Chase and another bank debt bought by Portfolio Recovery during 13

[alorth]

I have noticed this on Datacenter.

The debts that used to show for Chase and another bank now are listed as owed to Portfolio Recovery Associates.

This kind of pisses me off.

We are paying back this debt, and I want the money to go to the banks that we actually owed the money to.

Having the money go to a slimy debt collection agency like PRA really burns me.

PRA pays pennies on the dollar for debt already under 13, and then immediately starts collecting on their "purchase", and I suspect that if the 13 failed, they would be all over us like flies on you know what in no time flat, being that that's all they do.

The whole thing seems shady if you ask me.

[LadyInTheRed]

Who are you pissed off at? The original creditors sold the debt to PRA. That's very common for debts in bankruptcy. The OCs probably aren't getting 100% in your plan anyway and they'd rather get cash now than risk that you won't complete your plan. It's their choice. The credit card companies are in business of extending credit and receiving monthly payments. They aren't interested in dealing with accounts in BK. PRA exists because of a debt market created by the credit card industry. They pay pennies on the dollar because they are buying debts that the original creditor has decided is not worth the effort to try to collect. It usually takes a lot of effort (which = money) to collect these debts and many never are collected. A defaulted $10,000 debt is not worth nearly $10,000. What is shady about buying a debt from the original creditor at a price they are willing to sell it for?

All you should be worried about is making your plan payments and getting to discharge. Other than your secured creditors, why do you care who is actually getting paid?

If your 13 fails, your creditors will be all over you, regardless of who the creditor is.

[justbroke]

I don't understand the ire as well. There is absolutely nothing wrong, even under the Uniform Commercial Code, of selling debt to another entity. None at all. In Chapter 13s, debt sales are a very big thing. This is a speculative and specialized area of debt collection. Yes, just as all other debt buyers do, these bankruptcy debt buyers pay little on the $ to assume the debt. They then hope that the Chapter 13/11 will at least pay "something" over the life of the debt, or that your case is dismissed. In either way, they have "skin" in the game and are assuming all the risk of collection (in which it is possible that they won't collect a penny and the debt is discharged).

You should not worry about who sold your debt to whom. In the Chapter 13 bankruptcy context, it is entirely irrelevant! If the original creditor wanted to wait another 3-5 years with the possibility of not collecting a single penny, then that is what the original creditor would have done. It was the original creditor's choice to sell the debt.

These are the major bankruptcy debt purchasers;
B-Line LLC
B-Real LLC
eCast Settlement
LVNV Funding
Arrow Financial Services
Portfolio Recovery Associates (PRA)
NCO Financial Services

As LITR writes, just focus on making your plan payments on time and getting to discharge. That is what a Chapter 13 (Reorganization) is all about.

[magic13]

Do these creditors have a history of monitoring the debtors confirmed Chapter 13 plan. Do they ever investigate bank accounts and credit reports to determine if you are capable of paying more into your plan and then file motions in an attempt to increase it. Have you seen many cases like this? I am one year into my plan and everything is going so smoothly that I am afraid someone is going to say April Fools. I know a lot of people complain about their Chapter 13, but I feel I should be a case study on the power of a Chapter 13 and how it can restore your financial life.

[LadyInTheRed]

Do these creditors have a history of monitoring the debtors confirmed Chapter 13 plan. Do they ever investigate bank accounts and credit reports to determine if you are capable of paying more into your plan and then file motions in an attempt to increase it. Have you seen many cases like this? I am one year into my plan and everything is going so smoothly that I am afraid someone is going to say April Fools. I know a lot of people complain about their Chapter 13, but I feel I should be a case study on the power of a Chapter 13 and how it can restore your financial life.

Once your plan is confirmed, there would have to be some significant and permenent change in your financial situation for somebody to be able to force a modification. Creditors have no access to your bank accounts and there is nothing in your credit report that shows how much you can afford to pay.

Stop worrying. The fact that everything is going smoothly is just an indication that you have a good plan and are doing a good job of living within your means. I just made payment 36 of 60 and everything is going smoothly for me too. I could also be a case study for success (knocking on wood). There are plenty of Chap 13 debtors just like us. We just tend to hear more from people who are not doing so well because they come here looking for help.

