Creditors often purchase debt for pennies on the dollar...

Initially, let me explain what a debt buyer is. I’ll get to bankruptcy in a minute.

A debt buyer is a company or individual who purchases note paper. When you purchase a home, or a car, you sign a promissory note. This promissory note is what entitles the creditor to collect money from you for payment on the loan. Often times, the original creditor who you signed the promissory note with will sell the note to a new creditor for a discounted value.

For instance, you sign a promissory note to ABC Finance with a face value of $15,000.00. You will pay this amount over the next 5 years with interest. ABC Finance doesn’t want to wait 5 years to received their payments, so they sell the promissory note to DEF Finance Company for a discounted value of $12,000.00. DEF Finance now has the right to collect the full $15,000.00 face value of the note from you.

When the note falls behind for non payment, some companies consider that promissory note to be worthless. In the past 10 years, an entire industry has cropped up with companies who will buy this ‘worthless’ paper for pennies on the dollar.

In the end, debt buying companies might pick up your $15,000.00 note for $150.00 with the right to collect on the full $15,000.00 face value of the note.

When you file for bankruptcy, these debt buyers purchase the notes from the creditor, obtain the right to collect, and file their claims in your bankruptcy case.

Typically, these companies have no documentation to prove that the original loan is valid. In a recent 6th Circuit decision, B-Line, LLC v. Wingerter the Court Ruled that it was OK for B-Line to file claims without documentation until the claim was challenged for validity. It became clear from B-Line’s arguments that they file claims without documentation on a regular basis. In fact, it is part of their profitable business model.

In my opinion, for bankruptcy attorneys, this invites an objection to claim in each and every B-Line case. Where you don’t see any kind of documentation, an objection should be brought demanding that B-Line prove up it’s claim foundation. The reason this is a valid objection is that B-Line asserts reliance on a ‘warranty’ from the original creditor as justification not to file documentation. Thus their business practice does not violate any of the Court Rules.

This may be well and true, but as a practitioner, you now know that B-Line will not be filing claims with any documentation. All claims must have a basis for their validity. In this case, B-Line is officially stating that they do not know if the claim has any basis for validity, they simply have the right to collect. It places the burden on debtor’s counsel, but it is one we should endeavour to use for the benefit of our clients anyway.

Good luck out there.