5 Questions and Answers about Debt Collection

VIDEO: West Virginia mother showed company was abusive; court awarded her 10 million.
ABCNEWS.com

My story about Diana Mey of Wheeling, West Virginia and her battle to collect a $10-million judgment against some abusive debt collectors continues to alternately delight and dismay readers.

Mey sued Global AG and RFA of Orange County California after receiving one call in which collectors threatened to seize her home and another call full of sexual threats. What really gets people is that it wasn't even her debt! Diana Mey says she is debt-free. A judge awarded her $10,086,000, but she has not seen a dime. RFA's lawyer told ABC News, "My clients say it is not their policy to engage in conduct that violates the law." He characterized the $10 million judgment as "unfair." (To understand the staggering size of the judgment, watch the original Nightline story.)

That's the part that has readers asking questions. Here are some answers.

PHOTO: A federal appeals court in  Virginia today dismissed two cases challenging the Obama administration?s Affordable Care Act.
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1.
Q: Why can't the court force a defendant to pay a judgment owed to a plaintiff?

This is a little-known weakness in the civil court system. Once you win a judgment, often your battle is just beginning. The court doesn't do much --if anything-- to get you your money. If a defendant refuses to pay, the only real mechanism the plaintiff has, in order to collect, is a lien --a form of claim-- against the defendant's property. Usually the plaintiff has to wait for the defendant to sell that property, typically real estate, to get any money. Only when the defendant sells are the proceeds of the sale used to pay off the plaintiff's judgment. Plaintiffs can sometimes also garnish the wages of the defendant, but many defendants don't make enough money to satisfy large judgments in a timely manner.

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2.
Q: Why don't police arrest defendants for failing to pay a judgment?

Law enforcement authorities do not enforce civil actions. When a private individual sues a private company, that is a civil lawsuit, not criminal. The plaintiff then has to use civil means to try to collect on the judgment. They can't ask police to throw the defendant in jail. While that may sound frustrating, there's a flip side of this structure that is beneficial to individual citizens. We don't have debtors' prisons in this country. So if you are the one who owes a debt, you won't be jailed for failing to pay it.

3.
Q: Can't people seize assets and property from a company's owners to satisfy the judgment?

In Mey's case, RFA is actually a registered fictitious name for a limited liability company called Global, AG. When you see the words "XX company 'doing business as' YY name," that's what that refers to. Mey won her lawsuit against the companies, not their owners. When she first filed, she didn't even know who owned the companies. Limited Liability companies are set up for the express purpose of protecting an owner's personal assets from lawsuits against the company. Mey has now amended her lawsuit to include the individual RFA and Global owners and managers whose names she has unearthed. Those individuals tell ABC News they will fight her claim in court.

PHOTO: A telephone is shown close-up in this file photo.
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4.
Q: Why do debt collectors contact people about debts that aren't even their own in the first place?

This kind of mistaken debtor identity often happens to people who have common names. To make matters worse, these days some debt collectors try to collect on debts that are many years old. They are usually debt buyers who purchase debts once the original creditors have given up on them. Sometimes a debt is sold multiple times. As time goes on, the record gets more and more clouded and debt collectors may pursue the wrong person for a debt. Sometimes they choose somebody with the same name living in the same state as the original debtor and go after them, without being certain they have the right person. There are plenty of reports of people paying debts that are not their own just to get debt collectors to stop hounding them. If a debt collector contacts you about a debt you do not believe is yours, demand proof of the debt and proof that you are the correct debtor before paying. It's your right under the Fair Debt Collection Practices Act.

5.
Q: Why is debt buying allowed?

The debt buying industry was actually inadvertently created by our own government. Whaddya know? After the savings and loan crisis of the 1980s, the government was trying to mitigate all of the bad debts the failed S&Ls had left behind. It began auctioning them off to buyers who would purchase entire portfolios of them. These buyers paid a small fraction of the size of the debts and then attempted to collect the full debt. That was their profit margin. Actually, they acquired the debts for so little that even if they negotiated a deal with a debtor to pay only a portion of their balance, they still made money. Debt buying was so profitable that instead of being a temporary accident of history it became a permanent industry.

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