claim is very low, maybe under $1000. In this scenario, you can potentially settle the case for about the same amount that you can hire an attorney and defend. Settling is an option here simply because it gives you a guarantee…if I settle this it is gone forever. ( of course, only if you settle it correctly with a written settlement agreement). The second scenario where settling is a good idea is (2) if you need to clear your credit report immediately. Maybe you want to buy a house, or get a car loan, whatever, and this mark is hurting your ability to do so. Settling is an option here. The third scenario where you have to consider settling is (3) where the junk debt buyer has obtained a judgment against you. Once they have the judgment, in most circumstances, there is not much that you can do besides settling. Sure, there are ways to attack a judgment and we are successful at those attempts when we make them, but, they are not a common occurrence.