Creditors Sometimes Assign Discharged Debt to Collection Agencies

Recently I worked on a petition against a Colorado collection agency that called our client six times afrer receiving the account from the orignal creditor who was listed in their chapter 13 bankruptcy.  This is a blatant violation of the automatic stay and/or discharge injjunction. In this instance the case was later converted to chapter 7 so it was a discharge violation. Then, to make matters worse, the collection agency assigns the case to an attorney for collection, yet another violation.

 

How does something like this happen? Is it intentional or simply negligence? The excuse we almost always get from collection agencies is that they had no knowledge of the bankruptcy because the creditor who sold or assigned the account didn't tell them about it. Unfortunately for the collection agencies, ignorance of the bankruptcy is no excuse. When they try to collect a debt that is no longer collectable they violate the Texas Unfair Debt Collection Act and if they report it to a credit bureau they can be guilty of liable as well.. It is irrelevant whether they knew about the bankruptcy or not.

 

What is fairly clear is that when the original creditor gets the conversion and discharge notices it will not pass on those notices to the current holder of the debt. I think this is a matter of logistics. The original creditors simply have too many accounts that have been assigned for collection or sold and have no mechanism in place to forward notices from the bankruptcy court.

 

So, the consumer loses and has to suffer through the mental anguish that always results from taking nasty phone calls and/or receiving collection letters from attorneys long after the debt is discharged.  Lucky there is a remedy to the consumer.

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Mortgage Lenders and Servicers Out of Control?

Mortgage Contracts Allow Creditors to Monitor Credit

Today I reviewed a husband and wife’s credit reports and was shocked to see what their mortgage servicer was doing to them. Over five years ago disaster struck this middle-aged couple, an illness and loss of employment forced them to file bankruptcy. They couldn’t afford their house payments so they surrendered their home in the bankruptcy, moved out, the debt was discharged, so they waited patiently for the lender to foreclose. The property was soon posted for foreclosure but for some unknown reason the foreclosure didn’t go through and hasn’t to this day.

     

Once the debt was discharged the lender no longer had a right to monitor or review the consumer's credit reports since there was no longer a debtor-creditor relationship. About a year later the mortgage servicer contacted the couple several times trying to get them to apply for a modification, do a short sale or give them a deed in lieu of foreclosure. The couple cooperated at first but when a short sale was offered to them it was rejected. The lender knew the couple was not qualified for a modification since they had vacated the property and the debt had been discharged. After the rejection the couple notified the lender in writing that they were fed up and would no longer participate in a short sale or deed in lieu of foreclosure and told them not to contact them in any manner in the future. The letter worked for a couple years and then suddenly the letters, statements, and phone calls began again.

  

When the couple came to us to see what could be done to stop the harassment we pulled their credit reports and were aghast to find out that in 2012 and 2013 the mortgage servicer had pulled their credit reports over 39 times without their consent and without a permissible purpose! It’s hard to believe that some of our leading financial institutions would be a party to such blatant invasions of privacy, but we see it far too often, not only with this servicer but with many others as well. Since the debt had been discharged and was uncollectible, the only conclusions we can draw are that the mortgage servicer doesn’t have the ability to control its automatic collection programs, it has no respect for their customer’s right to privacy, or both. Fortunately, there is a remedy for this flagrant violation of the law, the Fair Credit Reporting Act (FCRA).

 

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