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What is a Junk Debt Buyer?

Saturday, December 17th, 2011


A junk debt buyer is a collection agency who has purchased a large portfolio of delinquent or charged off accounts from credit card companies, or even other collection agencies. Also referred to in the industry as “bad debt buyers”, “zombie debt collectors”, or simply “debt buyers”, these companies fall under the Fair Debt Collection Practices Act definition of Collection Agency (“CA”). As the visibility and profitability of this rapidly expanding new industry has grown, junk debt buyers range in size from small private businesses up to million dollar publicly traded Wall-Street companies! Credit card debt accounts for nearly 70% of the accounts sold to JDBs, followed by auto loans, telecommunications debt and retail accounts.

What to be Aware Of

Junk debt buyers generally buy alleged debts for cents on the dollar and then attempt to find ways to collect on the debt. Often times, the debt is “out-of-statute” (That is, the statute of limitations on it has exipred and it no longer legally needs to be repaid). The buyer then attempts to get the debtor to pay a small portion of the debt. If the debtor does so, they have reaffirmed the debt and started the statute of limitations over again. It is very important that consumers be aware of their rights and the laws that protect them as an alarmingly large number of these debt buyers are barely operating within the law.

Some typical unacceptable practices by JDBs include pursuing debts that are not actually owned by the consumer in question; harassment or verbal abuse; multiple listings of the same debt; and, as stated previously, attempting to collect a debt that has passed it’s statute of limitations. Frequently in these situations, the JDBs will use the practice of “re-aging” an account which basically means that they report it as more recent than it really is.

An Abbreviated List of JDB’s

  • Asset Acceptance (AAC)*
  • Sherman Acquisitions/Sherman Financial Group/Alegis
  • NCO Group*
  • Portfolio Recovery Assoc.*
  • Asta Funding* Encore Capital Group (parent of Midland Credit Mgmt)*
  • Allied National/Interstate Risk Management Alternatives (RMA)
  • JBC & Associates Arrow Fin. Svcs. (majority interest acquired by Sallie Mae 9/04)
  • RJM Acquisitions
  • CAMCO (Capital Acquisitions & Mgmt Co)*
  • Excalibur
  • Cavalry Portfolio Services
  • Unifund Group
  • Phoenix Asset Acceptance
  • First Select Corporation (part of Providian)
  • Collins Financial Services
  • Oliphant Financial Corp.
  • OSI Portfolio Services

*These have been the subject of recent FTC legal actions and penalties for illegal/abusive collection practices.

 

How Much do JDBs Pay for Portfolios of Debt?

 

  • Debts that have recently been charged off: 6 to 7 cents on the dollar.
  • Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
  • Years-old, out-of-statute debts: A penny or less.

* Source: Sean McVity, portfolio broker at Keefe, Bruyette & Woods.

The above figures are handy when calculating how much you should offer as a settlement to these companies.

 

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Pay for Delete – Removing Collections From Your Credit Report

Saturday, December 17th, 2011


If you have some cash, this is the easiest technique to use when trying to remove collections from your credit report. This is best for small collections, under $500, and you agree to pay them the entire amount, netting them a handsome profit, and you get the account deleted from your credit report, netting you a handsome increase in your credit score. Even if you are strapped for cash, most people can afford to pay $500 to acollection agency. If it’s over $500, I still think this is an excellent technique. For debts over $500, I suggest paying a maximum of 25% of the total.

At 25%, the collection agency is still making a handsome profit. To give you some background, most bad debt companies pay or receive literally pennies on the dollar for the debts on which they are trying to collect. The amount that companies pay for bad debt depends on the type of account and its age: *

  • Debts that have recently been charged off: 6 to 7 cents on the dollar.
  • Accounts that are slightly older and on which a collection agency or two has already taken a whack: 1.5 cents to 2 cents on the dollar.
  • Years-old, out-of-statute debts: A penny or less.

* Source: Sean McVity, portfolio broker at Keefe, Bruyette & Woods.

With this in mind, you should always start your offer at 25% or less. Let’s understand the math here. If your debt is $1,000, let’s say at the most, the collection agencies has paid or will collect 7 cents on the dollar, or $70. If you offer them $250 (25%), they are still making a profit of $180. Remember, the credit card companies are out of the picture at this point. This money goes directly to the collection agencies.

