Debt Collector's Scam

03 Feb Debt Collector's Scam

Every time I think I’ve heard of every kind of credit scam, I turn out to be wrong. In preparing a bankruptcy filing, I asked a client about any payments he had recently made to creditors.

It turns out my client had made a large, lump sum payment to a credit card company, and he had taken money out of a retirement account to do it. He had gotten a call from a collection agency, and the person on the telephone told him that if he did not make a payment of several thousand dollars immediately, a judgment would be entered, and that would, in turn, cause his mortgage payment to go up. The collector on the phone purported to “warn” my client that his mortgage interest rate would go up if any judgments were entered against him.

Of course, none of it was true. There was no law suit pending, and the mortgage in question has no such provision. (By the way, lying to someone in order to collect a debt is clearly against the law.)

You may think that you wouldn’t fall for such a thing. And, having read this, that’s probably true. But, it’s not totally implausible. You can’t read a newspaper or watch a newscast lately without hearing about adjustable rate mortgages, and there are also plenty of reports out there about universal defaults.

Any kind of scam relies, to one extent or another, on panic, and this was no exception. The fear of losing his home was enough to override other concerns, at least until he had time to think it over.

But, there are two significant things to note about this particular scam: First, no one can obtain a valid judgment against you without first notifying you and giving you a chance to defend yourself. Second, your mortgage company cannot adjust your interest rate unless your mortgage says they can.

Thus, there were two things that my client could have checked to find out whether the collector was really trying to help, or just saying whatever came to mind to coerce a payment. He could have checked with the clerk of court in the county of his residence to see whether there were actually any suits pending, and he could have read his note and mortgage.

But the real morals of the story are:

1. When someone is trying to collect a debt from you, it is reasonable to assume that they do NOT have your best interests at heart; and

2. When you are worried about whether a certain action can be taken, or what the affect of some action will be, check it out. Read your documentation, check public records, do a little research, or consult with an attorney who is familiar with consumer matters.

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Däna (pronounced "Donna") Wilkinson, has been a bankruptcy lawyer in South Carolina for 20 years. She is certified as a bankruptcy specialist by the South Carolina Supreme Court.
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