Step inside the seedy world of debt collection

Are you being hounded by debt collectors? You’re not alone. Once you go into debt — even if it’s something as benign as paying for something with a credit card, or borrowing to go to college — then you owe someone else money, and sometimes you’re not able to pay back everything you borrowed. And when that happens, the debt starts to get traded: the initial lender will write off the debt, and sell it to a collector. For example, if you borrowed money from a bank, but now the bank has written the loan off, then you no longer owe the bank but a debt collection agency. And the people who work for collection agencies can be very aggressive.

Jake Halpern’s great new book, Bad Paper, an adaptation of which is published in The New York Times Magazine, follows a number of these collectors — many with multiple felony convictions to their name — around Buffalo, New York, the center of debt collections in the US. According to the Urban Institute, roughly 77 million Americans, or 35% of adults with a credit file, have a report of debt in collections. In some places, that number is significantly higher: In Las Vegas, for instance, it’s 50%¹. Of that 35%, most do the wrong thing when approached by debt collection agencies. Their first instinct is to hang up the phone, to run away, to try to ignore the problem, which almost never works. What does work: Taking action like writing a letter to the company in question, instructing its representatives not to contact you. This generally does the trick — until the collection agency sells your debt to yet another collection agency.

As Halpern’s book explains, the unluckiest of debtors end up being taken to court by one of these agencies, in which case they have to show up — or risk a default judgment being taken out against them, and their creditors given the opportunity to seize their bank accounts, their salaries, and just about anything else they own. When a debtor shows up to court, there’s a wrong thing and a right thing to do. The wrong thing is for the debtor to settle the case; the right thing is for the debtor to contest it, and ask the creditors to prove that they have title to the debt in question. Almost nobody does this — but if the debtor does it, he will walk out of that courthouse without owing a penny. The reason? When lenders pass debt onto a collection agency, they don’t formally transfer title to the debt. That would be too expensive, given how little they are selling the debt for. So instead they just pass over a simple spreadsheet, with a debtor’s name and the amount of money he owes. And that spreadsheet will never stand up in court.

In general, it’s a good idea for people to pay their debts. But there’s an exception to that rule, and that’s when those debts have already been defaulted on. At that point, a person’s credit score is completely shot, the people who lent the money have already written it off, and even if the debtor pays the collectors back in full, the original lenders won’t see any of the cash. So if a debt collector armed with nothing more than a spreadsheet and a phone number starts pestering you for money, treat him the way you would any other cold-caller looking for your cash: Tell him not to contact you any more — and then, in the unlikely event that you receive a summons, tell him he has no title to your debt and that you’re not going to pay him a penny.

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¹ The number of Americans with debt in collections is not an easy figure to define, let alone measure: there’s no central database of such things. Bad debts never really go away, they just get older and harder to collect on. Which means that while it’s pretty easy to get added to the list of Americans with debt in collections, it’s very hard to drop off the list. Other statistics, showing 30 million or 35 million Americans with debt in collections, generally look only at debt which has been active in the past 3 months or 12 months. But Americans get pestered every day over debt which is many years old.