Pay for Delete Technique

  1. Write the collection agency and offer to pay the amount in full (or at whatever amount you feel you can sell them on) in return for removing the collection account. Points to note in the letter:
    • Mention the fact that they have not given you any kind of documentation on the debt, validating it is yours or that they are legally entitled to collect the debt.
    • Tell them that you prefer just to pay this debt rather than hire an expensive attorney to sue them in court.
    • Present your offer as a business deal – remind them of the handsome profit they are about to make on this deal by accepting your offer.
  2. Attach a settlement offer.
  3. Wait until you receive a signed, written acceptance of your offer from the collection agency.
  4. Once you have a written, signed agreement (a fax is fine), send the collection agency a money order or cashier’s check for the amount you agreed to pay them.

 

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How to Deal with Medical Debt and Hospital Bills?

Saturday, December 17th, 2011


Hospital bills are a major culprit in bankruptcy cases. Even so, you don’t have to end up plowed under by them. There are many options and resources available to get help with your hospital bills. Some of these methods will work even if the hospital bill is already in collections.

Go to Hospital Financial Assistance

Most hospitals have a financial assistance expert on staff. Sometimes this expert can set you up with a payment plan right at discharge, and so long as you follow the plan the hospital will basically leave you alone. The expert can also offer help with insurance. He can, for example, often set you up with a county or state insurance plan that you’ve never even heard of. He can sometimes get those plans to retroactively pay the bill, too.

This person is also the gatekeeper for the hospital charity application. If a charity application gets approved then a portion of your bills, maybe even all of your bills, will wind up forgiven.

Victims of Crime Programs

These programs are only available to those who get injured because of someone else who is committing a crime. Note that you can’t have been committing a crime yourself at the time! These programs will pay your hospital bills, but you have to file the claim correctly and in the proper fashion. Ask the police or the hospital for help with contacting the VoC. If your bill is in collections already the agent may be able to get this information to you as well, provided the statute of limitations on filing has not already expired.

Workman’s Comp

If your trip to the hospital is the result of a workman’s comp case then you should be prepared for events to slow to a crawl. It takes a lot of time to resolve these cases and a lot of conversations, so make sure you keep all of your case information handy at all times. Many of these cases do wind up at the collection agency before they end up getting paid. Since the collection agency knows the workman’s comp insurance provider has bigger pockets than you do, they will typically want to push it with the insurance provider instead. You just need to make sure the bill in question relates, directly, to the workman’s comp injury. Be sure you give the agency all of the information they ask for.

Automobile Accidents

There’s a hierarchy of responsibility when it comes to automobile accidents, as multiple insurance companies and individuals are typically involved. A lot of “who has to pay what” depends on the circumstances of the accident. Make sure the hospital or collection agency has all of the information they need to resolve the problem. That information includes the contact information and car insurance information for everybody involved in the accident. They will also need your medical insurance information. If any attorneys are involved, the hospital or collection agency will need that information too.

Charitiable Programs

If you can’t turn anywhere else, there are several charities that help out with medical bills. Try the Access Project, the CancerCare Co-Payment Assistance Foundation, Children’s Health Fund, Catholic Charities and Free Medical Camps, just to name a few. There are also charities that target prescriptions, diapers, and other needful things.

Double Check Your Insurance Company

Sometimes, insurance refuses to pay the bills for reasons that are easily fixed. The most common fixable problem is a “co-ordination of benefits issue”, where the insurance company believes you might have a second health insurance company. If you do, they need that information so the two insurance companies can decide who has to pay what. Usually a simple fax that outlines your insurance situation will solve the problem. Sometimes it can even be done through an automated system phone call. Some insurance companies ask for co-ordination of benefits information every year as a matter of policy. Make sure you read everything that comes from your medical insurance company to avoid this problem.

Going bankrupt over hospital bills should always be a last resort, after every other option and resource has been exhausted. If you’re sick right now, know that the financial troubles can eventually be solved one way or another. Concentrate on healing for now, and worry about the price tag later.

 

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