Junk Debt Collectors
When we first heard about this one on the Clark Howard show, we couldn’t believe that anyone short of a Columbian drug lord could be so totally evil. Then, when we researched the problem on line, we discovered that it is actually worse.
Admittedly, this is a problem that is more likely to affect your employees than it is you. However, as we mentioned earlier, your employees’ financial problems can all too easily become yours.
Here is what we mean:
- Let’s say your store manager has a home, a family and a spotless credit report. However, back in the early 1990s, he ran up some credit card bills that were never fully resolved.
- In your state, the statute of limitations on unsecured debt is four years. This means that, if there are no more payments or charges on an overdue account for four or more years, it becomes legally uncollectible. Federal law states that, after seven years, it must come off a consumer’s credit report as well.
- Your store manager learned from this youthful indiscretion and has walked the financial straight and narrow for the past 15 years. Nevertheless, out of the blue, he gets a call from a company claiming to have purchased the rights to his debt, and demanding several thousand dollars in principal, interest and penalties.
What is going on here? The company in question is what is known as a junk debt collector. These scumbags purchase the “right” to collect long-overdue debt from the original creditors for pennies on the dollar. Technically, such debt still exists, even after bankruptcy — but is legally uncollectible.
What the junk debt collectors are gambling on is that most consumers don’t know their rights. They hope that, through a combination of persistence and outright unethical behavior, they can bully consumers into paying. Some of the things they will stoop to include:
- The junk debt collector will file suit against the supposed debtor, hoping that neither the court clerk nor the judge will notice that the dat of the junk debt makes it legally uncollectible. In so doing, they are hoping that the supposed debtor will fail to appear, enabling them to get a judgement that is enforceable.
- These collectors have also been known to “re-age” junk debt, reporting to credit bureaus that it sufficiently current to be legally reportable.
- Perhaps the worst offense is that these companies will sometimes illegally issue consumers a 1099C form, claiming that the (supposed) full value of the debt was miscellaneous income. This enables them to charge off the value what they claim the debt is worth on their taxes, while leaving the consumer on the hook to the IRS.
So what can you do if you or one of your employees are contacted by these people?
- The first step is to avoid the problem in the first place by getting Caller ID and not answering calls from suspicious 800 numbers. If you do, there is a good possibility the scammers will simply bother someone else.
- If you are successfully contacted by one of these snakes, remember that they are not the ones you borrowed money from. They paid a few pennies for a “debt” they knew, going in, was legally uncollectible. Do not acknowledge the debt or accept any responsibility for it.
- Under no circumstances send these people money. This will automatically re-age the debt and make you legally responsible for it.
- If the company takes you to court, show up and assert your rights under the law. (Remember, these people are counting on you to not show up.)
- If you receive a 1099 from one of these companies, contact the IRS immediately.
While purchasing junk debt is not illegal, employing tactics such as these to collect it is. Unfortunately, enforcement of the law is rather spotty in this area (and the perpetrators face little risk of going to jail).
The best thing you can due under these circumstances is consult a lawyer. Yes, it may cost money; however, the cost of not defending yourself can be far greater. Often, when the scumbags realize you know your rights and are prepared to defend them, they will go elsewhere.
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