Congress Emboldens the Debt Bullies
When Congress adopted the bankruptcy amendments in 2005, it was with the explicit purpose of making it harder to file for bankruptcy. But the supporters of the bill claimed over and over that “honest, but unfortunate” people would still have plenty of access to the bankruptcy courts. They were going after only those who could repay their debts--or so they said.
No one is surprised to discover that bankruptcy filings are down. Filing fees have increased, attorneys’ fees have increased, and people might reasonably be worried about the new counseling and disclosure rules. But the courts are still open, and most people have low enough incomes that many of the changes won’t apply to them. Jim Caher, an Oregon lawyer and the author of a really good book full of advice about bankruptcy (Bankruptcy for Dummies), gives another reason why filings are down: the debt collectors are lying to people. Here’s his story:
A couple of weeks ago, I took several calls from bill collectors for a client who was feeling especially harassed. The were all far more aggressive and offensive than I ever experienced before.. Real bullies and completely full of baloney.
One told me that according to his “investigation” my client was not eligible for bankruptcy under the new law. When I asked him explain why, he said that that was confidential. Another guy told me that I should just believe him “filing bankruptcy for this guy under the new lat would be a big, big mistake.” I asked him to explain why and this guy also refused. Then he assured me that if I file bankruptcy for this client, he’ll report me and the client to the “proper authorities” and then hung up before I could ask him who those authorities might be. The third also said that my client was not eligible to file bankruptcy under the new law. All of this is complete and utter bunk. But they seem to be working from the same script. A fourth asked me if I had bothered to inform my client that he would have to undergo six months of credit counseling and then would be able to wipe out 60% of his debts. When I tried to explain that this was not true, he said “yeah, right all you want is money.” These calls were from four different collection outfits, but they seem to working from the same script.
This might partially explain the drop in filings. Many people would be terrified by the threat of being reported to the “proper authorities” or that they have been “investigated” and were not eligible for bankruptcy under the new law. Also, telling them not to believe the lawyer, who only wants to take their money can’t help either.
If debt collectors have grown bold, then Congress has helped them along. By passing a bankruptcy bill that is deliberately and publicly anti-debtor, these debt collectors have a ready audience when they bully and frighten people into believing that they have all the power.
Jim Caher says he is going to monitor debt collection calls for a while. Caher, the Boston Globe, the Department of Defense—the voices calling for an end to outrageous collection practices are growing louder.
Re: No one is surprised to discover that bankruptcy filings are down.
Is this true? I recently read somehwere that the credit industry is chagrined that bankruptcy filings had returned to near their pre-2005 levels.
September 24, 2006 5:38 AM | Reply | Permalink
Yes, they are down. They are currently running about half of previous levels overall. Chapter 7 filings are down more than 50%, while chapter 13's are a little above 50% nationwide and it seems to be leveling off. Although it is important to consider that March-May, when people get their tax refunds back, is our normal rush period. So I expect the numbers the start dropping again toward the end of the year.
Satellite Sky Blog
Find the Truth. Do Justice.
September 24, 2006 7:43 AM | Reply | Permalink
Why aren't debt collectors afraid of liability under the Fair Debt Collection Practices Act? My understanding of the Act is that any deceptive practice creates liability at $1000.00 per act.
September 24, 2006 8:14 AM | Reply | Permalink
The FDCPA, as it's called in the business, only applies to third party collection agencies. In house collections are generally instructed to comply with the regulations voluntarily. As long as the Act is not extended to in house collections, companies like my former employer are free to resort to unpleasantness.
In the good old days of the Clinton administration, there was a certain degree of civility to the system. Since there was a genuine fear that the FTC (or some other agency of whom I am unaware) would rule that the FDCPA applied to everyone, collectors had to be careful.
Now, the pressure starts at the top. Company bigwigs tell their floor managers to squeeze the employees and it rolls downhill from there. I suspect that it would not have been possible to keep up with company standards without at least crossing into legal grey areas. The bad news is that the FDCPA requires intent to break the law.
When you have fire up floor managers walking up and down through the bullpen yelling out for everyone to get "phone pays," it is tough to say that the employee intended anything more than to get that manager off his or her back. The managers have cover because they never told employees to break the law specifically. In any case, would anyone expect a Bush run agency to rule against monied(sp?) interests?
On a personal note, I must insist that there were lines no one I knew would cross. Despite the fact that we had access to personal information, we never faked payments or stole from debtors. We also never took their personal information out of the building no matter how angry we got with them.
For the most part, it's not the people you speak to who are the problem. We're all victims of the system.
John
For more go to my online journal.
