December 15, 2019

Debt Collector’s Unlawful Message on Answering Machine May Give Rise to Stay or Discharge Violation Action

Over the past few months, I have received a number of calls from former clients regarding possible discharge stay violation actions.  As you may know, if you successfully complete your Chapter 7 or Chapter 13 case, the judge will issue a discharge order.  One effect of that discharge order is to make the automatic stay that protected you from creditor collection activities into a a permanent injunction against attempts to collect discharged debt.

More and more, it seems, creditors and collection agencies are pursuing discharged debt despite the absolute illegality of such activity.

My Bankruptcy Law Network colleague Kent Anderson offers an informative overview of this “zombie debt” in a recent BLN blog post.

I have not previously included Fair Debt Collection or Fair Credit Reporting work as part of my practice, but I am thinking about doing so.  Amazingly, there are some large, highly respectable companies involved in the zombie debt business.  Business Week published an interesting article about this phenomenon in 2007 called “Prisoners of Debt,” an article that is worth a read.

Apparently the zombie debt collectors are trained to walk a very fine line in terms what they say in collection phone calls.  These bill collectors are given scripts that often imply legal liability without specifically asserting that the debt is legally collectible.  Attorneys who pursue discharge violation actions, Fair Debt Practices action or Fair Credit Reporting actions often do not have a paper trail.  Zombie debt collectors rarely put anything incriminating in writing and they rely on the fact that most people do not have the equipment to record calls.

Texas attorney Brian Allen has an interesting post on his blog in July, 2008 in which he reproduces a recording from a zombie debt collector.  As Brian notes, the bill collector is attempting to get as close to the line of illegal activity as possible – and perhaps this collector crosses the line – what do you think:

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In any case, if you get calls from debts that were discharged or that are extremely old, you may have a claim for damages based on violation of federal law.  I plan to explore these issues in future posts where I can hopefully give readers of my blog more guidance as to what to do.

About Jonathan

Jonathan Ginsberg represents honest, hardworking men and women in the Atlanta area who need personal bankruptcy protection. In practice for over 25 years, Jonathan teaches bankruptcy law and practice at legal continuing education seminars and he is a founding member of the Bankruptcy Law Network. Jonathan lives with his wife and children in Atlanta.


  1. I’ve got a paper trail of a collection effort by a law firm retained by Sherman Financial Company. A little research on Sherman shows an immensely profitable company that specializes in the collection of discharged bankruptcy debt. An example: In 2002, they had the winning bid of 7 million dollars for 7 Billion worth of discharged debt. They collected 5% for revenues of 350 million. By 2008 there are indications via press releases that 350 Million with 85 Million in net income had become a quarterly result and presumably rising as the quarter that leaked was Q2 of 2008.

    The Law firm that sent two unsigned collection letters is large also covering a multi-state area. Presumably Sherman and it’s operating subsidiaries is a large client. I noticed in the second letter that they were adding interest and penalties to the discharged debt from Citibank ( of all places) .

    I have in my possession two collection letters from the law firm and a privacy notice from Sherman financial who purchased the debt from Citicorp. In the letters from the Law firms, the original account and creditor is named.

    I handed this to my original Lawyer who handed it to another and apparently the financial reward was not enough to raise their interest as they are very busy now.

    I’ve seen reports fast settlements of $1000 or so as I’ve researched this which makes me understand why a contingency case would not be a priority. Everyone thinks their case is something special, I believe the same but for what I beleive is solid reasoning. Feel free to blow this out of the water.

    1. I have access to one of the producers of 60 Minutes. This is the kind of story they live for especially with their recent focus on banks. The publicity threat in and of itself in the current political environment should give the collection companies pause based on the following:

      a. The loophole allowing Banks to sell discharged debt or auction in tranches can and should be easily closed with a change in management at the government level. The amount of money the bank receives in relation to their problems is akin to petty cash.
      b. The former creditor in question is partially owned (and operated) by the Govt with 36% of the common stock and paid in capital of 45 billion of taxpayers money.
      c. The threat of having this loophole closed would figuratively cut of the oxygen supply of the companies that have enjoyed massive profits in the past 8 years or so.

    2. Paper trail: I have two collection letters and a privacy notice plus a new entry in my credit report. They are adding interest to the non-existing debt each month.

    3. I have no problem with my name going public in any publicity

    I now ready to pursue this myslef. Initially being discouraged by the limp replys to requests for civil action by two sepearte bankruptcy attornies. I have looked at this two ways.

    1. Damages that have been nominal at best should be pushed into a figure that hurts. What kind of figure is that? I’m not sure. We have a large law firm, a bank that is fighting for it’s life and a collection company with revenues in excess of a billion dollars a year. They make enough that when they paid quarterly dividends to a publicly held company the dividends were enough to swing them from loss to profit. Eventually they bought the 24% share back from the public company for 240 Million in cash.

    2. If Damages are too low-a few thousand dollars- then I am ready to turn the story over to 60 minutes and hand the documentation to the authorities in addition to making a complaint with the bar association for the Law Firm knowingly using it’s status to attempt to break the law for profit.

    I was hoping to get a civil case as the power of subpoena would tell the plaintiff how much work the law firm had done for Sherman, what the actual sales and profits were of both entities related to this work and how many of the principles were aware that the work was illegal. If that can’t happen, I wonder if the new USA of southern Indiana would be interested in pursuing this. They get to find the same information out, get the positive publicity from 60 minutes and ultimately influence the closure of a loophole that has been exploited for billion of dollars in gains.

    I’m looking for advice from a impartial source. It’s doubtful that you can practice in Indiana, but I am willing to pay you for your time in looking at this case in a holistic manner and telling me which avenue I should pursue.

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