Sacramento Bankruptcy and Divorce Attorneys Blog

As a Sacramento Bankruptcy Attorney I take notice of business practices by debt collection companies that may have an impact on my clients. Today, The Washington Post reported a story that highlights the problem of some debt collectors who report inaccurate information to a person’s credit report. This practice has been called “debt tagging” and has been reported by more and more consumers as the economic downturn continues to affect millions of Americans and numerous Sacramento metropolitan area residents alike. Often times “debt tagging” is a result of sloppy research by the debt collector or mistaken identity from people with similar or the same names. Consumers need to take specific measures to protect themselves against inaccuracies on their credit reports these days.

In 2009, the FTC – responsible for enforcing the Fair Debt Collection Practices Act (FDCPA) – received almost 120,000 complaints from consumers about unfair or unethical debt collection practices by in-house or third-party debt collectors. That number exceeded the complaints received in 2008 by approximately 15,000 complaints.

Debt collection companies defend these practices by pointing out the difficulty in tracking a debt back to the original debtor. Often times a creditor will sell their debt onto other companies. Debt collection companies buy the debt for pennies on the dollar with the prospect that they can collect a hefty portion of the debt owed thus making a profit. Unfortunately, the debt collection agencies who buy the debts do not always receive the correct information and this creates the problem especially since the debt may have changed hands many times.

Sacramento Metropolitan Area residents who have considered filing for Chapter 7 or Chapter 13 bankruptcy due to too much debt may be curious to know that U.S. courts have seen an exponential increase in law suits filed by debt collection agencies against individual debtors over recent months. Many people may not be surprised that these types of lawsuits have increased during the current economic situation. However, what any debtor should be aware of is that many of these lawsuits are being filed automatically.

The New York Times published an article today that shows Debt Collection agencies have responded to the growing number of credit defaults by using computerized software that files the legal paperwork electronically and almost without any human involvement. This software generates letters, court documents, and legal pleadings on behalf of the debt collection agency. Debt collectors hope to receive up to 50 cents on the dollar owed by getting a court judgment against the debtor and then garnishing the debtor’s wages or property. The leading debt collection firm in New York has been filing approximately 80,000 lawsuits a year in this manner.

Critics of this practice already note the lack of human oversight allows these cases to be filed improperly and/or without the correct debt amounts. Others suggest that these practices are subject to abuse. Often times the collection agencies entire case is based solely on a debtor’s address, name, and alleged balance owed. Since debtors often fail to show up in court to defend against the action, the collection agency receives a default judgment and there is little a debtor can do to challenge the amounts awarded by the court after judgment has been entered. “It’s the factory approach to practicing law,” said Richard Rubin, a New Mexico lawyer who represents consumers against debt collectors.

The Sacramento bankruptcy attorneys at the Law Offices of Matthew D. Roy routinely keep track of bankruptcy filing statistics across the United States. The Real Time Economics Blog reported on July 2 that bankruptcy filings in 2010 have surpassed the record number bankruptcy cases filed in 2005. 2005 saw a record number of bankruptcy filings due to the bankruptcy reform laws passed by Congress. Nonetheless, economists and bankruptcy experts alike have steadily projected that filing rates will meet or even surpass the record numbers seen in 2005, when many debtors scrambled to beat the deadline before more stringent guidelines came into effect, and it appears that they are correct.

As we are well aware, however, the United States in currently embattled in the worst economic downturn since the Great Depression. Statistics show there were 770,117 bankruptcy filings in the country for the first 6 months of this year. That is a fourteen percent increase over the numbers provided in the first part of 2009. The American Bankruptcy Institute predicts a total of 1.6 Million filings for the entire year.

While June seems to have experienced a lull in bankruptcy filings from May, which was the third consecutive month that saw a decrease in filings, these filings still remained 8 percent higher than June of last year. Columbia Professor of Law Ronald Mann conducted a study that shows that the highest bankruptcy filing rates in the country were in the southwest and southeast. Nevada alone saw 15,000 filings per million households, more than twice the national average. The National average of bankruptcy filings is 6,800 filings per million households. Washington, D.C., South Carolina, and Alaska experienced the lowest filing rates across the nation. States in the southeast typically see the highest amount of filings across the Nation, however, Tennessee and Alabama appear to have experienced reductions in these rates.