September 24, 2006 9:49 AM | Reply | Permalink
Filings down? Why yes, but you really can't compare 2006 and 2005. Nearly all the 2006 filings happened in 2005 as people tried to beat the October 17, 2005 deadline.
That said I have noticed the inquires about bankruptcy are returning. We are still struggling trying to figure out the new law in all its glory. Form 22b is a bitch, but creating a confirmable Chapter 13 plan is a matter of multiple amendments as we all try to parse through the Chapter 13 trustee's evolving interpretations of obscure and pointless provisions.
My practice is changing so I am trying to train an associate to handle my bankruptcy cases. My bankruptcy paralegal is thinking of retiring. Too bad, I am married to her. We can use the income.
Her complaint, she wants to know more about bankruptcy law than the associate. Right now they are both in the same boat. Struggling. Hell, so am I. I am not alone. I went to a seminar put on by the US trustee in my district a couple of weeks ago. They seem just as lost as I am. Not because they are poor lawyers. They are great. Not because they are lazy. They work hard. The law is just that bad. Probably nothing in the Bush administration is more incompetently done. That is saying a lot considerning the Bush administration's unrelenting string of unmitigated screwups. They are so incompetent they won't even consider a technical corrections act to correct the dangling paragraphs.
Ron Byers
September 24, 2006 7:20 PM | Reply | Permalink
They aren't afraid of it because the Act is bascially toothless and the FTC doesn't do a heck of a lot to enforce what teeth it does have. The liability for violations of the FDCPA is MAX $1000 PER ACTION, not per violation. So, if you do sue a collection agency for violations the most you're going to get is $1000, no matter how many times they violated, and the court doesn't have to award the max of $1000. IF the victim can PROVE actual damages, some more money might come out of the collection agency's hide, but it can be difficult to prove actual damages.
The offending collectors aren't afraid of the FDCPA, they sneer at it.
As for collectors lying about a debtor's eligibility for bankruptcy, many people are coming to various public forums asking 'is this true ? I can't file bankruptcy on this debt ?', there has been a definite increase in these types of questions. The collectors are lying thru their teeth - as usual.
September 25, 2006 7:57 AM | Reply | Permalink
You tell 'em, Ron!
Satellite Sky Blog
Find the Truth. Do Justice.
September 25, 2006 4:53 PM | Reply | Permalink
We have the power to fight this abuse, by adopting a debtfree lifestyle, and boycotting lenders. Vote with our pocketbooks, isn't that what really counts in this society? Right now some of the most lucrative jobs are in the lending and collection industries. That is because we borrow so much. If we reversed that trend, we'd put these people on the other side of the fence, and they'd be dodging collection calls, after they lose their jobs.
Jim Anderson
The Truth About Credit
September 25, 2006 10:02 PM | Reply | Permalink
By the way, I haven't encountered debt collectors lying to debtors about the new bankruptcy act. I don't know why lying would be necessary. When I explain the process to debtors, and especially when I give them the disclosure letter I routinely give debtors after the first interview, many are scared to death by the actual requirements. Of course, I don't really enounter many dead beat debtors so scaring them doesn't do anybody much good.
Ron Byers
September 26, 2006 5:17 AM | Reply | Permalink
To cut a deal with the debtor on the phone.
As you probably know, one of the primary techniques collectors use is intimidation. They will say things that are not true to intimidate the debtor, to scare them into making a deal. If you are an attorney, they probably won't lie to you, but they will to someone they think doesn't know any better. They can smell fear, and they use it. Believe it or not, collection attorneys do this too. I have personally experienced this. Attorneys are more clever though, it isn't technically lying they way they go about inflicting intimidation. They just don't tell you the whole story. But their goal is to scare you. They are also very clever in getting the debtor to form a contract over the phone, or to make statements of fact that they can use against them in a lawsuit, alleviating their need to prove their case. They shift the burden of proof to the defendant. So guess what? The person who is accused of a debt, who has no money, must hire an expensive attorney. It isn't about justice, it is about making money, by whatever legal means necessary. I see it as legalized extortion. Guido doesn't break arms any more, he has evolved into a sophisticated lender, or collection agency or attorney.
Jim Anderson
The Truth About Credit
September 26, 2006 8:08 AM | Reply | Permalink
Jim, I was trying to point out that the act itself is scary enough. You don't have to make shit up to frighten a debtor.
I am more than aware of the techniques used by collectors and by collection attorneys. Some of them would curl your hair, but why lie if you have the creditor lobbyists writing the bankruptcy laws.
Ron Byers
September 26, 2006 7:37 PM | Reply | Permalink
I know. It doesn't make sense does it? I say it reflects on the character of the people who do that kind of work.
Jim Anderson
The Truth About Credit
September 27, 2006 9:55 PM | Reply | Permalink