Really Fictitious Capital
Business Week had an interesting article about companies that buy and sell debt that has been discharged in bankruptcy — meaning that there is no debt. But the companies that buy the debt use unscrupulous methods to pressure people to repay the discharged debt that they no longer owe.
Berner, Robert and Brian Grow. 2007. “Prisoners of Debt.” Business Week (12 November): pp. 44-51.
46: “In the 1990s, businesses adept at tracking and trading consumer debt expanded their reach to dabble in accounts enmeshed in bankruptcy. That dabbling has grown into a robust market. Some of the trade in so-called bankruptcy paper involves debts that remain collectible. What’s troubling is that the market now also includes billions in discharged debts, which ought to have no dollar value. Owners of canceled liabilities can revive their value in two main ways: by directly pressuring consumers to cough up cash or by gaming the credit system.”
46: “Consumer lawyers and even some longtime players in the bankruptcy-paper market say they’re worried that the trading of canceled debt encourages unsavory efforts to collect on discharged debt. “What you are highlighting is a significant abuse in the industry,” acknowledges William Weinstein, a former chief executive of B-Line and a pioneer in the debt-buying business. Speaking generally and not about his former company, he confirms that some lenders and debt buyers simply hound consumers to pay debts that have been canceled, while others refrain from informing consumer credit bureaus when debts are eliminated. “The failure to accurately update credit reporting has allowed unscrupulous activity to prosper,” says Weinstein.”
48: “William R. Sawyer, a U.S. bankruptcy judge in Montgomery, Ala., says that in the past two years he has seen a surge in cases alleging that lenders and debt buyers have purposefully neglected to report the discharge of debt to credit bureaus. The ploy, he says, is an “indirect means” of pushing consumers to pay debts they no longer really owe. “Creditors and collectors are skating as close as they can to the law and really trying to diminish its value”.”
50: “One large bank is planning a bulk sale of Chapter 7 debt this fall with a face value of $3 billion.”
50: “Increased competition recently in the bankruptcy-paper market has driven up the price of discharged debt — from 1/20th of a cent on the dollar to 3/20ths, or higher — and that has helped spur more aggressive collection tactics.”