[justbroke]

Let me answer this simply... no. If any of these debt buyers were interested in making something non-dischargeable, they do this pre-confirmation. Once a plan is confirmed, it's nearly impossible to come later and complain about something. The time to complain was at the confirmation hearing. Unless this is some sort of significant amount, and I have seen eCast Settlement take on some precedent setting cases, it is just NOT in their profit model to really contest anything through litigation.

Sure, they will respond to initial objections to their claims. This is typically just a clerical response with "statements" and a copy of the bill of sale and assignment (with redaction).

After confirmation, generally nothing happens in a Chapter 13. You just keep paying on time, and it just moves slowly towards discharge. As I tell many others... stop worrying. Relax, and stay in plan on keep the payments on time. Worry more about staying on budget and building a savings while you are in Chapter 13.

[alorth]

Here's the reason for my "ire".

The banks essentially forced my hand in this situation in the first place by raising interest rates, reducing credit available, and raising minimum monthly payments when all payments were on time and had never been late when they did that.

So....why should they be able to get off by their own choice through selling the debt that is being paid at pennies on the dollar?

If the original Bank is going to accept pennies on the dollar for the debt owed to THEM, and then wash their hands of it, then they should accept pennies on the dollar from the original debtor and forgive the debt completely, and this should be possible even IN a CH 13!

I didn't take out a loan from PRA. I don't owe PRA. Except because debt can be bought and sold in this manner, I now somehow do because a computer transaction says I do, even though my original creditor has sold the debt for far less than what is owed and forgotten about it completely.

Do you understand now why this seems screwy to me, legal or not?

[justbroke]

So....why should they be able to get off by their own choice through selling the debt that is being paid at pennies on the dollar?

I don't understand your logic. You did, in fact, borrow from them. You did, in fact, not pay. Now you are worried that they sold your debt for far far less than it was worth to them?

If the original Bank is going to accept pennies on the dollar for the debt owed to THEM, and then wash their hands of it, then they should accept pennies on the dollar from the original debtor and forgive the debt completely, and this should be possible even IN a CH 13!

It's an accounting practice. Until the debt is charged off, the bank is going to pursue the entire amount. This is why you will typically have offers from a collection agency that was solely "assigned" the debt, in the neghborhood of 40-80% of the debt as a settlement. Remember, settlement is saying, I can absolutely get $0.10 for every $1.00 right this moment. When they deal with a person who has not paid, it's pretty hard to expect that person to pay. (I always wondered why AMEX was always the toughest and would actually ask if the debtor could pay "$30,00" today! If the debtor had $30,000 they "might" pay, but the debtor typically does not have the money at the time.)

I didn't take out a loan from PRA. I don't owe PRA. Except because debt can be bought and sold in this manner, I now somehow do because a computer transaction says I do, even though my original creditor has sold the debt for far less than what is owed and forgotten about it completely.

It doesn't matter who you took the loan from. If you borrow $100 from me, but I owe frogger $100, I can assign the debt to frogger. Frogger now comes after you for the money. This is the basic principles of the commercial code and it is EXTREMELY important in commerce that debt is able to be assigned/sold.

Do you understand now why this seems screwy to me, legal or not?

I do understand from the point that you feel as though YOU should have been able to purchase the debt. However, you do not see the larger picture. those debt buyers buy millions of dollars of debt in a single purchase (known as a portfolio). The large creditors aren't interested in selling one debt here and one debt there... it's not worth it. This is why the large junk debt buyers (JDBs) can get the debt for pennies on the dollar. They are spending millions and millions of dollars (sometimes as much as $100 million or more)!

So, again, I understand your frustration, but you can not blame the bank that loaned you money and you can't blame the bank that purchased your debt and is likely not to collect it.

We all wish for $0.10 on the $1.00 settlements on debt which has yet to be charged off. Unfortunately, we don't have that buying power to spend millions of dollars on a portfolio of bad debt.

[LadyInTheRed]

Another reason why the credit card companies would rather sell the debt then to settle with you for the same amount is that if they make that a policy people would start defaulting on their credit cards in order to get a settlement.

[bcohen]

Another reason why the credit card companies would rather sell the debt then to settle with you for the same amount is that if they make that a policy people would start defaulting on their credit cards in order to get a settlement.

