After more than a year since COVID shutdowns and quarantines began, debt collection seems to be resuming. We are getting lots of calls from people telling us their homes are in the process of foreclosure, and the credit card companies are getting aggressive again.
The Stages of Debt Collection
The credit card company or lender reaches out to prompt payment. The first step is the one people are most familiar with. If you do not pay, they may turn you over to a debt collection company or a law firm. They may call for weeks or even months. Eventually, it is not uncommon for the lines to go silent.
This is where it gets confusing. People think the collection process is over, when they do not hear anything for some time. That is not usually the case. The original creditor will put in some effort at collecting the account. How far they go varies from lender to lender. Some credit card companies are absolutely not in the business of suing to collecting debt. They will make calls for a few months, then have lawyers or debt collectors reach out to you. At some point, the process seems to stop.
This is where the secondary market for accounts comes into play. Just because the original account holder shuts down collection efforts does not mean the debt is forgiven. There is an entirely separate market of debt buying by companies that purchase accounts in bulk. In short–these companies are in the business of collecting other people’s loans.
Large credit card companies and loan operations hold online auctions, selling delinquent accounts in various denominations counted in the millions of dollars. Companies in the business of collecting these debts bid against each other for bundles of accounts across the country. Basically, they are buying a grab bag of assorted accounts bundled by lenders. Some, they will collect on. Others, they will not.
Sometimes these companies are referred to as debt vultures or debt scavengers. They do not loan money on their own. They do not service accounts. They just buy accounts other people could not get to pay and try to harvest as much of the outstanding balances as possible.
They go by names you have probably never heard, unless your old Visa card or car loan went into default. Midland and LVNV Funding are two of the larger players in this business. Together, they buy tens, perhaps hundreds of millions of dollars in debt.
It does not matter how much they actually paid for the account. They get to collect the full balance, regardless of what they paid for the original note. They will usually refer the account directly to a local collection attorney.
After one letter, as per the Fair Debt Collections Act, the lawyer will file suit and try to move in the direction of garnishment.
Most people tell us the first time they knew their account was sold was when they got served with a lawsuit by a company such as Midland. This causes some level of confusion. The initial thing most people feel is they there was a mistake, because they do not recognize the name of the business. It usually takes a little bit of digging through the paperwork to get to the name of the original creditor.
Usually after the lawsuit is served, nothing immediately seems to happen. That is often because the creditor will take a default judgment, if you do not quickly file a response. That means they will get a judgment without a trial or other formal hearing. The next thing you typically know, your paycheck is being garnished around 90 days later.
We can help with all stages of the collection process. We have pushed back debt buyers time and time again. If actually forced to have a contested hearing in front of a judge, they often do not have enough paperwork to prove the account is valid.
Even if the creditor gets a judgment and you are garnished, it is not too late to consider bankruptcy as an option. The Gouner Law Office can even shut down garnishments already in progress.
Written by Greg Gouner