Blog Post
What Are Junk Debt Buyers?
- By Mike Daniels
- •
- 16 Oct, 2018
Are you being chased by Zombie Debt?
What is a Junk Debt Buyer?
A growing industry in America today is the junk debt buying industry. A lot of first tier creditors, like Citibank or JPMorgan Chase Bank or Wells Fargo, don't want to be in the debt collecting business. If you owe them a credit card debt that you aren't paying, they'll send you statements and maybe a few more or less polite letters over the next four or five months; they are not usually interested in suing you or chasing you for the next few years. So what do they do? They find a junk debt buyer and sell all of their old defaulted credit card accounts to him for pennies on the dollar. Some creditors like Discover and American Express, keep their defaulted accounts, but my experience is they are in the minority.
So here's the way it works. Midland Credit Management or Portfolio Recovery gives $200,000 to Citibank. In return Citibank gives them a spreadsheet with some very basic account information on it for defaulted credit card accounts with a face value of $20 million (yes, they really only pay pennies on the dollar). Let's assume one of your defaulted credit card accounts is included on the spreadsheet. Now the junk debt buyer can do the collection work that the first tier lenders don't like to do. They can call you, send you demand letters, hire attorneys or collection agencies, and even sue you. If the balance on your Citibank credit card was $5,000, Portfolio paid $50 for that account, and if they beat $100 out of you they made a profit! Of course junk debt buyers don't generally agree to such inexpensive settlements, mostly because a large number of the defaulted accounts they buy are worthless. Some account debtors may have moved to another state and not been located, some may have filed bankruptcy, some may have retired and not have wages that could be garnished, and some of the accounts may be so old that the statute of limitations has expired.
That initial transfer is not the end of debt collection roulette. It is common for junk debt buyers to work a spreadsheet they buy for a few months or a year, collect what they can, and sell it to another junk debt buyer for even less money. Junk debt buyers have even been known to sell the same spreadsheet more than once! The record keeping is generally atrocious, and junk debt buyers who sue people really as a matter of law can't win those lawsuits if the consumer puts up a vigorous defense. Think about it. Trial witnesses are supposed to have personal knowledge of anything they testify about. If I call you as a witness at my car accident trial, you are only useful if you testify "I saw the car accident on July 10th, and it was Mike's fault." Junk debt buyers don't have any personal knowledge. They often get their employees to testify "Mike owes us $3500." How do they know that? Well they'll say they bought a credit card account from Citibank, and Citibank told them Mike owed Citibank $3500. That is hearsay. Junk debt buyers aren't Citibank employees and don't know anything about Citibank's business records. In a court of law with a knowledgeable judge and a good defense they basically can't win the lawsuit. Maybe that is why junk debt buyers only have to pay a penny on the dollar for defaulted credit card accounts!
Why do junk debt buyers sue if they can't win? First of all, it is a real tragedy that in the US over 80% of all lawsuits are won "by default", meaning that the Defendants don't defend the lawsuit and the junk debt buyer wins without having to prove a thing. That might be because they have old addresses for Defendants and they don't know they have been sued, or it might be because people are anxious and stressed out and don't know how to defend. Once they get a default judgment, they can garnish salaries, garnish bank accounts and put liens on houses. This is why the junk debt buying industry is increasing; even with lots of dead accounts and losing a few lawsuits to a good defense, there is still a lot of cash out there. And the dirty little secret is that the atrocious record keeping means that junk debt buyers sue people they shouldn't sue. They sue people who discharged the debt in bankruptcy, people who paid some or all of the debt and people whose debt is too old to be sued. That is why they call it Zombie Debt.
Call a local lawyer right away if you are contacted by a junk debt buyer. Learn your rights. ESPECIALLY if you are sued by one of them!
A growing industry in America today is the junk debt buying industry. A lot of first tier creditors, like Citibank or JPMorgan Chase Bank or Wells Fargo, don't want to be in the debt collecting business. If you owe them a credit card debt that you aren't paying, they'll send you statements and maybe a few more or less polite letters over the next four or five months; they are not usually interested in suing you or chasing you for the next few years. So what do they do? They find a junk debt buyer and sell all of their old defaulted credit card accounts to him for pennies on the dollar. Some creditors like Discover and American Express, keep their defaulted accounts, but my experience is they are in the minority.
So here's the way it works. Midland Credit Management or Portfolio Recovery gives $200,000 to Citibank. In return Citibank gives them a spreadsheet with some very basic account information on it for defaulted credit card accounts with a face value of $20 million (yes, they really only pay pennies on the dollar). Let's assume one of your defaulted credit card accounts is included on the spreadsheet. Now the junk debt buyer can do the collection work that the first tier lenders don't like to do. They can call you, send you demand letters, hire attorneys or collection agencies, and even sue you. If the balance on your Citibank credit card was $5,000, Portfolio paid $50 for that account, and if they beat $100 out of you they made a profit! Of course junk debt buyers don't generally agree to such inexpensive settlements, mostly because a large number of the defaulted accounts they buy are worthless. Some account debtors may have moved to another state and not been located, some may have filed bankruptcy, some may have retired and not have wages that could be garnished, and some of the accounts may be so old that the statute of limitations has expired.
That initial transfer is not the end of debt collection roulette. It is common for junk debt buyers to work a spreadsheet they buy for a few months or a year, collect what they can, and sell it to another junk debt buyer for even less money. Junk debt buyers have even been known to sell the same spreadsheet more than once! The record keeping is generally atrocious, and junk debt buyers who sue people really as a matter of law can't win those lawsuits if the consumer puts up a vigorous defense. Think about it. Trial witnesses are supposed to have personal knowledge of anything they testify about. If I call you as a witness at my car accident trial, you are only useful if you testify "I saw the car accident on July 10th, and it was Mike's fault." Junk debt buyers don't have any personal knowledge. They often get their employees to testify "Mike owes us $3500." How do they know that? Well they'll say they bought a credit card account from Citibank, and Citibank told them Mike owed Citibank $3500. That is hearsay. Junk debt buyers aren't Citibank employees and don't know anything about Citibank's business records. In a court of law with a knowledgeable judge and a good defense they basically can't win the lawsuit. Maybe that is why junk debt buyers only have to pay a penny on the dollar for defaulted credit card accounts!
Why do junk debt buyers sue if they can't win? First of all, it is a real tragedy that in the US over 80% of all lawsuits are won "by default", meaning that the Defendants don't defend the lawsuit and the junk debt buyer wins without having to prove a thing. That might be because they have old addresses for Defendants and they don't know they have been sued, or it might be because people are anxious and stressed out and don't know how to defend. Once they get a default judgment, they can garnish salaries, garnish bank accounts and put liens on houses. This is why the junk debt buying industry is increasing; even with lots of dead accounts and losing a few lawsuits to a good defense, there is still a lot of cash out there. And the dirty little secret is that the atrocious record keeping means that junk debt buyers sue people they shouldn't sue. They sue people who discharged the debt in bankruptcy, people who paid some or all of the debt and people whose debt is too old to be sued. That is why they call it Zombie Debt.
Call a local lawyer right away if you are contacted by a junk debt buyer. Learn your rights. ESPECIALLY if you are sued by one of them!