Credit card companies will settle with the debtor, but the terms of the settlement offers that are given just aren't worthwhile. Typically, the creditor will agree to settle for 30% to 50% when the debt nears charge-off, however by then, the balance has been loaded with several months of penalty interest, late fees, and overlimit fees. Of course, that same creditor will happily sell the debt to a JDB for 5% or less, so go figure.

[justbroke]

Of course, that same creditor will happily sell the debt to a JDB for 5% or less, so go figure.

Yes, but the JDB is buying a $10,000,000+ portfolio of debt. That keeps collection off the bank so they can pursue new clients and issue more loans.

I do like what LITR wrote. I agree that part of not settling for "pennies" with the actual debtor, is that it could create an entire industry of "creative" debtors! They purposely would obtain $100K in credit, default, and then pay $10K... and take the 2-5 year ding on their credit. This is why the banks holding mortgages absolutely hate "strategic" defaults. However, most people don't obtain a mortgage knowing that they are going to default later.

[alorth]

Another reason why the credit card companies would rather sell the debt then to settle with you for the same amount is that if they make that a policy people would start defaulting on their credit cards in order to get a settlement.

That could be handled by:

A: Outlawing selling of debt to JDBs altogether. It isn't really necessary to the health of any industry. Make the banks live with the loans they make and credit they extend.

Then B: Eliminate the whole settlement scenario completely. It would never become an issue then, and would remove any chance of "strategic default".

So the agreement between the original creditor and debtor will always remain until either paid in full as agreed, or discharged through BK, or handled through lawsuit.

The relationship between the 2 original contracting parties always remains "pure", and very simple.

I know this is "pie in the sky", but there's no reason other than pure greed why this shouldn't be the case.

Simply eliminate the entire JDB industry.

[justbroke]

A: Outlawing selling of debt to JDBs altogether. It isn't really necessary to the health of any industry. Make the banks live with the loans they make and credit they extend.

It actually is. Would you rather the banks just sue everyone immediately at day 31? That would be the reality of a process where the debt could not be assigned. Debt assignment, under the Uniform Commercial Code (UCC), is very important to commerce.

Then B: Eliminate the whole settlement scenario completely. It would never become an issue then, and would remove any chance of "strategic default".

Yes, so we agree that the banks should just sue everyone, attach their property, garnish their wages, and no one is allowed to default.

So the agreement between the original creditor and debtor will always remain until either paid in full as agreed, or discharged through BK, or handled through lawsuit.

Yes, we are very much in agreement, if we changed the system to a "sue at 31 days late" system.

The relationship between the 2 original contracting parties always remains "pure", and very simple.

I don't know if it's pure, but the contract is between original parties.

However, you then miss the important parts of commerce and that is being able to sell off your portfolio of debt to other collectors. It could undermine the mortgage industry because the issuing bank -- of a mortgage -- would have to keep the mortgage forever... even if they got out of that business. Worse, what happens if the bank goes bankrupt? Can the debt not be sold?

Also, there are serious State issues involved. The fact that we are a plural form a government with laws at many levels, this would not work unless all the States modified their laws! Think about it. Florida would need to remove the unlimited homestead exemptions so that creditors could actually sue and get at the assets. Texas would need to now allow creditors to garnish wages. The entire garnishment process would need to change across the 50 States and District of Columbia.

I don't think it's possible. Again, without the ability to assign debt, the entire UCC would fall on its face. No longer could you endorse a check that you received, in payment of some service, to your creditor for payment that you owed them. It would be difficult for small business (or large business) to obtain loans against their receivables because the debt cannot be assigned. It would be... the end of the market economy. It could work in a more social/communist State, but I'm no expert on the affects of Government on a market-driven economy; at least not in anything but an anecdotal manner.

Please allow me to add this. I don't think of it as "greed". They purchase an investment (portfolio) and hope to earn a profit. They do not collect on every debt, and do not collect 100% of every debt. They could end up purchasing a portfolio of $10,000,000 which is worthless (because the underlying business records are bad). This is probably why they only purchase large portfolios from large creditors. Again, the investment does not always pay off.

