October 18, 2006
Do Bill Collectors Intentionally Mislead Consumers About Bankruptcy Options?
My colleague, bankruptcy attorney Kevin Chern, discusses a lesser known consequence of the new bankruptcy law in his Bankruptcy Lawyers Blog. It seems that some of the more aggressive bill collectors are (wrongly) advising consumers that bankruptcy protection is not available, illegal or otherwise not an option. This intentional misrepresntation about bankruptcy may be part of the reason that bankruptcy filings are down during the 12 months following the effective date of the new law.
In his October 16, 2006 post entitled "Bankruptcy Attorney Responds to Media Mischaracterization" Kevin reprints a thoughtful letter to the editor penned by South Carolina consumer bankruptcy lawyer Sheryl Schelin. In her letter, Sheryl correctly notes that the new bankruptcy law does nothing to address the root causes of financial distress among consumers.
Although I think that Sheryl may be overstating the issue a little (she relates bankruptcy filing rates to "the underlying oppression of the working poor in America"), I agree completely that overreaching tactics by bill collectors can drive honest, hardworking families into bankruptcy. I can think of several instances where I attempted to negotiate a non-bankruptcy payment plan for a client who came to me with a one debt problem. Inevitably, the judgment creditor or car lender absolutely refused to consider a payment plan and forced us to use the bankruptcy option.
Perhaps Congress should consider adding teeth to the Fair Debt Collection Procedures Practices Act. Right now, most of the provisions of this Act only apply to bill collectors, and not to the in-house collection efforts of the actual creditors. More importantly, the Act limits damage recovery to $1,000 plus reasonable attorney's fees. As you might imagine, this limited opportunity for damages discourages consumers from filing lawsuits in federal court.
In my practice, I have not personally heard many stories of outright lies regarding the new bankruptcy law by bill collectors. Perhaps I am not speaking to affected consumers because they believe the misstatements. If you have experienced this type of misrepresentation yourself or from your clients, please add a comment to this post.
Filed under Consumer protection, General consumer bankruptcy info by Jonathan
Comments on Do Bill Collectors Intentionally Mislead Consumers About Bankruptcy Options? »
One tiny correction, the FDCPA is the Fair Debt Collection PRACTICES Act
There are numerous accounts on several consumer forums of people being lied to by debt collectors regarding the dischargability of debts or just the availabilty of bankruptcy, under the new bankrutpcy law. They have become even more creative in the fairytales they tell debtors in order to extract money from them.
If you carve out some time to read thru many posts on the subjects of debt collection and bankruptcy, you can visit these forums, you'll find the lies told by collectors: http://www.creditboards.com http://www.creditinfocenter.com http://www.freeadvice.com
Debt collectors are ramping up their FDCPA violations, emboldened by their apparent perception, or maybe it's brainwashing, that consumers can't file for bankruptcy as 'easily' as they once could. I can speak for many consumers, bankruptcy, before and after the new law, is NEVER easy !!
While somewhat off-topic, a Circuit Court (6th, I think), recently (the last month or so) held that a collector who states that failure to pay "may" lead to referral of the debt to an attorney could be misleading and a violation of the FDCPA if the collector did not routinely refer such matters to an attorney. The standard is comparable to the "least sophisticated consumer." I won't argue with the necessity of consumer protections, but I don think we need to be wary of going too far in applying this standard. Collectors, if they choose to follow the law to the letter and be extra-cautious, are nearly limited to asking "please, will you pay this debt (for which we have provided all related paperwork)," and nothing more. What if standards like this are imposed on consumer bankruptcy lawyers with respect to the new BCPCPA provisions that require attorney certification, or the audits? Do the new required disclosure/information forms meet the standard of least sophisiticated debtor? I'd say no. Jonathan and I have had several discussions on reaffirmations and attorney certifications, and there is a very real concern for attorney liability to the debtor OR creditor if the reaffirmation is later determined, perhaps by a non-BR Court, to NOT have been in the debtor's best interest. I don't mean to compare bankruptcy lawyers with collectors, but we do have to keep diligent in how far courts go in interpreting all consumer protection laws (incl. some of the BAPCPA provisions).
Finally, people should be VERY wary of visiting some of the website referenced in the other comments. While there is a lot of good information out there, including blogs and message boards, one is just as likely to find gross misinformation or outright scams. I have browsed one of the boards mentioned in the past, and was amazed at what some people come up with.
Scott makes a good point about being wary of web sites, blogs or message boards where people discuss possible violations of the FDCPA. While there is no doubt that some collection agents use improper or illegal tactics, by no means is every aggressive bill collector acting improperly.
Debtors who contribute to some of the "debt collection horror story" boards might be seeing violations that are not there. As such, if you think that you have been subject to a bill collector who has crossed the line, I would suggest that you do the following: 1. write down everything you can remember about the call 2. save every scrap of paper that you have received from the bill collector 3. go to an electronics store like Radio Shack and buy a cheap phone recorder (most State laws allow you to record yourself, but check to make sure) then try to capture the abusive collector on the phone 4. bring your evidence to a lawyer who handles FDCPA cases