I would certainly love to entertain more fines and sanctions for debt buyers that either themselves directly or by and through counsel break any of the collection laws. The $1,000 per incident does not seem to be enough to stop "some" of the JDBs. Maybe if we made that $10,000 per incident, the industry would perform more due diligence, hire more respectable legal firms, and self-police themselves. The only problem I have with JDBs is some of the tactics and shady law firms which they employ. I do not have a problem with the concept of selling debt.

[alorth]

I do not have a problem with the concept of selling debt.

But I do.

There could certainly be regulations written to handle the scenarios you suggested about mortgage lenders going out of business, or banks going bankrupt. Why couldn't debt then be transferred in such cases - and ONLY in such cases - under the supervision of the Federal Government to other actual BANKS, not JDBs? Mind you, I didn't say SOLD....I said transferred. The Banks would come out ahead by earning the interest on the debt without paying for it, though they would also assume the associated risk of administering the debt, but why wouldn't they be game? A system could be set up where banks queue up to take over the debt, for example. Or it could be divvied up equally amongst several banks that qualify for a status where they could participate in such an action. There could be a qualifying test of some sort. The details could be figured out by those smarter than I.

My point is that there are other ways.

As far as law goes, the credit industry is an interstate commerce, which is the reason BK is a Federal statute, so though there are some tenets of credit law (garnishment, etc.) that have state-by-state idiosyncrasies, this certainly could be addressed on a Federal level constitutionally speaking.

Also YES, I think the POSSIBILITY of a bank suing at 31 days is fine, but we all know that would never become the reality. Suggesting that might happen is akin to suggesting that the Banks will all just forgive every dollar of debt tomorrow. Its simply not going to happen.

The court process is time consuming and costly, so it would in effect act as a buffer against the concept of hasty automatic suits at 31 days default. Simple logic really. Interest would accrue, and a debtor's credit report would take a hit, and nothing would really change from now except that the "junk debt" couldn't eventually be sold off and it wouldn't be settled either, unless a BANK initiates the offer to do so, but it would never be under an obligation to do so, and it shouldn't be an expectation.

Just because a proposed system might be radically different from the status quo doesn't mean that the system will cause collapse of the UCC. Perhaps it would even fix it for the better.

JDBs are definitely shady and underhanded, and often act with impunity and with all the subtlety and honor of a loan shark. Hell, maybe banks aren't all that much better, but at least they have some positive characteristics and effects for the consumer, and a community presence, and for the most part they abide by strict oversight.

JDB is a profitable industry, which is why it exists. Profitability has a way of creating and sustaining the existence of even the most illegal of endeavors, let alone those that walk the line of respectability and legality, like the JDB industry.

JDBs are like parasites that can only survive by leeching off the host banks. They have no independent justification for their existence, unlike a bank. The host can survive without the parasite, but the parasite cannot live without the host, so is the parasite really necessary? Is a tapeworm necessary?

I respect your argument to a point, but I think it happens to be wrong. There are other ways. There are better ways. And just because its not the way things are done now, perhaps it would be even a healthier form of capitalism, and better for everyone involved in the creditor-debtor relationship.

(And again....I do realize this is all purely hypothetical and never going to happen, but I enjoy the exercise.)

[justbroke]

Unfortunately, commerce is more than just selling a product that you produce to someone willing to purchase it. Wait, actually, that works! I can produce debtors and sell the debt to others. I make money, the debtor is happy that they were able to get the product (credit), and I sell it to someone else to manage.

I am not implying that implementing a system which guts half of the UCC could never be implemented. I'm asking why? None of the arguments presented show a clear need to remove the commercial aspect of transferring debt through sale. I would agree that some manners in which debt was sold and transferred, such as the "mortgage backed security" (MBS), created a mess. However, the secondary mortgage business is the not such an item. (Please don't confuse what I say by "secondary" market with the MBS (securitization) process as they are two separate things.)

May I suggest not throwing out the baby with the bath water? I think the issues you have with JDBs can be fixed by making the fines more punitive (raise from $1,000 to $10,000 as a recoverable penalty payable directly to the injured debtor). I would certainly never gut the system because there are a few bad players. There is plenty of debt that is exchanged all the time. Business depend on assigning the debt (A/R) to banks/lenders in order to function. (The businesses need inventory and A/R loans because, well, people people are afforded "grace" periods to pay, pay slowly, or do not pay at all.)